Introduction

International joint ventures (IJVs) are commonly used by firms to operate in foreign economies and there is some evidence to suggest that, as a mode of entry, they have overtaken wholly owned subsidiaries as the preponderant form.

Many factors explain the importance of IJVs as a form of market entry. For example, IJVs may facilitate easier, less risky and faster entry into foreign markets. Often firms establish IJVs with the aim of accessing partners' complementary resources, thus gaining competitive advantages and improved performance. After the 1997 Asian crisis (and to an extent before), the South Korean government liberalized foreign investment policies and has followed what has been termed in the literature as an foreign direct investment (FDI)-led globalization strategy (Kim and Lee, 2007). Foreign firms, particularly IJVs, are recognized as effective means of international transfer of knowledge and technology.

According to the literature, one of the most widely cited motives for JV creation (especially by the host-country parent) is the acquisition of new managerial knowledge or technological capabilities from partner firms. Cooperation between partners in an IJV can result in an effective utilization of partners' knowledge and resources (Das and Teng, 2000). From both host firms' and the economy's perspective, IJVs represent a valuable mechanism to access and acquire new technologies and tacit knowledge from foreign firms. Tacit knowledge has sticky characteristics which are difficult to identify and share with other firms (Szulanski, 1996), but nevertheless the successful transfer of this type of knowledge can be a vital resource to enhance IJV performance.

In cross-border JVs, it is common for local parents to contribute their local market information and established government relations, while foreign firms provide tacit know-how, including managerial expertise. The way both partners contribute to the IJV can be uneven between developed country multinational enterprises (MNEs) and emerging country partners, creating asymmetric relationships. Of course, IJVs are not the only source of learning for Korean partners, but they do create a direct interface between Korean and foreign businesses and their employees, and represent a potentially effective way to acquire, absorb and adapt foreign managerial expertise.

Researchers have pointed to the central role played by foreign firms in IJV success, as the MNE's intention to share knowledge and techniques with its local partner influences both the level of knowledge acquisition (Lin, 2005; Anh et al., 2006) and the IJV's performance (Lyles and Salk, 1996; Tsang et al., 2004). In this paper, we specifically investigate the role of the foreign firm, through its interaction with the local partner, on the extent to which the IJV acquires knowledge and reaches a higher level of performance. For example, Tsang et al. (2004) found that, in Vietnam, foreign parent commitment and local firm receptivity enhance knowledge acquisition, whereas parental conflict reduces it. In keeping with this and similar findings in the literature, we test for parental interaction by considering cultural distance and trust between partners.

Knowledge processes are subject to influences from outside the organization, such as national culture, industry structure or education systems, with varying contexts across countries (Meyer, 2007: 35). To date, knowledge acquisition in IJV has received little attention in the Korean context, despite the sharp increase in FDI in the country since the late 1990s and the growing role of MNEs in the local economy. The key research question in this paper is to test the relationship between knowledge acquisition from foreign firms in the IJV and its performance in the specific case of South Korea. This question draws from studies that have linked knowledge transfer in IJVs to enhanced performance (Griffith et al., 2001). IJV performance has often been analysed (Geringer and Hebert, 1991; Glaister and Buckley, 1998; Demirbag and Mirza, 2000; Boateng and Glaister, 2002), and in some instances performance linked to knowledge transfer, but the relationship between managerial knowledge acquisition and performance lacks clarification.

Of course, the acquisition of knowledge need not always translate into increased performance as, for instance, when the knowledge transferred by the foreign parent does not readily fit the local environment (Lane et al., 2001). Thus, close collaboration between partners is essential, not only for knowledge transfer, but also for its successful application in the local context. For this reason, the aim of this paper is not solely to investigate managerial knowledge acquisition from the foreign firm, but also to consider the willingness of the foreign firm to support the IJV in its acquisition of this knowledge, and the specific relationships between parents. Another contribution of this paper is to study IJV performance in the context of partner relationships (Demirbag and Mirza, 2000), and organizational characteristics (Lyles and Salk, 1996), but adding foreign-firm support as an additional explanatory factor.

