Considerations of uncertainty reduction and interdependence management should not only permit the analysis of the number of joint ventures across industries, but, in a formulation similar to that used to analyze mergers, should explain patterns of joint venture activity as well. In a study of joint ventures among manufacturing and oil and gas exploration companies, Pfeifer and Nowak (1976) provided support for this theoretical position.
In a study of 166 joint ventures which took place during the period 1960 to 1971, Pfeifer and Nowak found that patterns of joint venture activity corresponded to patterns of transactions interdependence. To the extent organizations in industry A were more interdependent with organizations in industry B, a higher proportion of in-dustry A’s joint ventures were with industry B. The explanation for the observed relationship is the same as in the case of mergers. In order to manage resource interdependence with other organizations, linkages are used to stabilize exchange relationships. The pooling of resources, as in a joint venture, constitutes one viable form of interfirm linkage to manage transactions interdependence. In Table 7.1, correlations between transactions interdependence and joint venture activity are presented, as well as correlations examining the relationship between the concentration ratio and the proportion of employment engaged in research and development. This latter variable was included in the analysis to consider the explanation that joint ventures were undertaken to manage technological risk and uncertainty, as well as resource interdependence. In a multiple regression equation, both resource interdependence and technological intensity were statistically significant in explaining patterns of joint venture activity while the two variables were virtually uncorrelated.
In Table 7.2, correlations are presented for each of the 15 indus-tries in which there were at least 3 joint ventures undertaken. As in the case of merger, there are profound differences across industries in the extent to which observed patterns of joint venture activity were accounted for by sales interdependence, purchase interdependence, both, or neither. As we did for our analysis of merger activity, we can consider which interdependence is likely to be more uncertain and derive hypotheses to account for these variations in correlations over industries.
First, paralleling our discussion for mergers, we can hypothesize that there will be a higher correlation between patterns of joint venture activities and purchase interdependence the higher the concentration of the organization’s economic environment. The concept of con- centration means the organization has few competitors for sales and; therefore, has market power with respect to its customers. Since the . organization operating in a more concentrated environment faces little i uncertainty in its transactions with customer organizations because of its power, it would be likely to focus its attention on managing its interdependence with sources of supply. This argument is confirmed by the data. For these 15 industries, there is a correlation of .50 (p < .10) between the industry concentration ratio and the magnitude of the correlation between purchase interdependence and joint venture activity.
Sales interdependence is most problematic and uncertain when organizations are operating in an industry of intermediate concentra-tion. This point has been developed both earlier in this chapter and in 5 our discussion of patterns of merger activity. As predicted by this argu-ment, there is a statistically significant correlation (r — .41, p < .10) between the difference in concentration from the median value and the extent to which joint ventures are related to sales interdependence in each of the 15 industries. In short, joint ventures follow sales inter-dependence more closely in industries where concentration is inter-mediate and, consequently, where sales are more problematic and uncertain.
We can further parallel the analysis of merger activity by examining the use of joint ventures to manage competitive interdependence. While symbiotic relationships can exist between organizations in the same industry or with organizations in different industries, competitive interdependence occurs with respect to organizations operating in the same industry. Consequently, to consider the use of joint ventures to manage competitive interdependence, we consider only the proportion of joint ventures occurring between organizations operating in the same industry. We have argued that interorganiza-tional linkages to reduce competitive interdependence are more likely to be undertaken when industrial concentration is at an intermediate range. At very low levels of industrial concentration, when there are many firms active in the market, interorganizational linkages through joint ventures or other devices will accomplish little because there are so many organizations to be coordinated. On the other hand, with only; a few firms, formal interfirm linkage, such as with a joint venture, is not required. In these highly concentrated environments, tacit inteir, firm coordination can be achieved without semiformal mechanisms of. interfirm communication.
The above argument is supported. The proportion of joint ven–. tures made between firms in the same industry (two-digit SIC) is least – at high and low levels of concentration (r — .55; p < .01). Further-more, in contrast to mergers, the proportion of joint ventures within the same industry is virtually uncorrelated with the proportion of transactions within the industry (r = .07). These results suggest that joint ventures are being used, even more than merger, to coordinate competitive interdependence and reduce competitive uncertainty. The correlation with industry structure is higher, and the correlations with transactions interdependence measures are lower, than in the case of mergers. ‘
The results presented above are virtually unchanged when the” relationship between the parent firms and the joint subsidiaries themselves is considered. Overall, patterns of joint venture activities follow, patterns of resource exchange. The proportion of joint subsidiaries founded in the same industry as the parent organizations is negatively ^ related to the difference in concentration from the median value and is; unrelated to transactions interdependence.
In considering joint ventures, we have found that both the number and pattern of joint venture activity can be explained by con-siderations developed from our theoretical schema. Joint ventures can be analyzed as mechanisms for achieving interfirm coordination and can be predicted by considerations of resource interdependence, competitive uncertainty, and conditions that make various forms of interdependence more or less problematic.
Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition