Joint Venture Formation of Very Large Multinational Firms
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Venture
Formation
of
Very
Large
Multinational
Firms YigangPan*
YORK UNIVERSITY AND UNIVERSITY OF HONG KONG
Xiaolian Li** UNIVERSITY OF HONG KONG
Largefirms differfrom smallerfirms in many aspects. In this research note, we investigate the relationship between the size of firm and the characteristics of equity joint ventures (EJVs).Empirically, we found that very large firms are more likely to have a higher equity stake in their EJVs, seek alignment with otherforeign firms, engage in global industries, and invest in large-scale Fortune magazine reported that the value of announced mergers in 1997 reached US$938 billion in the United States alone, which surpassed the 1996 recordby 40% (p.150, Fortune, April 27, 1998). Boeing acquired McDonnell Douglas, Citicorp merged with Traveler Group, Bell Atlantic acquired NYNEX, First Bank acquired US Bancorp, and so on. There are many advantages of being a larger firm, and these advantages affect a firm's business strategies (Doz and Prahalad, 1991; Dunning, 1992). In this research note, we examine the relationship
EJVs than smaller firms. They are also less affected by the risk conditions of the host country. Empirical testing is based on a sample of 1,298 foreign EJVs in the People's Republic of China between 1981 and 1998. Interesting differences also exist among firms that are based in the U.S., Japan, and Europe.
between firmsize and the characteristics of its international equity joint ventures (EJV).Specifically, we compare EJVsof very large multinational firms and those of smaller MNCs in China. EJVshave been a key entry mode into foreign markets (Beamish, 1985; Child and Faulkner, 1998). We now know fairly well about firm's motives for engaging in EJVs(Hennart,1991; Harrigan, 1988), the structural characteristics of these ventures (Kogut, 1988; Tse, Pan, and Au, 1997), and the relationship between certain structural characteristics
*Yigang Pan (Ph.D., Columbia University) is Scotiabank Professor of International Business, Schulich School of Business, York University, Toronto, Canada M3J 1P3, and the School of Business, University of Hong Kong (1998-2000).
* *Xiaolian Li is a graduate research student at the School of Business, University of Hong Kong. Research support from York University, University of Hong Kong, and University of Oregon is gratefuilly acknowledged. JOURNAL OF INTERNATIONALBUSINESS STUDIES, 31, 1 (FIRST QUARTER 2000):
179-189
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JOINT VENTURE FORMATION
and performance (Yan and Gray, 1994). In light of the increasing dominance of large MNCs, interesting but unanswered research questions have emerged: Do large MNCs set up EJVs differently from those of smaller firms in an emerging market? If so, what are the differences and why? This research note examines how very large MNCs differ from smaller firms in structuring their EJVsin China. Based on the current literature on MNCs an
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