In the remainder of this paper, we first investigate the concepts of knowledge acquisition and performance as they pertain to IJVs, as well as the relationship between IJV parents. Second, we discuss the influence of foreign firm support and parental interactions on knowledge acquisition and performance. Third, we use a large sample of Korean IJVs to test a series of hypotheses using a series of linear regression models. We end with a discussion of the results and conclusions.

Model and Hypotheses

Knowledge acquisition and performance in IJVs

Knowledge transfer and sharing in IJVs

An IJV is often regarded as the best mechanism to transfer knowledge between firms (Das and Teng, 2000). The knowledge transfer involves the movement of tacit know-how and skills from one firm to another, as well as possible benefits arising from a close long-term relationship and the exchange of information (Giroud, 2000). Many JVs are primarily established to bolster the exchange of knowledge between parents, because of a strategic judgement that this would strengthen their competencies and thereby their competitive positions in global markets (Demirbag and Mirza, 2000). Of course, there will be differences in the perspective of (MNEs) — foreign firms — and local host-country firms.

Although we acknowledge that MNEs can also gain from the creation of IJVs, we choose to focus on MNEs' contribution to local partners in emerging economies. From the host-country perspective, out of various mechanisms, close and cooperative relationship with MNEs through IJVs allows a relatively fast dispersal of the advanced knowledge possessed by foreign firms to local enterprises (including the IJV itself). In other words, local partners in the IJV often gain opportunities to access internationally diffused and intangible assets, such as the latest technology or management skills (Hitt et al., 2000). In addition, the JV's acquisition from foreign firms of sophisticated skills and information unavailable in the market is also crucial to MNEs, because in many situations, 'knowledge acquisition' is a key to JV success.

Knowledge acquisition in IJVs

Knowledge acquisition is not straightforward; studies show that it constitutes a difficult and subtle process, often coupled with significant dissatisfaction between partners (Martin and Salomon, 2003). De Bruijn and Jia (1993) report that knowledge acquisition is fairly complex because it is not only a matter of the knowledge itself, but rather transfer is also influenced by differences in cultures and social systems. In addition to this, knowledge acquirers (IJVs in this paper) from developing countries usually have less experience in learning new information (Hitt et al., 2000). Thus, knowledge transferors (ie foreign parents) from developed countries often need to support developing country acquirers by offering active managerial involvement (Lyles and Salk, 1996), human resource transfer (Inkpen and Dinur, 1998), training (Lane et al., 2001) and in-depth transparency (Hamel, 1991).

In the case of South Korea, foreign investment remained limited until the 1997 crisis. Korean chaebols internationalized extensively, and were exposed to foreign management methods. In Korea itself, however, it is primarily by engaging in IJVs that firms gain access to foreign management tools and techniques.

Knowledge acquisition and performance in IJVs

Companies often pursue a variety of goals when engaging in IJVs. Knowledge-sharing and acquisition is one of the salient goals, together with the improvement in strategic competitiveness of parent firms (Si and Bruton, 2005) and market expansion. Ultimately, however, for an IJV to succeed, the concept of performance becomes essential. Performance has therefore been widely studied in the IJV literature (Tatoglu and Glaister, 1998; Yan and Gray, 2001).

Many factors contribute to IJV performance, ranging from structural and experiential factors such as resource complementarities, JV experience, technology and export-orientation (Sim and Ali, 1998), to relational variables such as commitment, trust, conflict, cooperation and satisfaction (Robson et al., 2002) and finally culture (Pothukuchi et al., 2002).

