Partner Identification Strategy for

International Joint Venturing in India

Kirti Jain* iS: Sudhir K Jain**

Introduction
An international joint venture is one of the modes of
entry into a new market. This strategy for market
entry mode has become very frequent in the 1980s
across the globe and, since the mid 1990s, in India.
An international joint venture (IJV) has at least two
partners of different country origin. They have different
reasons to use this market entry mode as compared
to many other possible alternatives. Different multinational corporations (MNCs) form IJVs in different
countries with different objectives that may be
detennined by the total size of the country, exportimport policies, strength of the currency, economic
policies of the country, technological advancement,
and the extent to which MNCs are welcome in the
country. Governments modify business policies and
environment in certain required ways if the reasons
or objectives that the multi-national corporations look
for joint venturing can be understood. In the immediate
past and the future to come, India is opening its
economy and inviting MNCs to participate in business

Tlii.s paper clearly demaixates the

boundaries qfiiilenjationaljoiiil venture (IJV) activity and identifies
avenues far profilable deployment of
corporate re.snurces. Its objective is
to analyse partner identification
strategies in international joint venturing between Indian auto firms and
their non-Indian partners.
The results provide complementary
partner ohjeetives as critical decision factors sought by j'irms in the
formation ofUVs. The paper reveals
Jour distinct factors. The foreign
partner looks for local resource.^,
business strategy, financial resource
and country business environment
related issues from the Indian partner. The Indian partner looks for
long-term competency-conipetitivene.ss generation, international market entry strateg\: MNC lechnomanageriat advantage and financial
resource related advantages. This
leads to a conceptual model, which
is used to integrate the results.
The paper .suggests that IJVs are a
new type of organizational form
where inter-partner objective alignment and the complementary nature
of objectives are pertinent. It also
suggests that IJVs are a good means
of entry in medium and long-term
commitmems. Continuous re-venturing of IJVs with dynamic objective
re-alignments is always needed.

Senior Business Analyst. American Express, Gurgaon

Associate Professor, Dept. of Managemenl Sludies, Indian Institute of Technology, Delhi

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Partner Identification Strategy for InternationalJoint Venturing in India

on Indian soil. The study of joint ventures is of immense importance, especially in
the Indian context, because of its new economic policies and liberalization process.
Joint venture activities in India operate on a different set of issues as compared to
other markets. The decision about selection of a joint venture partner is related to
the combination of strengths and weaknesses of foreign and host partners. This is
the most important strategic decision of an organization because it influences the
formation, performance and success of the future entity. A very strong and dominant
partner may endanger the survival of the joint venture, whereas, a weak partner is
also not advantageous. Thus, the importance of selection of an appropriate joint
venture partner is obvious. If a company seeking to form a joint venture does not
take a comprehensive and foresighted view, it may result in bitter relations, and
unanticipated premature termination of the joint venture. Apart from a consideration
of the strengths and weaknesses, other factors are also very decisive in partner
identification, such as, the national economic/business environment, type of industry,
stage of technology in the company vis-a-vis the latest technology, and work culture.
This paper assesses the partner identification strategy for IJV fomiation in India.
This may be of interest to academics and practitioners in India in deciding policies
towards attracting multinationals for IJV formation. The paper discusses exhaustively
various strategies/objectives sought by Indian partners and foreign partners for
international joint venturing. It investigates the importance of these objectives
sought by foreign and Indian partners for forming the IJV in the Indian automotive
sector.
The paper begins with a theoretical framework for the study followed by descriptive
statistics of partner strategies, and subsequently presents results individually for the
foreign partner and the Indian partner using factor analysis. The paper evaluates the
perspective of the partners and the extent of the importance of this market entry
mode. There are 14 items that define this construct. They have been coded on a Likert
scale for the level of importance. The paper concludes with a discussion of the results
and its implications.

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Partner Identification Strategy for International Joint Venturing in India

99

Theoretical Framework
Various authors have differently leamt and presented facts about IJVs. The literature
has been intensively studied and an extract of that is presented here as the theoretical
framework. Research done in the field of IJVs across the world highlights many
emerging and key issues. These key issues and the available theory derived from
previous research help us understand the gaps to be filled for more clarity about
IJ V as a market entry mode. In the Indian scenario, the partner identification strategy
for IJV formation needs more intense study. This would provide an understanding
of the incorporation stage of the IJV and its smooth management later A theoretical
framework of partner attributes is developed in the Indian context as follows.
The various attributes of partners for successful international joint venture may
change for the foreign and local partners across countries for the international joint
venturing mode. As can be seen from Exhibit I, the attributes can be classified
broadly irito four main fields - finance-related, technology-related, partner-related
or task-related - and all the partners' attributes can be aligned with one of these main
functions. Partner attributes for both Indian and foreign companies are classified into
operation-related, co-operation related, finance-related and technology-related. These
attributes are a few of the most important partner strengths or partner needs for joint
venturing.
Indian Partner Attributes: Operation-related attributes are the task-based
classifications of strengths or needs of the partner. Indian partner task related
attributes include their strength for marketing, distribution channels, market position,
and corporate image because of their presence in the Indian market in the past. These
tasks are the core-competency of the Indian partner. Co-operation-related attributes
are the partner-related attributes which would aid the other partner and new alliance
in understanding partner dynamics. Organizational leadership and the ability of the
Indian partner to learn and execute are its strengths. Finance-related attributes
include understanding of the working capital and institutional support that the Indian
partner can gamer. But the financial weakness of most Indian companies becomes
their main need for n fnicign partner. Teehnology-related attributes for the Indian

