Determinants of the joint venture decision: an analysis applied to the case of international direct investment in Thailand and the Philippines.

Summary Because it offers national entrepreneurs a privileged framework for technological and organizational learning, the formation of joint ventures with foreign firms is an important issue for developing countries. The thesis therefore aims to clarify the factors influencing this type of implementation, and more specifically, joint ventures involving local management. The study is applied to the cases of Thailand and the Philippines, two countries that since the early 1980s have liberalized their regimes of openness to foreign capital, allowing, more broadly, the establishment of controlled or fully owned subsidiaries. We argue that when a foreign investment requires the acquisition of complementary assets owned by a local firm, the decision to joint venture depends not only on transaction costs, but also on its impact on the incentive structure of the partners and their attitude towards risk. In particular, this choice is likely if the contribution of the local partner is critical to the success of the project, provided, however, that the local partner is not more risk averse than the foreign firm. The experience of Thailand and the Philippines broadly supports these assumptions. In manufacturing, for example, the degree of local integration of projects (in terms of outlets or supplies) encourages joint ventures and local control of operations. In contrast, this choice is unlikely to be made for projects with a high technological content or that are highly extractive, but also for the riskiest projects because of their size. The results suggest that measures to improve the protection of industrial property, the level of local skills, and the functioning of capital markets or insurance could probably encourage the formation of joint ventures.