In their study of 135 manufacturing IJVs in Hungary, Steensma and Lyles (2000) found that there was a positive relationship between a JV's knowledge acquisition and its performance. They suggested that the capabilities derived offer a permanent competitive advantage and allow IJVs to enhance performance. Through knowledge acquisition, the IJV learns to effectively create and augment competitive advantages and thereby enhance profitability (Lyles and Salk, 1996; Steensma and Lyles, 2000).

Existing studies on South Korea have established a link between management control and IJV performance (see Choi and Beamish, 2004), or have considered the knowledge transfer process individually (Pak and Park, 2004), but to date studies have not shown a link between knowledge acquisition and performance among South Korean IJVs. Given the asymmetric relationships among partners in emerging and developing economies, we argue that the intent of foreign parents to contribute to the Korean IJV does impact upon its performance, notably through knowledge-sharing and acquisition. Thus, we posit that:

Hypothesis 1:

In South Korea, knowledge acquisition from foreign parents is positively related to IJV performance.

Role of foreign parents in IJVs, knowledge acquisition and performance

The focus of this paper lies on knowledge acquisition by the IJV from the foreign parent(s) (as opposed to knowledge acquired by the Korean parent). We consider actions by the foreign parent that might lead to increased knowledge acquisition first, before investigating the issue of trust and cultural distance between foreign and local Korean parents. The previous section highlighted the expected positive relationship between knowledge acquisition and performance. Following on from this hypothesis, we examine each factor considered to influence either or both knowledge acquisition and performance.

Support from foreign parents

Despite the emphasis in the literature on how developed country partners should take control measures against unintended information loss to local partners, many studies demonstrate how foreign parents in emerging economies take interest in local partner acquisition of modern management knowledge (Lin, 2005). Partners benefit differently from the knowledge acquisition process. In the case of managerial knowledge, foreign parents benefit from developing the capabilities of IJVs when this leads to increased IJV learning, survival and potentially enhanced performance. Local partners benefit, particularly in emerging and developing economies (Hitt et al., 2000), by accessing techniques they may not have been exposed to prior to the venture, and through learning (this depends on the local parent's receptivity). In the long run, local firms also develop the capacity to further assimilate new information. The relationship between the foreign parent and the IJV can be compared to a teacher and student relationship (Steensma and Lyles, 2000). The intent and willingness of the foreign parent to support as a teacher and share its foreign technique with the IJV highly determines the student's extent of knowledge acquisition and the probability of organizational success. Foreign parent support also strengthens the performance of the JV.

There are a number of ways through which foreign parents can provide support. Lyles and Salk (1996) found that active involvement by the foreign parent is positively associated with the degree to which the IJVs acquire tacit knowledge, as well as explicit or codified knowledge. Foreign firms also intervene in IJVs via foreign expatriate experts. Lindsay et al. (2004) contend that individuals (such as expatriates) are the main drivers of knowledge flows and key actors in the process of knowledge utilization. This results from the fact that employee interfaces facilitate acquisition of tacit managerial knowledge. In parallel, training for IJV employees is conducive to knowledge acquisition, because it facilitates the transfer of organizationally embedded know-how possessed by the foreign parent (Lyles and Salk, 1996). Finally, knowledge accumulation is highly dependent upon the parent's willingness to share techniques (Hamel, 1991). Hence,

Hypothesis 2a:

Active managerial involvement of foreign parents will be positively associated with joint ventures' knowledge acquisition and performance.

Hypothesis 2b:

Participation of foreign expatriate experts will be positively associated with joint ventures' knowledge acquisition and performance.

Hypothesis 2c:

A high extent of training provided by foreign parents will be positively associated with joint ventures' knowledge acquisition and performance.

Hypothesis 2d:

Foreign parents' intent to share techniques will be positively associated with joint ventures' knowledge acquisition and performance.

In the next two sections, we develop the concepts of trust and culture; these enhance mutual support between partners, and as such constitute factors influencing knowledge acquisition and performance.