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Partner Identification Strategy for InternationalJoint Venturing in India

100

partner include the diverse and quality human skill sets available and the abundance
of semi-skilled labor that can support a labor-intensive industry like the automotive.
This is because many of the Indian industries are still working with labor-intensive
methods so as to balance the available semi-skilled workforce pool with the
technology intensive automotive industry, which would otherwise increase the
unemployment rate and disturb the whole economy.
Foreign Partner Attributes: Operations or task-based attributes include the
management style and personnel expertise available with a foreign partner. The
foreign partner can share these attributes in the IJV. The co-operation-related or own
strengths for foreign partner would include their international leadership in the
industry and their excellent training capabilities. These can be shared with the IJV
for suitable learning and positioning on the international arena. Finance-related
attributes would include their financial investment potential wherein they can invest
huge amounts and sustain the venture until the break-even point. Also, they can put
the investments required for technology purchase or technology upgrades. Technologyrelated attributes would include the availability of state-of-the-art technology with
them, and their research and development credentials. This is required taking into
consideration long-term goals and perspectives.
Thus, both the partners have their own attributes, which can be their strengths or
needs/requirements to support their weaknesses. If the strength of one partner is the
need of another partner, then there evolves a fit case for collaborative organization.
This becomes the complementarity of partner attributes. Four different types of fit
or alignment between the parent organizations explain this for joint venturing strategic fit, technological fit, organizational fit and financial fit. The theoretical
framework developed about various attributes of foreign and Indian partners for the
fonnation and success of international joint ventures in India is presented in
Exhibit 1.
Strategic fit evolves if the operation or task related attributes of partners are suitable
for them to come together and complement each other. Thus, for IJVs in India, the
foreign partner can bring in management style and expertise in personnel, whereas.

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Partner Identification Strategy for Internalional Joint Venturing in India

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Decision. Vol. 31. No. I. Januaiy - June, 2004

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101

Partner Identification Strategy for International Joint Venturing in India

the Indian partner can use his marketing network, distribution channels and corporate
market image. IJVs in India are a good case for technological fit. This is because
the foreign partner puts forward its state-of-the-art technology and R&D strength;
and the Indian partner helps in giving the best human skills and semi-skilled cheap
labor. Thus, technology fit is a good case of partner alignment because both the
partners have a core competency and an abundance of these resources. Co-operation
or partner-related attributes match and complement each other to give organization
fit. Thus, if the co-operation attributes of the partners are strong, the resulting iJV
has trust and harmony between partners. This creates an IJV with satisfied partners,
which is beneficial in long run for the IJV organization. Financial fit occurs when
the fmance-related attributes of the two partners aid them to joint venture together.
This happens when there is complementarity of the financial parameters of one
partner with that of the other partner. The Indian partner can get institutional support
for working capital, but otherwise, it is not financially as strong as compared to the
foreign partner who has immense investment potential.
Thus, these four fit or alignment characteristics for the partners- Indian and foreign
- attract the two partners together to form an IJV. The need for these attributes in
IJV is on a case-to-case basis and on the stage of UV life cycle and the relationship
between the partners. Both the partners would take decisions from the differing
perspectives of their own parent organizations. Partners clearly understand and know
the need and requirements from the other partner before finalizing the joint venture.
Each partner has its strategic needs and strengths, which gives it sufficient bargaining
power to strike a profitable deal with the other partners. The needs, strengths and
bargaining power have to be balanced to create the initial IJV configuration. The
deal has to be a win-win situation for all the partners to come together and proceed
with the joint venture. These partner needs, strengths and bargaining power help the
partners to make a suitable arrangement, configuration and agreement for the joint
venture. External environments also supplement this, creating the need for alliance
and partnership organizations. These external environments could be favorable host
country policies, minimum government restrictions or desirable technology
requirements. Suitable external environments and partner objectives lead to a new
UV

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Research Methodology
Sample Selection and Data
The scope of this paper includes joint ventures in the Indian automotive sector with
at least one foreign partner and one Indian partner. Stratified random sampling was
used for collecting data. IJVs from automobile manufacturers and automotive
component manufacturer organizations were selected for the study. There are about
36 major automobile manufacturing ventures in India that have foreign participation.
Of these, 30 are joint ventures and the remaining are wholly owned subsidiaries.
In addition, there arc more than 300 auto component international joint ventures.
The present study is based on the primary data collected from these IJVs. The
automotive industry sector is generally considered very dynamic In terms of
environmental conditions. Liberalization of the Indian economy and the entry of
multinationals, forced organizations to review their strategies and processes
continuously.
In this study, the entire 30 automobile manufacturing IJVs and, based on purposive
and convenience sampling, 70 automobile components manufacturing IJVs were
selected. The paper is based on the empirical analysis of the data collected through
a structured questionnaire. The variables for these parameters were chosen from the
literature and selected for the Indian context to build a questionnaire, which was
administered to top executives of the automotive industry. Multiple questionnaires
were sent to all these joint ventures depending on their size. The number of
questionnaires mailed for response ranged from 1 to 10 for each international joint
venture. A total of 850 questionnaires were sent across to 100 IJVs. Responses came
from 50 IJVs out of the 100 IJVs contacted. The sample of the respondents consists
of 161 top-level management executives from corporate affairs, strategic planning,
finance and various departments of the 50 different organizations. It came from 104
respondents from automobile manufacturing and 57 respondents from automobile
component manufacturing IJVs. Thus, the organization response rate is 50% and the
individual response rate is 18.94%. In terms of a sector-wise break up, 70.00% of
the automobile manufacturing organizations (i.e., 21 out of 30) and 41.43% of the
automotive component manufacturing organizations responded (i.e., 29 out of 70).

