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... While no studies, of which we are aware, provide good empirical evidence of the relationship between organizational climate similarity in companies that are considering working together and the resulting performance, a few studies on mergers and acquisitions (related, but not identical, to Ijv's) provide preliminary empirical support related to the question of organizational climate similarity, and are thus worth noting. Most of these studies (all dealing with mergers and acquisitions) were case studies or studies primarily based on anecdotal evidence (e. g. Costello et al. 1963; Gave's 1981).
Some of them have also assisted with theory building on the importance of organizational similarity (e. g. Buono and Bowditch 1989; Buono et al. 1985; Jemison and Sitkin 1986; Nahavandi and Malekzadeh 1988). For example, Jemison and Sitkin (1986) theorize that there is a relationship between organizational climate similarity between the two firms involved in an acquisition bears and the ability of the new organization to integrate its daily activities after the acquisition. In addition, Buono and Bowditch (1989: 134) hypothesize that differences in management styles are a major reason why mergers and acquisitions often fail to achieve the performance level predicted by feasibility studies. Three empirical studies focusing on mergers and acquisition deserve special mention.
Color and Strain (1991) concluded, based on a three-year study of French firms, that growth in sales is linked to national cultural homogeneity. Datta (1991) demonstrated that differences in top management styles have a negative effect on post-acquisition performance. Finally, Chaterjee demonstrated that shareholder gains were inversely related to perceived corporate cultural differences in acquisitions. Below, we use transaction cost theory to explain in more detail why we believe that similarity in organizational climate is important for IJV performance. Transaction cost theory has previously been used to show that joint ventures can be an optimal form of governance (for scope joint ventures, see Beamish and Banks 1987; and for scale joint ventures, see Heart 1988). However, not all joint ventures are born equal.
In this paper, we are concerned about using transaction cost theory to explain which types of joint ventures are likely to incur lower organization costs, and thus perform better. It is sometimes forgotten that Williamson (1975) investigated aspects of the optimal way to design a firm inside one organizational form. For example, Williamson concludes that the number of people a person can manage effectively is limited, because of issues of bounded rationality. Brown have extended the above line of within-mode transaction cost theory and applied it to joint ventures. They use transaction cost reasoning to hypothesize that dissimilarity of national and organizational cultures between joint venture parents is likely to lead to joint venture failure. Their main argument is that as organizational and national culture dissimilarity between parent firms increases, opportunism is also likely to increase.
This increase in opportunism will, in turn, increase the organization costs associated with using such a JV. Their paper, however, does not have an empirical section. This study expands on the above type of transaction cost analysis and examines how one key decision in designing a joint venture -- partner selection (for a discussion of partner selection criteria see Geringer 1988) -- can affect the organizational costs encountered in employing a joint venture and thus a joint venture's performance. The characteristic of partners focused on here is the degree of organizational climate dissimilarity. The key concern for this study is whether joint ventures between partners having more dissimilar organizational climates experience different organizational costs, which would, in turn, impact overall firm performance.
Depending on the degree of organizational climate dissimilarity present in a joint venture, several items cause joint ventures to experience different levels of organizational costs: avoiding process losses, decreasing uncertainty, and decreasing the risk of opportunistic behavior. Each of these items will now be discussed in greater detail. When firms work together, it is desirable that they have similar organizational climates, since this homogeneity avoids process losses in co-ordination and control that are normally associated with diversity. Differences in organizational climates of firms trying to work together have been shown to lead to differences in management practices and values. These differences may, in turn, lead to cultural ambiguity and process losses when people from different organizational climates work together (Buono et al. 1985).
In turn, these process losses increase the cost of conducting a transaction. Process losses may result from a variety of different situations. For example, process losses may result from one parent firm not being able to understand what another parent firm does, because of ineffective communication between the two firms (organizational communication flow is a dimension of organizational climate). This ineffective communication may result from the parent firms' organizational climates being so different that it is hard for the firms to know how to relate to each other. For example, firm A may be very hierarchical, with upper management approving most decisions, while firm B may have few levels of hierarchy and workers who are empowered to make decisions.
A worker in firm B might try to ask a worker in firm A about his opinion on a certain issue. However, the worker in firm A may be reluctant to give his opinion, without first consulting his manager. The worker in firm B may misinterpret this reluctance as an attempt not to co-operate. This misinterpretation may, in turn, lead to retaliation of workers in firm B, or at least frustration at the firm A worker's unwillingness to co-operate. Clearly, the troubles caused by the two firms' differing communication patterns will increase the organizational costs of using the joint venture described above, compared to a joint venture where both parents have similar communication flow patterns. Process losses may also result, because one firm's organizational climate is more oriented towards talking risks, than is the other firm's.
Thus, it is desirable that parties involved in a joint venture have similar organizational climates, so that they can avoid such process losses and minimize organizational costs. Much uncertainty relating to transactions results from measurement difficulties (Barrel 1982; Ouchi 1980; Williamson 1994). For example, it is often difficult to know how to value or measure the worth of a firm's contribution to a co-operative project. For example, a local firm may promise to provide its potential foreign partner with many potential customers and with contacts to help them navigate through Russian bureaucracy.