Trust between parents

Trust between partners in the IJV influences the level of knowledge exchange between partners and IJV performance (Currall and Inkpen, 2002; Boersma et al., 2003). Trust is often associated with control within IJV relationships, essentially because if trust diminishes, monitoring and control costs increase.

Within IJVs, trust has been conceptualized as three elements, namely promissory-based (implementation of a verbal or written agreement), competence-based (depending on partners' resources) and goodwill-based trust (Yan and Gray, 2001; Boersma et al., 2003; Mohr and Puck, 2005). Overall, we define trust as the expectation that a party can be relied on to carry out to contract, will bring resources that are necessary to do so and will behave honourably to achieve mutual objectives and interests (Boersma et al., 2003).

Trust has been shown to have a direct positive influence on the knowledge acquisition of IJVs (Lane et al., 2001). That is, when parties continuously cultivate mutual trust, an IJV's acquisition of valuable knowledge and information from parents will be maximized. This is likely to be feasible because, in the presence of trust, both parents participating in the IJV are expected to effectively share and exchange knowledge, the number of safeguards that need to be put in place to protect their crown jewels from opportunism are removed or reduced, and costs arising from conflict and tension will be diminished (Lane et al., 2001). Trust should facilitate the venture partners' ability to work out uncertainties in contracts, remedy mistakes, cope with ambiguity, resolve troubles better and work to attain integrative performance allowing all parties satisfactory achievements (Yan and Gray, 2001). Given the profound influence of Confucianism on the values, attitudes (Chen, 2004: 190) and behavioural patterns of Koreans, trust is expected to be prevalent between partners at corporate level and between individuals. Therefore, we propose that:

Hypothesis 3:

Trust between foreign and local parents will be positively associated with a joint venture's knowledge acquisition and performance.

Cultural distance between parents

Cultural similarity between partners in the IJV facilitates harmonious relationships, essential in Korean culture. Harmony is difficult when cultural differences occur, because they commonly generate feelings of discomfort and distrust between partners.

The role of culture in IJVs is prominent when studying knowledge exchange in every cultural setting. For instance, Mowery et al. (1996), studying US bilateral alliances, indicate that culturally similar parents have high propensity to transfer knowledge in alliances. This was also confirmed by Parkhe (1991, 1993), who found a negative association between cultural distance and the success of international alliances in learning new knowledge. These empirical findings suggest that when JV partners originate from countries with high cultural distance, problems that impede upon knowledge sharing and acquisition can arise.

Cultural distance also impacts upon organizational performance. Studies have found that cultural distance diminishes and weakens learning opportunities, which dramatically moderates performance and effectiveness (Parkhe, 1991; Makino and Beamish, 1998). The root of the negative relationship may be related to increased management complexity due to differing practices, which in turn lead to conflicting behaviours, misunderstandings and interaction problems (Pothukuchi et al., 2002). IJVs established by culturally distant parents expend more time and energy in creating managerial practices and routines that facilitate interaction, with high levels of operational costs and uncertainty (Pothukuchi et al., 2002). For these reasons, cultural discrepancy creates an unsound basis for an IJV to function efficiently (Yeheskel et al., 2001), and it is negatively related to IJV success (Zhao and Zhu, 1998).

We therefore expect that in Korea, when IJVs are created with partners that come from culturally dissimilar countries, knowledge acquisition and performance will be lower.

Hypothesis 4:

Cultural distance between foreign and local parents will be negatively associated with a joint venture's knowledge acquisition and performance.

Research model

Figure 1 summarizes the context of the research and the factors under consideration. The link between knowledge acquisition and performance is highlighted, with a positive relationship expected. The role of the foreign parent and parental interactions are underlined as key conducts towards enhanced knowledge acquisition. The greater the ability of the IJV to recognize its foreign parent's knowledge and integrate it, the more knowledge it acquires and learns. This ability depends on the relationship between parents (ie trust and cultural distance) and the continuous support provided by the foreign parent, and that knowledge then affects the capabilities necessary for performance improvement.

Figure 1.