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Partner Identification Strategy for internationalJoint Venturing in India

Each organization chosen in this study is a medium to large-scale international joint
venture. Potential respondents were selected from all ranges of age and experience
in this industry and the present organization. The headquarters of the organization
were included to get the response from the leaders who arc involved in joint
venturing decisions. Data was gathered over a period of six months. The method
used for data collection was the questionnaire-based survey, which is complemented
by intetriews in the research setting, and by secondary data sources and analysis.
The sample includes both automobile manufacturers and automotive component
manufacturers. The geographic locations of the respondents vary from important
metros to automobile hubs in India. The cities covered in the sample are Delhi,
Mumbai, Pune, Gurgaon, Faridabad, Noida, Chennai, Indore (Pithampur), Bangalore
and Kolkata. This clearly shows that the sample is representative.
The present study uses secondary data as well. Personal interviews and discussions
with experts and practitioners were carried out. The secondary data sources related
to IJVs in the automotive sector include the Society of Indian Automobile
Manufacturers (SIAM), Automotive Research Association of India (ARAI),
Automobile Component Manufactures Association (ACMA), Confederation of
Indian Industry (CII), CMIE data base, SIA newsletter. Top 500 list of companies
published in Business Today-500, Economic Times, Financial Express, and related
internet sites. It is found that most of the organizations are skeptical about sharing
information. Organizations are reluctant to reveal many details, especially in this
area of research of strategic importance and value. A few of the joint venture
organizations are undergoing a restructuring process, which also hampered data
collection. Most of the joint ventures responded favorably. Respondents were asked
to indicate the appropriate choice by considering their UV organization processes.
Respondents' perception on each statement about the degree of importance or
contribution of the item to the total is evaluated on a 5-point Likert scale.
The primary data collected for the study through the questionnaire is analyzed in
two steps. Descriptive statistics of variables are prepared and factor analysis is used
to make components or factors from the responses to the items administered in the
questionnaire. It is analyzed using SPSS. Factor analysis followed by reliability
analysis, is used to factorize the variables in homogenous factors and check the
internal consistency of the factors.
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Partner Identification Strategy for International Joint Venturing in India

105

Findings and Analysis: Foreign Partner Strategies

Geringer (1988) and Hamel (1991) maintain that the need for partners' complementary
skills and resources is a primary motivation for the formation of joint venture
arrangements. Because each partner will have different cooperative objectives and
abilities to appropriate JV benefits, researchers should focus on the individual and
competitive objectives of each partner (Hamel, 1991). Previous authors have studied
local knowledge or experience as foreign partner objectives and foreign partners
make IJVs for local knowledge (Hennart et al., 1998). For the purpose of this study,
a few important objectives are studied and analyzed below. Factor analysis is used
for factor or component extraction from various variables studied so as to give
meaningful components. Factor analysis uses the correlation matrix to determine
which sets of variables cluster together. Here it is done to determine the importance
of objectives from the perspective of the foreign and Indian partner separately and
then establishing interactions between the partner objectives.
Table 1 shows the factor analysis results. The eigenvalues are the proportion of the
total variance in all the variables, to that accounted by this factor. A factor's
eigenvalue may be computed as the sum of its squared factor loadings for all the
variables. A factor's eigenvalue divided by the number of variables (which equals
the sum of variances because the variance of a standardized variable equals I) is
the percent of variance in all the variables that it explains. The ratio of eigenvalues
is the ratio of the explanatory importance of the factors with respect to the variables.
If a factor has a low eigenvalue, then it is contributing little to the explanation of
variances in the variables and may be ignored as redundant. Table 1 shows 4 factors
extracted, through the SPSS package, for analysis under the Extraction options,
which are factors with eigenvalues of 1.0 or higher according to the Kaiser rule.
The total variance explained by the components in the factor analysis for the
objectives of the foreign partner arc tabulated in Table I. The extraction method used
is principal component analysis (PCA).

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Partner Identification Strategy for International Joint Venturing in India

Table I: Total Variance Explained - Foreign Partner Objectives

Component

Extraction Sums of Squared

Loadings
Total

Cumulative
% of
Variance
%

Rotation Sums of Squared Loadings

Total

% of
Variance

Cumulative
%

3.697

26.405

26.405

2.318

16.556

16.556

2.248

16.058

42.463

2.299

16.424

32.980

1.620

11.573

54.036

2.178

15.554

48.534

1.200

8.569

62.605

1.970

14.071

62.605

Extraction Method: Principal Component Analysis.

The "rotation sums of squared loadings" gives the eigenvalues after rotation and
improves the interpretability of the factors. Varimax rotation is used, which
minimizes the number of variables that have high loadings on each given factor.
The total percent of variance explained is the same even after rotation, but rotation
changes the eigenvalues for each of the extracted factors. That is, after rotation, each
extracted factor counts for a different percentage of the variance explained, even
though the total variance explained is the same. These results show that four
components explain 62.61% of the variance. Thus, four components are derived on
the basis of this table. These components are listed using orthogonal rotation and
looking at the rotated component matrix, where the Varimax method for latent root
detection of factors is used. Table 2 presents the factor loadings of the components.
The factor loadings, also called component loadings in PCA, are the correlation
coefficients between the variables (rows) and factors (columns). The factor loadings
are the basis for imputing a label to different factors.

