Impact of Management Control Systems' Intensity of Use on Joint Venture's Performance: An Empirical Assessment

Abstract

Studies of the impact of control on joint venture (JV) performance showed non-convergent results (Beamish and Banks, 1987; Boateng and Glaister, 2002; Pangakar and Klein, 2004). This paper contributes to the discussion of management control systems in international JVs (Groot and Merchant, 2000). To answer if intensity of use of management control systems play a role in perceived JV performance, I used a contingent model to test data from 65 JVs in the motor and auto parts industry. The impact on management control systems of some factors varies due to the role that each partner plays in the JV that is shaped by the assets committed. Considering that most of the JVs in this industry are formed by a foreign company coupled with a local firm, it is reasonable to observe that the larger the technological or the local market experience of the JV foreign and local partners respectively, the more intensely the information is used to manage the JV. High performers use management control systems more intensively to overcome the two main sources of uncertainty faced by the JV: local market conditions and product/process technology. Searching for alternative explanations of JV performance it was found that the better the performance the more the partners' trust and cultural fit (Das and Teng, 2001), however the results of partners strategic fit was not conclusive. These findings justify the assertion that management control systems are used to give transparency to JV operations and JV management team decisions, reinforcing the initial trust between the partners, and between them and the JV management team (Choi & Beamish, 2004; Inkpen & Curral, 2004). In summary this paper identifies three uncertainty reduction mechanisms that work in international equity JVs to improve its performance: management control system, trust and partners cultural fit.

Keywords: management control systems, joint ventures, performance, market complexity, technological complexity, contingency theory, intensity of use

JEL Classification: M10, M40