The role of the foreign partner: foreign support, partner's interaction, knowledge acquisition and performance.

Full figure and legend (25K)

In the next section, we will discuss the methodology adopted to test for these relationships.

Methodology

Research method

The data were collected using a questionnaire survey of a sample of IJVs established between multinational enterprises and local firms in South Korea. The research population was obtained from Foreign Direct Investment, published by the government's Ministry of Commerce, Industry and Energy (MOCIE, 2002). The information in this volume provided an initial sample frame of 2,300 IJVs operating across all industries. Three criteria were used to narrow down to a smaller manageable sample:

1. only IJVs in which each partner holds at least 20 per cent of the equity were considered;
2. the researchers chose to concentrate on foreign parents originating from Europe, the US or Japan; and
3. given the prominence of manufacturing and services in the Korean economy, IJVs in these two sectors were covered.

We justify our sampling choices as follows. Firstly, although some researchers view 10 per cent of foreign equity participation as constituting a JV (eg Tatoglu and Glaister, 1998; Dhanaraj and Beamish, 2004), such a small share of equity ownership does not reflect the characteristics of inter-partner relations (Demirbag and Mirza, 2000), and may create bias towards knowledge-sharing by the dominant partner. For this reason, this paper does not consider an entity with a foreign shareholding of less than 20 per cent or more than 80 per cent. Secondly, Pak and Park (2004) indicate that the majority of MNEs that have established IJVs with Korean local partners come from three origins — Japan, US and Europe. This is confirmed by government figures — according to Foreign Direct Investment 2002, 96 per cent of FDI in Korea is conducted by these three major areas of investors. Finally, both the manufacturing and services sectors are predominant in the Korean economy, yet previous studies on Korean IJVs (Choi and Beamish, 2004; Pak and Park, 2004) have solely focused on the manufacturing sector. Including the services sector is feasible when analysing managerial knowledge acquisition and adds to the body of knowledge on the analysis of IJVs in Korea.

In order to consolidate the list of IJVs established from Foreign Direct Investment, online research on each individual company was conducted to confirm operation and ownership. A final population of 688 IJVs was targeted. Data collection was carried out between December 2005 and February 2006, through the means of a mail survey. Questionnaires were posted to CEOs. A total of 153 questionnaires were returned, a response rate of 22.24 per cent. A total of 128 responses were found useable and included in the analysis below, which represents a response rate of 18.60 per cent. A key reason for the apparent low response rate is that it is not common for Korean companies to share information with outsiders by responding to surveys. We conducted an analysis of the final sample, and found no significant difference between the responding and the non-responding IJVs in two key parameters (including detailed industry classification and ownership configuration). We concluded from this analysis that any non-response bias present is minimal.

In this sample, Japanese firms predominate (68, ie 53 per cent of the sample), followed by European firms and US firms. The average size of companies was 156 employees (36 per cent of companies had less then 50 employees, 36 per cent between 51 and 150, 11 per cent between 151 and 250, 7 per cent between 250 and 350 and 10 per cent more than 350). Finally, 56 per cent of firms are from the manufacturing sector, and 44 per cent from the services sector.

Measurement of variables

Our first dependent variable is knowledge acquisition. Following Lane et al. (2001) and Lyles and Salk (1996), this variable was measured by using a five-point Likert scale, and each question related to knowledge acquisition was phrased 'To what extent has your IJV acquired ... from your foreign parent(s)', with 1=very little up to 5=to a great extent. Six different elements of managerial know-how were included (ie corporate strategy, accounting and finance, marketing, human resource management, information management and overall know-how), each assessed by four dedicated questions. Internal validity was assured using Cronbach's alpha (at 0.9372, internal validity is confirmed, and alphas were consistently high for all items, between 0.9325 and 0.9382).

The second dependent variable is performance. Defining and measuring performance has led to much controversy in the literature (Yan and Gray, 1994) and requires careful consideration. Performance is closely related to organizational efficiency, and high efficiency levels mean that firms are likely to achieve more added value, given the fixed input of labour. To explore these performance measures, a variety of terms and concepts have been utilized. The typical proxies commonly employed for those indicators are, for example, profitability, market share and sales volume. However, these indicators have a serious drawback in that they can be significantly affected by firm size, favouring large organizations rather than small firms. In addition, some indicators can be influenced by external uncertainty and economic instability. To avoid such problems, in this paper we favour the concept of employee productivity, which has been successfully used to measure performance in previous research (Zhao and Zhu, 1998; Gong et al., 2005). Thus, performance is measured by using employee productivity as a proxy, quantified with sales volume divided by the number of employees.

The analysis below employs six independent variables related to three of the hypotheses and uses four control measures to allow for other factors that may affect the knowledge acquisition and performance of IJVs. All independent variables are measured using a five-point Likert scale (from 1=very little; 5=to a great extent). A detailed description of independent variables appears in the appendix. The four control variables consist of (1) origin of foreign parents (a dummy variable is used, with 1 for Japanese parents and 0 otherwise), ownership structure (a dummy variable is used, with 1 for majority foreign-owned venture, 0 otherwise), size (measured by number of employees) and age of IJV (measured by number of years since IJV creation).

Relationships' testing

The correlation analysis (Tables 1 and 2) shows no strong correlations between independent variables. Linear regression models were run to assess the relationships between the two dependent variables and the independent variables. In order to develop a sensitivity analysis, the sample was sub-divided into two subgroups, one with firms in the manufacturing sector, and one for firms in the services sector. Regressions were then run for the whole sample. Repeating regression analyses allows checking that independent variables remain consistently significant across a number of models.

Table 1 - Descriptive statistics and correlations in manufacturing industries.

Full table

Table 2 - Descriptive statistics and correlations in service industries.

Full table

Models are presented in Tables 3 and 4. Table 3 presents the results from the regression analysis using knowledge acquisition as the dependent variable. Table 4 compares the results for a model with knowledge acquisition alone (Model 1) with results for a full model without knowledge (Model 2). Hypothesis 1 is further tested by conducting an ANOVA analysis to investigate the nature of the relationship between knowledge acquisition and performance. Results from this analysis appear in Table 5.

Table 3 - Regression analyses for knowledge acquisition.

Full table

Table 4 - Regression analysis for performance.

Full table

Table 5 - ANOVA of performance by knowledge acquisition categories.

Full table

Results and Discussion

The primary objective of this paper is to establish the relationship between knowledge acquisition and performance in Korean IJVs. The results in Tables 4 and 5 imply a strong positive relationship between the two and confirm Hypothesis 1. Firstly, knowledge acquisition is a significant factor explaining performance in all three models testing the relationship in Table 4. Secondly, an additional test was conducted and appears in Table 5: the ANOVA investigated whether JVs exhibiting higher levels of knowledge acquisition performed better than those with lower acquisition levels. Results show that high knowledge acquirers demonstrate higher mean performance levels than low knowledge acquirers, confirming the first hypothesis.

Similar results have been found in other studies (Lyles and Salk, 1996; Lane et al., 2001), but our study confirms that in South Korea, knowledge acquisition significantly enhances JV performance.

A second objective of this paper is to evaluate the degree to which foreign-firm support and the interaction between foreign and host parents facilitates and enhances knowledge acquisition by the IJV, thereby increasing performance.

Four variables were tested to examine foreign-firm support. Active managerial involvement emerges as the strongest factor affecting knowledge acquisition, being both positive and highly significant. This result is consistent with the work of Inkpen and Dinur (1998), who suggest that internal managerial processes supporting transfer offer a basis for transforming tacit knowledge to explicit knowledge. In addition, managerial assistance means that interactions between IJVs and foreign parents engage the latter's organizational 'infrastructure' through supports for managerial functions. These interactions are particularly important for IJVs in developing countries, which often have insufficient internal resources to operate independently in the early stages following inception (Hitt et al., 2000; Lane et al., 2001).