Looking at the rotated matrix, the first factor has high loadings from three variables,
and has a low loading for others. Because these items load on the same factor, this
is a justification for combining these items in a component that might be called the
factor name that is being provided below. Similarly, other components are also
provided with factor names. These variables have been loaded on a factor loading
of greater than 0.5. The foreign partner objectives for entering into an international
joint venture has mainly four components as listed below:
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Partner Identification Strategy for InternationalJoint Venturing in India

1.

Access to labor resources. Access to materials & components, Entry mode

into Indian market

2.

Transfer of technology and patents. Achieve economies of scale, Avoiding

or delaying completion, Internationalization of business. Access international
managerial expertise

3.

Reduce fmancial risk. Access financial resources. Cost sharing for R&D

4.

Develop cultural familiarity, Gain political protection. Overcome government

restrictions and trade barriers, Avoiding or delaying competition

Table 2: Rotated Component Matrix - Foreign Partner Objectives

Variable

1. Reduce financial risk

Component

-0 077

0.822

-0.117

2.

Achieve economies of scale/scope

U.3I7

O.ii9

0.302

-0.022

3.

Transfer of technology & patents

-0.024

o.zu

0.129

-0.196

4.

Avoiding or delaying competition

-0.176

0.600

0.205

0.523

5.

OvercoEne government restrictions of

trade barriers

-0.066

0.219

-0.085

0.642

6.

Access fmancial resources

0.133

0.082

0.791

0.183

7.

Access labor resources

0.819

0.031

0.110

0.112

8.

Access material & components

0.777

0.087

0.190

-0.057

9.

Access international managerial expertise

0.438

0.594

0.212

-0.110

10. Internationalization of business

0.230

0.586

0.152

0.303

11. Cost sharing for R&D

0.138

0.239

0.700

-0.165

12, Indian market entry mode

0.743

0.207

-0.186

0.210

13. Develop cultural familiarity

0.199

-0.105

-0.212

0.732

14. Gain political protection

0.165

-0.287

0.186

0.686

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Nonnalization.
Rotation converged in 8 iterations.

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Partner Identification Strategy for International Joint Venturing in India

These factors or components generated using factor analysis can be consolidated

and named depending on the variables presented as below. The discussion of each
factor follows. A reliability analysis is also done for each factor using the covariance
matrix method. The various reliability coefficients and item-total coefficients for
these variables (items) to the factors (total) are tabulated using the SPSS package
and listed in Tables 3, 4, 5 and 6.

Local Resource Related Factor

Table 3 depicts the mean value of the responses of this factor, item to total
correlation, and alpha if the item is deleted. The findings indicate that some items
are perceived as stronger than others. Entry mode into the Indian market has the
highest mean value of 4.06. This clearly implies that this is the major local resource
objective. This is also proved by many previous researchers. Beamish (1990) argued
that MNC parents (partners) of high performing IJVs in developing countries
characteristically looked for local partners' complementary resources. Monkiewicz
(1986) and Yeung (1984) have also stated that equity joint venture is still the
prevalent form of international cooperative venture in Asia, and the preferred mode
of direct foreign investment in developing countries. IJVs are often the preferred
entry mode used by multinationals from developing and developed countries
(Beamish & Delios, 1997; UNCTAD. 1995). Several studies, such as, Kim and
Hwang (1992) and Rajan and Pangarkar (2000) have focused on entry modes and
have confirmed IJV as an important mode. The reliability coefficients for the 3 items
in this factor are presented in Table 3.
Table 3: Local Resource Related Factor - Item Total Statistics
Item

S. No.

Mean
Item-Total
Alpha if
(Scale: 1 to 5) Correlation Item Deleted

Entry mode into Indian market

4.06

0.5320

0.7005

Access labor resources

3.33

0.6300

0.5836

Access materials & components

2.80

0.5534

0.6756

Alpha = 0.7430

Standardized item alpha = 0.7427

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109

The mean value o f aecess materials & components' is lower than the overall average
of 3.40 suggesting that this is perceived to be low as compared to the other
objectives. Item to total correlation of 'access local resources' is the strongest
suggesting that labor resource is the most correlated local resource looked for by
the foreign partner Beamish and Inkpen (1995) and Inkpen and Beamish (1997)
indicated that the acquisition of local knowledge over time by foreign partners, in
fact, increased the probability of JV instability. In their study, Hennart et. al., (1998)
found that experience in a host country had no impact on termination. This shows
that previous authors have studied local knowledge or experience also and that
foreign partners make IJVs for acquiring local knowledge. This is also proved by
the results of this paper.
Accessing requisite labor resources, materials and components in a foreign country
are the most important variables that any foreign partner would search for. Also,
IJV being chosen as a means to enter the Indian market clearly shows that these
are the local resource-related factors. Thus, this factor is named as local resource
related factor. The Cronbach alpha coefficient value for 'local resource factor' is
0.7427 surpassing the level of 0.70 recommended by Nunnally (1978) for the
acceptance level of reliability suggesting that the factor is reliable. Also, on the
deletion of any of the items, the alpha value is not improving, proving that these
3 items define the factor.

Business Strategy Related Factor

Five variables on the business related factor have been listed. Table 4 depicts the
ratings of the level of importance given by the respondents. It shows that
'internationalization of business' has the highest mean value of 3.53 followed by
'transfer of technology and patents'. Thus, the aim of the foreign partner is to expand
its business area and transfer its technology at premium cost to other companies in
the world. The reliability coefficients for the 5 items in this factor are presented in
Table 4.

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Table 4: Business Strategy Related Factor - Item Total Statistics

S. No.

Item

Mean
(Scale: 1 to 5)

Internationalization of business

3.53

0.4748

0.6825

Transfer of technology and patents

3.12

0.4611

0.6906

Avoiding or delaying competition

2.96

0.4232

0.7021

Achieve economies of scale

2.92

0.5620

0.6475

Access international managerial

expertise

2.25

0.5143

0.667!

Alpha = 0.7249

Item-Total
Alpha if
Correlation Item Deleted

Standardized item alpha = 0.7282

'Avoiding or delaying competition' has got a mean value equal to the overall average
of 2.96 for the factor, indicating that this item is also taken into consideration. A
very low mean value of 'Access international managerial expertise' clears the fact
that foreign companies are strong in this function and so, they are not bothered about
this item. Strategic considerations, such as, getting returns on the technology and
patents that have been developed while creating and improving processes, achieving
economics of scale so as to reduce the cost of production, and avoiding or delaying
competion from prospective competitors by making them partners in business,
become critical from the perspective of organizations which are venturing into new
markets. Also, business expansion plans and globalization efforts while simultaneously
tapping the international managerial expertise are a result of the organization's
business considerations. Hence, this component is named as the business strategy

related factor.
Financial Resource Related Factor
Replies from the respondents indicating the level of importance on a 1 to 5 point
scale shows that financial resources are having a low mean value ranging from 2.39
to 2.78 with an overall average of 2.53. This clearly shows that the foreign partner
is not making an international joint venture with the aim of accessing finances. But
the presence of this factor also shows their concern for financial commitment. They
need an Indian partner to participate financially so as to have his interest in the
business and reduce any ftiture risk.
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While venturing into a new market, consideration about reducing financial risk
becomes of prime importance. Also, access to alternate financial resources while
setting up a new business increases the resource generation capability for business
and confidence about the business. This would give an edge by making possible
cost sharing for huge investment-ied research and development plans in the future.
This leads to the third factor which is the financial resource-related factor. The
reliability coefficients for the 3 items in this factor are as presented in Table 5.
Table 5: Financial Resource Related Factor - Item Total Statistics
Item

S. No.

Mean
(Scale: 1 to 5)

Item-Total
Alpha it
Correlation Item Deleted

Reduce llnancial risk

2.78

0.6263

0.6030

Cost sharing for R&D

2.43

0,5537

0.6882

Access nnancial resources

2.39

0,5522

0,6896

Alplm = 0.7477

Standardized item alpha = 0.7478

Country Business Environment Related Factor

Coming to a foreign ground and starting an operation by a company may pose
problems of its own kind. Every country has its own trade regulations and
government restrictions, customs and culture of work environment, and political
styles of working. These are captured in this factor. The impact of national cultural
difTercnces on a firm's preference for international cooperative ventures has been
well established by researchers such as Shane (1994), Li (1995), and Kogut and
Singh (1988). Macmilian et al. (1986) recommend joint venturing as a way to avoid
some of the obstacles to successful business venturing. These obstacles include
difficulties in reading the initial market from the perspective of business or culture.
Based on the existing literature, this factor has been considered in the study due
to its importance, although the alpha value of the factor is only 0.59,, which is below
the acceptance level of 0.70 for this study, but far above the cut-off of 0.50 for most
of the other studies. The mean values of response for the items are tabulated. The
overall average for the factor is 2.76. Government restrictions and trade barriers have
a higher mean value of 3.06. This is an important criterion from the fact that
developing countries have always been in the regulated business environment mode
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Partner Identification Strategy'for International Joint Venturing in India

112

and have their own restrictions for FDI and foreign equity. The reliability coefficients
for the 4 items in this factor are presented in Table 6.
Table 6: Country Business Environment Related Factor- Item Total Statistics
Mean
Item-Total
Alpha if
(Scale: 1 to S) Correlation Item Deleted

S. No.

Item

Overcome government
restrictions and trade barriers

3.06

0.3989

0.4990

Avoiding or delaying competition

2.96

0.3227

0.5561

Develop cultural familiarity

2.60

0.3948

0.5026

Gain political protection

2.42

0.3741

0.5185

Alpha = 0.5912

Standardized item alpha = 0,5905

The culture of India, related customs and political understanding of the country
becomes very critical in the case of any foreign company investing in India.
Although the necessity of having an Indian partner in the venture is not mandatory
in Indian business laws for most of the sectors now, a home country partner is
strongly advised to overcome trade barriers and government restrictions in India as
also in many other countries. This is named as the country business environment
related factor.
The variable "Avoiding or delaying competition" is present in factor 2 and also in
factor 4. This variable is a strategic consideration and is also related to the
competitors, which is an extraneous factor to any organization and internal to the
industry dynamics of the country. Factor 2 comprises of business-related strategic
variables and factor 4 comprises of institutional factors that are country specific.
Thus, its presence in both factors is valid & explainable. The Cronbach alpha value
for the reliability analysis is greater than 0.59 for all the factors. The item-total
statistics proves that these items completely specify a particular factor, as the value
of alpha could not be improved further by the addition or deletion of any item.

Findings and Analysis: Indian Partner Strategies

The resource complementarity of partners is a prime reason for the formation of a
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Partner Identification Strategy for International Joint Venturing in India

collaborative joint venture (Hame!, 1991; Geringer, 1991). Johnson et. al., (1996)
found that partners' complementarity contributed to the building of trust in the joint
venture. Two factors (nature of technology and export orientation) are particularly
pertinent in a developing country context, as direct foreign investment and joint
ventures are routes to technology transfer and export development (Luo, 1995;
Kogut. 1988; Harrigan, 1988). Hill and Beamish (1997) approached contributions
from a functional perspective (e.g., marketing/sales, distribution/logistics, and
research and development) and argued that distinctness in resources is reflective of
distinctive complementary competencies.
For the purpose of this research study, factor analysis has been used which gives
meaningful components for the importance of objectives from the perspective of the
Indian partner. The total variance explained by the components in the factor analysis
for theimportance of objectives for the Indian partner is tabulated in Table 7. The
extraction method used is principal component analysis (PCA).
Table 7: Total Variance Explained - Indian Partner Objectives
Component

Extraction Sums of Squared

Loadings
Total

% of
Cumulative
Variance
%

Rotation Sums of Squared Loadings

Total

% of
Variance

Cumulative
%

3.620

27.845

27.845

2.194

16.877

16.877

1.437

11.056

38.901

1.844

14.185

31.062

1.325

10.189

49.091

1.755

13.503

44.565

1.230

9.460

58.551

1.678

12.906

57.470

1.168

8.983

67.534

1.308

10.064

67.534

Rxtraction Method: Principal Component Analysis.

Table 8 presents the factor loadings of the components for Indian partner objectives.
The factor loadings are the correlation coefficients between the variables (rows) and
factors (columns). The factor loadings are the basis for imputing a label to different
factors. Looking at the rotated matrix, the first factor has high loadings on four
variables, and has a low loading on others. Because these items load on the same
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Pdifncr Identification Strategy for Internationa! Jninl Venturing in India

factor, this is a justification for combining these items in a component that might
be called the variable name that is being provided below. Similarly, other components
are also provided with the appropriate factor names.
Table 8: Rotated Component Matrix - Indian Partner Objectives
Component

Variable
1

1.

Reduce fuianciiil risk

0.150

0.047

0.153

0.850

-0,061

2.

Achieve economies of scate/scopc

0,013

0.277

0,053

0.793

-0,0.37

3,

Transfer of technology & paleiits

0,216

0.0H7

0.657

0.0S5

0.163

4.

Avoiding or delaying compelilion

0.058

0.339

0.569

0.112

-0.345

5.

Overeomc government restrictions of

-0.097

0.842

0.133

0,099

0,136

trade barriers

6.

Access llnancial resources

0.642

0.043

0,230

0.444

-0,056

1.

Access labor resources

O.I,S4

0.667

-O,iO!

0,2(i3

-0,053

S.

Access material and eomponcnls

0.765

0.272

0.018

-0.026

-0.190

9,

Access international managerial expertise

0.223

0,236

0,2 It

-0,019

0.768

10. Internationalization of business

0,04S

-0.082

0.836

0,097

-0,001

11. Cost sharing for R & D

0.749

-0,095

0,11S

0,129

0,284

12. Develop cultural familiarity

0.443

0.166

0,296

0,058

-0,656

14. Gain political proteetion

0.522

0.560

0,219

-0.029

0.012

tixlractioii Mcihod: Principal Component Analysis, Rotation Method: Varimax with Kaiser Nonnalization,
Rotation converged in 8 iterations.

These variables have been loaded on a factor loading of greater than 0.5. Indian
partner objectives for entering into an IJV have been factored mainly into four
components as below:
1.

Access financial resources, Access materials & cotnponcnts, Cost sharing

tor R&D, Develop cultural familiarity, Gaiti political protection

2.

Overcome governinent restrictions or trade barriers, Access labor resources.

Gain political protection

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Partner fdcnlification Strategy for International Joint Venturing In India

115

3.

Transfer of technology & patents. Avoiding or delaying competition.

Access international managerial expertise. Internationalization of business

4.

Reduce financial risk. Achieve eeonomies of scale/scope, Access financial

resources.

These factors or components generated, using factor analysis, can be consolidated

and named depending on the variables presented as below. The discussion of each
factorfollows. A reliability analysis is also done for each factor using the covari:mce
matrix method. The various reliability coefficitnts and item-total coelTicients for
these variables (items) to the factors (totJ.i) are listed below in Tables 9, 10. !i
and 12.

Long Term Multinational Competency-Competitiveness Generation

Faetor
Indian organizations would like to acquire the core competencies of foreign partners
in order to stay in the market from a long-term perspeetive. The reliability
coefficients for the 5 items in this factor are presented in Table 9.
Table 9: Long Term Multinational Competency-Competitiveness Generation
Factor-Item Total Statistics
Item

S. No.

Mean
(Scale: 1 to 5)

Item-Total
Alpha if
Correlation Item Deleted

Cost sharing for R&D

3.57

0.434!

