Hbr Case Pepsico
The Governance Structure of International Joint Ventures
Property Rights and Transaction Cost Explanations
Sonja Horvath (Remetic)
Doctorate candidate
Center for Business Studies
University of Vienna
Brünner Str. 72
A-1210 Vienna, Austria
Sonja.Remetic@gmail.com
November, 2011
Abstract
This paper explores the determinants of ownership and residual decision rights in international joint ventures (IJVs) by developing a theoretical framework based on the property right and transaction cost theory. According to the transaction cost theory, environmental uncertainty (consisting of market, legal and political as well as cultural uncertainty) impacts the allocation of decision and ownership rights between the joint venture partners. Using the property rights theory we operationalize control by differentiating between residual decision and ownership rights (e.g. Grossmann, Hart 1986; Baker et al. 2008). The thesis of the paper is: The more important the JV-partner‘s intangible knowledge assets relative to the other partner for the generation of residual income and the higher the environmental uncertainty, the more residual decision and ownership rights should be assigned to her. Specifically, we focus on three environmental determinants under the transaction cost perspective: cultural distance, political and legal uncertainty and market uncertainty. Empirical results from joint ventures in the
CEE provide some support of the hypotheses.
KEY Words:
Joint ventures, intangible knowledge assets, residual decision rights, ownership rights
1
1. Problem
This paper explores the relationship between ownership and the allocation of residual decision rights in international joint ventures by applying the theoretical framework of property rights and transaction cost theories. The balance of ownership that leads to improved performance is likely to depend on the resources each partner contributes into the joint venture and the resources of
Property Rights and Transaction Cost Explanations
Sonja Horvath (Remetic)
Doctorate candidate
Center for Business Studies
University of Vienna
Brünner Str. 72
A-1210 Vienna, Austria
Sonja.Remetic@gmail.com
November, 2011
Abstract
This paper explores the determinants of ownership and residual decision rights in international joint ventures (IJVs) by developing a theoretical framework based on the property right and transaction cost theory. According to the transaction cost theory, environmental uncertainty (consisting of market, legal and political as well as cultural uncertainty) impacts the allocation of decision and ownership rights between the joint venture partners. Using the property rights theory we operationalize control by differentiating between residual decision and ownership rights (e.g. Grossmann, Hart 1986; Baker et al. 2008). The thesis of the paper is: The more important the JV-partner‘s intangible knowledge assets relative to the other partner for the generation of residual income and the higher the environmental uncertainty, the more residual decision and ownership rights should be assigned to her. Specifically, we focus on three environmental determinants under the transaction cost perspective: cultural distance, political and legal uncertainty and market uncertainty. Empirical results from joint ventures in the
CEE provide some support of the hypotheses.
KEY Words:
Joint ventures, intangible knowledge assets, residual decision rights, ownership rights
1
1. Problem
This paper explores the relationship between ownership and the allocation of residual decision rights in international joint ventures by applying the theoretical framework of property rights and transaction cost theories. The balance of ownership that leads to improved performance is likely to depend on the resources each partner contributes into the joint venture and the resources of