The intent to share by the foreign parent is also strongly and positively significant, showing that the IJV will more likely acquire knowledge if the foreign firm is inclined to share knowledge with its overseas venture.

Participation of foreign expatriates is also positively associated with IJV knowledge acquisition, but at a moderate significance level. An explanation for this can be found in Cohen and Levinthal's (1990) study: direct involvement of individuals who possess diverse and sophisticated knowledge structures will enhance the organization's capacity for acquiring new skills. Finally, expatriate participation is only significant in the case of service firms. One could argue that our findings on foreign-firm support can be in part related to knowledge attributes and industry characteristics. Knowledge can be categorized as tacit and explicit know-how. Tacit know-how is innately more deeply embedded in an organization than other types of know-how (Szulanski, 1996), and is central to the competitiveness of firms in the services sector, justifying the significant role of expatriates in such firms in our sample.

The extent of training is not strongly related to knowledge acquisition. One explanation lies in the role in managerial knowledge acquisition of direct interaction between employees (through the presence of expatriates) and the frequent involvement of staff from the foreign parent in various managerial IJV functions. Training only involves short-term interactions between knowledge possessors and acquirers, and may represent a less effective means of acquiring managerial knowledge, which has tacit characteristics.

Parent firms' relationship was assessed by two factors: trust and cultural distance. Our results confirmed the importance of parental interaction in facilitating knowledge acquisition. Trust between parent firms is a positive and strongly significant determinant of knowledge acquisition.¹ Trust between parent firms is paramount as it affects the behavioural orientations manifested in IJVs (Kandemir and Hult, 2005). It encourages communication and promotes a community of information and knowledge on work activities throughout the entire organization, subsequently resulting in higher levels of knowledge acquisition in IJVs. Trust is also positively associated with performance in our results, therefore confirming results of other studies (Ramaseshan and Loo, 1998; Demirbag and Mirza, 2000; Boersma et al., 2003). Literature on trust indicates that the confidence of the trusting partner stems from its belief that the other partner is reliable, has a high level of integrity, and possesses qualities such as benevolence, capability, honesty, justice and responsibility. These qualities are essential to conduct business in the South Korean context.

Cultural distance is not significant and does not explain knowledge acquisition in our results (Table 3). The hypothesis stating that cultural difference may cause conflict and misunderstanding between parents and impede IJV knowledge acquisition is not confirmed. Lemak et al. (1994) did emphasize that cultural factors may not be always significantly associated with elements of JV operations; or, as discussed by Lyles and Salk (1996), cultural compatibility can be related to knowledge acquisition solely in the case of the 'shared management' type of IJVs. In the case of Korean IJVs, Pak and Park (2004) did not find a negative relationship between conflicts based on cultural distance and knowledge transfer.

The nature of the sample provides some indication for this unexpected result. The majority of foreign parents are of Japanese origin, indicating that cultural distance between the two countries is small. Arguably, the impact of cultural distance is obscured when foreign partners have more control over the IJV than the Korean partner, through higher equity contribution. The presence of foreign expatriates also suggests that Korean employees will tend to follow their working methods. Thus, several factors explain why cultural distance does not impact upon knowledge acquisition in our sample.

Turning to performance, our results show that it is strongly explained by knowledge acquisition, active foreign parent managerial involvement, trust and (negatively) cultural distance. Thus, we find that cultural distance affects performance, but not knowledge acquisition. Cultural distance should indeed cost more than firms' compatibility in IJVs (Pothukuchi et al., 2002). Hu and Chen (1996), for example, argue that the smaller the cultural distance between venture partners, the faster it will be to create the necessary cohesion. Partners possessing similar culture will more likely reduce misunderstandings in management communications, resulting in better collaboration, thus leading to performance improvement. Therefore, our results confirm other studies (see, for instance, Makino and Beamish, 1998) that have found that IJVs with culturally distant parents show lower levels of performance. This is because cultural distance between parents leads to a higher level of management complexity, with negative effects on IJV performance.