0.7153

Access llnancial resources

3.45

0.5502

0.6715

Access materials & components

3.29

0.5624

0.6640

Develop cultural familiarity

2.16

0.4389

0.7119

(jain political protection

1.82

0.5172

0.6853

Alpha = 0.7359

Siandardizcd item alpha = 0.73X3

Thus, all the items, that is, access financial resources, materials & components of
foreign partner, share the cost for R&D, develop cultural taiiiiliarity with world at
large, and use foreign partner to gain political protection or a favor in political circles
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Partner Identification Strategy for International Joint Venturing in India

116

can be seen from a long-term perspective. Thus, this factor is named the long-term
competency-competitiveness generation factor. Also, the alpha value of 0.7383
gives the needful range of value to prove the internal consistency and reliability of
the factor. Thus, the Indian partner is generating the long-term competency level
using the strengths of the foreign partners and is trying to acquire the competencies
of the foreign partner.

International Market Entry Strategy Factor

Table 10 gives the mean values for items in this factor. These are all very low ranging
from a ranking of 'not important' to somewhat important. Indian partners may look
forward to foreign partners for overcoming government restrictions or trade ban^iers,
access labor resources at competitive prices in and out of India, and to gain political
protection for fliture business. All of these can be named under one factor called
the International market entry strategy factor arising out of the need to be in
business. The reliability coefficients for the 3 items in this factor are presented in
Table 10.
Table 10: International Market Entry Related Factor - Item Total Statistics
Alpha if
Mean
Item-Total
(Scale: 1 to 5) Correlation Item Deleted

S. No.

Item

Overcome government
restrictions or trade barriers

2.30

0.5138

0.4034

Access labor resources

2.22

0.3757

0.6073

Gain political protection

1.82

0.4202

0.5469

Alpha = 0.6251

Standardized item alpha - 0.6244

MNC Techno-Managerial Advantage Factor

Technology is the most powerful tool in today's business environs. This is one of
the most important reasons for collaborations in many sectors. Collaborations are
either for financial reasons or for technical reasons. Indian partners are looking for
technology from the foreign partner. The reliability coefficients for the 4 items in
this factor are presented in Table 11.

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Partner Identification Strategy for lnternationalJoint Venturing in India

Table 11: MNC Techno-Managerial Advantage Factor - Item Total Statistics

S. No.

Item

Item-Total
Mean
Alpha if
(Scale: 1 to 5) Correlation Item Deleted

Transfer of technology & patents

4.27

0.4397

0.3507

Access international managerial

expertise

3.68

0.1540

0.5508

Internationalization of business

3.49

0.3931

0.3372

Avoiding or delaying competition

3.45

0.2672

0.4635

Alpha = 0.5068

Standardized item alpha =^ 0.5212

The mean value of 4.27 for transfer of technology is the highest among all the items.
Another important consideration for the Indian partner while looking for an IJV
partner is to 'access international managerial expertise'. Also global strategic moves
from the Indian partner would be likely to internationalize business and simultaneously,
to gain competitive advantage.
From the Indian partner perspective, the third factor comprising of transfer of
technology & patents, avoiding or delaying competition, access to international
managerial expertise and internationalization of business can be called the MNC
techno-managerial advantage factor because these all arise from the technical
need of managerial capability required by the Indian partner. Although the alpha
value would improve if the variable "Access international managerial expertise" is
deleted, the variable looks very logical to be in this factor where techno-managerial
needs are taken into consideration. Also, the alpha value is greater than 0.5, which
is in the acceptable range.
Financial Resource Related Factor
An overall average of 3.4 for the factor with the mean value of items from 3.37
to 3.45 shows a very high focus on these financial resources by the Indian partner.
The importance of financial resource generation arises from the fact that most Indian
organizations go for financial collaborations. They may do so from the perspective
of reducing risk and investment. The reliability coefficients for the 3 items in this
factor are presented in Table 12.
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Partner Identification Strategy for International Joint Venturing in India

118

Table 12: Financial Resource Related Factor - Item Total Statistics

S. No.

Item

Mean
kern-Total
Alpha if
(Scale: 1 to 5) Correlation Item Deleted

Access fmancial resources

3.45

0.4071

0.6802

Achieve economies of scale/scope

3.37

0.4624

0.6059

Reduce financial risk

3.37

0.5947

0.4215

Alpha = 0.6720

Standardized item alpha - 0.6727

Starting a new big venture requires large capital. The Indian partner would like to
have an IJV and a foreign partner so as to reduce financial risk, achieve economies
of seale/scope and access the financial resources of the foreign partner This factor
is called the financial resource-related faetor. Although the alpha value would
improve if the variable "Access financial resources" is deleted, the improvement in
alpha value is not significant enough to remove the variable, and the variable looks
very logical to be in this factor where financial resources are taken into consideration.
Also, the Cronbach alpha value is greater than 0.5.
Various authors have suggested similar results. Several studies have attempted to
explain partners' objective or motivation to participate in a JV (Hatfield and Pearce,
1994; Hannart, 1988). These studies have uncovered an overlap between observed
and reported goals, including risk reduction, technology exchanges and knowledge
acquisition, co-optation or blocking of competition, facilitation of international
expansion, vertical quasi-integration advantages, economies of scale, overcoming
government barriers to trade and investment, financial goals of increased revenues,
profits, and available capital. Further, empirieal research has shown that this list of
published goals can be logically and statistically grouped into categories centering
on knowledge transfer, market power, financial performance, and structure and
efficiency (Hatfield and Pearce, 1994). These results for partner objectives are very
close to the grouping that the analysis of this research is showing.
The viiriable "Develop cultural familiarity" is clubbed in factor 1, which is longtenn orientation for resources. Thus the Indian partner goes for an IJV and takes
familiarization with foreign culture as a long-temi orientation. Even after the

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Partner Identification Strategy for lnternationalJoint Venturing in India

addition of this variable in the factor, the Cronbach alpha value of reliability for
the factor is well above 0.5. Also the variable "Access international managerial
expertise" is clubbed in factor 3, because this is a part of the teehno-managerial need
of the Indian partner. Thus, the Indian partner goes for an IJV and accesses the
managerial expertise of the foreign partner whieh is a multinational resource. Even
after the addition of this variable, the Cronbach alpha value of reliability for the
factor is well above 0.5.
The Cronbach alpha value for the reliability analysis is greater than 0.52 for all the
factors. The item-total statistics prove that these items completely specify a
particular faetor, as the value of alpha could not be improved further by the addition
or the deletion of any item.

