Title: Impact of formal control mechanisms on the performance of international joint ventures

Authors: Marcela Porporato

Addresses: School of Administrative Studies, Atkinson Faculty, York University, 4700 Keele St., Toronto, M3J 1P3, Canada

Abstract: Joint ventures (JV) are often a key component of the internationalisation strategies of companies. However, such operations are successful less often than expected. Problems rooted in the management accounting systems (MAS) are mentioned as typical failure causes (Watson Wyatt, 2000). This paper contributes to the understanding of JVs control mechanisms, MAS in particular, by considering them as coordination and monitoring mechanisms (Davila and Foster, 2005). The evidence, from 65 surveyed JVs and three JVs studied in detail in the motor/auto parts industry, supports the theory that highly intensive use of control mechanisms reduces uncertainty (Davila, 2000). This study demonstrates that control mechanisms assume either a coordinating role (budgeting, transfer pricing and cost allocation) or a monitoring role (performance measurement and governance mechanism). Successful international JVs predominantly adopt a balanced use of MAS, but giving pre-eminence to the coordination role as a manner to reduce uncertainty in decision making without eroding trust. However, monitoring roles are also needed to avoid opportunistic behaviours.

Keywords: management accounting; international joint ventures; IJVs; IJV performance; coordination; monitoring; agency costs; decision making facilitators; control mechanisms; governance mechanisms; planning; budgeting; performance measures; transfer price; cost allocation; motor industry; auto parts industry; survey; case study; automotive components.

DOI: 10.1504/JGBA.2009.023098

Journal for Global Business Advancement, 2009 Vol.2 No.1/2, pp.142- 172

Published online: 09 Feb 2009 *

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