Conclusions

This paper has examined issues of knowledge acquisition from foreign parents and performance in the Korean context. Critical elements in foreign-parent support that affect knowledge acquisition and IJV performance were identified. The analysis confirmed the positive relationship between knowledge acquisition and performance. A series of regression analyses were conducted, providing evidence that foreign parents support directly and positively impacts on knowledge acquisition. Turning to performance, the results provide strong support for the view that foreign parents' active managerial assistance has a significant effect on performance. In addition, the explanatory power of inter-partner trust is important and significant throughout our models, especially with respect to a strong, positive association with knowledge acquisition. However, inter-partner cultural distance is interesting, because the results indicate that this variable is only associated with performance and not knowledge acquisition. The results of the empirical analysis are summarized in Table 6.

Table 6 - Summary of results.

Full table

Key lessons can be learnt from this study both by South Korea and by foreign firms with investment in the country. For instance, the results point to the need for foreign parents to actively engage with their affiliate in facilitating knowledge acquisition, which, in turn, leads to enhanced performance. The stability and durability of the IJV rests upon its ability to perform, and the foreign parent's active support can ensure long-term returns. Central to the management of collaborative arrangements in Korea is the concept of trust. The results show that a higher level of trust between partners eases the knowledge acquisition process and thereby improves IJV performance. Foreign and local partners in Korea therefore need to pay particular heed to developing and maintaining trust when managing IJVs.

The influence of cultural distance on the operations of IJVs in Korea should not be overlooked, and our study points to the need to distinguish between various types of impact of cultural distance. For instance, cultural distance does not appear to impact upon managerial knowledge acquisition per se, but it does have an effect on IJV performance. To overcome the negative impact of cultural distance on performance, Korean and foreign parents ought to develop means of enhanced communication to facilitate IJV operations. These results re-emphasize the need for both foreign and local firms to be culturally sensitive when engaging in collaborative arrangements such as IJVs. This is particularly important in countries such as South Korea, where the FDI experience is relatively new and where, until the Asia crisis, few foreign firms had operated.

There are some limitations to this study. First, the data used were collected directly from CEOs in IJVs, and the foreign parent's view has not been taken into account directly. Second, only managerial knowledge was considered, leaving aside other important contributions that may be made by foreign MNEs. Third, the measures used for knowledge acquisition and performance have some shortcomings. Knowledge acquisition is based upon perceptional data collected among key managers, with a single view collected from the IJV itself, as opposed to including perceptions of the parent firms. In addition, the evaluation of performance focused on sales per employee, as opposed to adopting other financial measures.

The data do not permit a comparison of IJVs in terms of the reasons why they were established. For instance, for IJVs established in order to pursue R&D, a metric such as successful innovation would be a better measure of performance. The dependent variable (knowledge acquisition) and independent variables were measured by asking managers to subjectively assess them, which potentially represents a common method bias. Although this subjective measurement method is adopted in a number of similar studies, the authors used a number of individual items to measure each variable to overcome such a bias. However, the limitation of this method is acknowledged.

Despite these limitations, this paper is the first to analyse managerial knowledge acquisition in South Korean IJVs and to link this concept to performance. Very few studies have analysed IJVs in the Korean context, and fewer still have focused on concepts of managerial knowledge acquisition and performance in this dynamic environment. Thus, the distinctive contribution of this paper is to show the decisive role that multinational parent firms have played in ensuring IJV success in Korea. This partly vindicates the South Korean government's decision to opt for an FDI-led globalization strategy.

Notes

¹ Trust only just missed the cut-off (0.10) in manufacturing industries.

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Appendices

Appendix

Table A1

Table A1.

Full table