It is hard to know in advance how valuable these customers will be, or how much help the contacts will provide in navigating through Russian bureaucracy. When such measurement difficulties exist, Barrel suggests that it is often desirable to internalize or partially internalize the transaction (e. g. , form a joint venture) to help deal with uncertainty and minimize free rider problems. When two parties in a joint venture have similar organizational climates, they are likely to have similar measurement and control systems. Certain transactions possess uncertainties, information asymmetries, and free rider problems that are especially well-suited to certain measurement and control systems (organizational climates). Thus, two parent firms having similar organizational climates are likely to experience similar efficiency improvements by internalizing a particular transaction, as opposed to using the market.
Thus, these two firms will have the same preferences when deciding which transactions to internalize. Uncertainty causes parent firms to make more complicated JV contracts, spend more time monitoring the environment and the other parties involved in the joint venture, and spend more time and resources preparing for different contingence's. Clearly, all of these activities cost something, and thus the presence of uncertainty increases the organizational costs. Therefore, the greater the uncertainty, the poorer the joint venture is likely to perform, because organizational costs will increase in line with uncertainty. Organizational costs will also increase due to greater uncertainty, because increased monitoring will be necessary.
Thus, for a joint venture to perform better, it is desirable for uncertainty to be decreased. A critical insight provided by transaction cost theory with regard to joint ventures is the issue of opportunism and the organizational safeguards that can be enacted to guard against opportunism inside a firm. It was, after all, the threat of opportunistic behavior in the market that initially drove the partners to form a JV. As Williamson (1975, 1985) has argued, the organizational structure reduces the costs of opportunism at the expense of increasing bureaucratic or administrative costs.
As discussed above, several researchers have explored opportunism in Jv's and argued that, if properly developed; trust can reduce the threat of opportunism and make the JV mode the most efficient one in some cases. It is not only the presence of trust, however, that can reduce the hazards of opportunism. Organizations possessing similar organizational climates can use what Ouchi (1980) terms the 'clan method of control'. Ouchi's (1980) concept of clan control is defined as situations in which people or organizations of similar cultures decide to work together.
In such a situation, they are more confident that equity and reciprocity will exist in the relationship and thus they can save on monitoring costs. Clan control decreases the chances of opportunism which decreases the amount of monitoring needed. Decreased monitoring costs can, in turn, increase joint venture performance. This argument is similar to Mayo's (1945) view that socialization increases efficiency. The above reasoning is also consistent with Barnard who suggested that changing states of mind of people or organizations working together, such that they are congruent, is important for firm success. Differences in organizational climates may also result in one partner misinterpreting, as opportunistic, the actions of the other partner.
As Buckley and Casson (1988) point out, when one partner stops exercising forbearance, the other partner's incentive to continue to exercise forbearance decreases significantly. As a result, this misunderstanding, based on differences of organizational climate, may lead to a real attempt to engage in opportunistic actions, often irreversibly ending forbearance and impairing joint venture performance. Therefore, forming a joint venture with a firm that has a more similar organizational climate, and thus is more predisposed to avoid opportunistic behavior, is desirable. This is so because, by being less predisposed towards opportunistic behavior, the joint venture can avoid expensive safeguards against behavior (e. g. , frequent meetings, visits to the JVO by each parent, daily reports, faxes, constraints on managerial action). The lower costs associated with reducing the threat of opportunism will presumably be translated into higher performance, both in terms of satisfaction and in terms of financial outcomes.
As shown above, organizational climate dissimilarity between firms should increase the costs of organization. Hence, we expect that, all else being equal, increased organizational costs will be reflected in poorer joint venture performance. Across the three organizational interactions in this study (JVO-Russian parent, JVO-foreign parent, and Russian parent-foreign parent), we expect this relationship to hold. Operationally, the organizational climate dissimilarity-performance relationships across the three organizational interactions can be stated in the following hypotheses: Hypothesis 1: Organizational climate dissimilarity between the Russian parent and the JV organization (JVO) is negatively related to IJV performance. Hypothesis 2: Organizational climate dissimilarity between the foreign parent and the JVO is negatively related to IJV performance. Hypothesis 3: Organizational climate dissimilarity between an IJV's parent firms is negatively related to IJV performance.
From the preliminary interviews with managers from 40 Russian international joint ventures, other constructs besides organizational climate similarity emerged as important in differentiating between successful and unsuccessful joint ventures. The existence of commitment, parent need, loose control, and national culture similarity were those most frequently discussed. Thus, controls were built in for JVO organizational climate type (different from organizational climate similarity) and parent firm resource contribution. In a theoretical article, Parkhe proposes that there are two important types of interim diversity which affect global strategic alliances (GSAs).
Parkhe defines type 1 diversity as that which deals with 'the reciprocal strengths and complementary resources furnished by the alliance partners' and type 2 diversity as 'diversity which deals with differences in partner characteristics'. This paper focuses on type 2 diversity by investigating organizational climate dissimilarity. However, Parkhe raises an interesting point in questioning whether or not it is desirable for firms to contribute different resources to an alliance. Certainly, most of the alliance literature has suggested that it is indeed beneficial for firms to contribute different resources to an alliance. In fact, past literature asserts that alliances should be formed only when parent firms have different, but complementary, resources to contribute to the alliance (Harri
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