Model for IJV Partner Identification

The results of this paper may be useful as an action guide for the management of
the strategic management process. The overall results indicate that for the process
to be effective, the partners must have elarity of objectives and strategies for
international joint venturing. The authors, therefore, recommend that practitioners
ensure that all the functional areas of the IJV partners are involved in the strategic
planning process. Another practical contribution is targeted at a specific industry in
this study. There are specific practical implications for both Indian and foreign
partners in IJVs. These are consolidated as a model for international joint venture
partner identification. Exhibit 2 derived from the analysis gives a model for partner
identification strategies in automotive IJVs in India and shows the interactions of
objectives for the two partners. It shows weak and strong interactions between
various groups of objectives for the two partners. Strong interactions show that there
is high goal congruence and consonance between the partners. It suggests the fact
that by using resources from both the partners, an organization can be made better
by creating it bigger. The two partners work together to achieve the results because
goals are aligned. This is called Alignment fit in partner strategies. Weak interactions
show that there is expectation from the partner for these particular strategies. Weak
interactions show that there is expectation from the partner for this particular
resource. These are complementary functions and the competitive advantage of the
partner is taken to achieve these resources. This is called Complement fit of^ pavlner
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119

Partner Identification Strategy for International Joint Venturing in India

120

strategies. Thus, these partner strategies in an IJV show a fit between the need and
expeetation by a partner and the fulfillment of that objective by the other partner(s).
As shown in the model in Exhibit 2, the most interacting Indian partner objectives
are 'MNC teehno-managerial advantage" and 'long-term competency-competitiveness
generation factor". This is shown in the model from the fact that these objectives
are interacting strongly with two foreign partner objectives and weakly with one
foreign partner objective. This is also clear from the business environment existing
in the eountry. Indian partners are looking to foreign partners for technology,
managerial need and long-term competency generation in the sense of knowledge.
Similarly, the most interacting foreign partner objective is 'local resource related'.
This is shown in the model to be interacting strongly with three Indian partner
objectives. It is well known in the business, thai the foreign partner is looking for
an Indian partner to gain local know-how and local support. Various researchers had
suggested this view in the past. The need for partners' complementary skills and
resources is a primary motivation for the formation of joint venture arrangements
(Geringer 1988; Hamel 1991; Beamish 1990). Geringer (1991) found that the need
for partners' complemenlai^ resources (such as market knowledge, market access,
local identity, and marketing channel) was the most important partner selection
criterion. Thus, the model developed and presented in Exhibit 2 captures and
explains the interactions between the strategies of Indian and foreign partners in
international joint venturing.

Conclusions
This paper covers the partner identification strategy for international joint venturing
in India in the automotive sector from the list of most probable objectives for each
partner. International joint ventures are made for several objectives. The objectives
of the Indian partner and the foreign partner may differ. These are assessed from
the individual perspective of the foreign partner and the Indian partner by eapturing
the importance of each objeetive for joint venturing which the partner is seeking.
These items for the identifieation of Indian and foreign partners are factored into
board components which can completely depict the reasons for joint venturing.
Faetor analysis gives the faetors from the list of objectives. An item is included in
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Partner Identlficalion Strategy for InlefnationalJoiiU Venturing in India

121

T3
O

s
u
0)

O
V

0.

nt
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D)

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a
Q.
C

'feet

0)

rong
KEY:

eak i

Decision, Vol. 31. No. I. January - June, 2004

m
c
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Partner Identification Strategy for International Joint Venturing in India

the factor when the loading of the item is above 0.5. The Cronbach coefTlcient alpha
is used to test the internal consistency and reliability of the scales for the factors.
Factor analysis, followed by reliability analysis, confirms the existence of partner
objective factors (for both the partners) as discussed in the paper. These partner
objectives are summarized below.
The objectives of the foreign partner in an international automotive joint venture
in India are specified as:
1. Local resources-related factor
2. Business strategy-related factor
3. Financial resource-related factor
4. Country business environment-related factor.
The objectives of the Indian partner in an international automotive joint venture in
India are specified as follows:
1.

Long-term competency-competitiveness generation factor

2.
3.

International market entry strategy factor

MNC techno-managerial advantage factor

4.

Financial resource-related factor

The interaction effects of these objectives are studied through the model created.
Despite the simplicity of the model, it provides substantial infonnation on the partner
selection criterion of international joint ventures. In essence, the partner identification
criterion for foreign partner and Indian partner in the automotive sector in India are
inter-dependent and complementary in nature. This is depicted, in Exhibit 2, by the
consolidated model for the objectives of both the partners. Here, interaction effects
are shown as strong and weak depending on the expectations and need of the partner.
Organizations and partners are looking for complementary skills in their prospective
IJV partner.

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Partner Identification Strategy for International Joint Venturing in India

123

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Decision. Vol. 31, No. I. January - June, 2004