The effect of foreign partner network embeddedness on international joint venture failure: Evidence from European firms’ investments in emerging economies

Access to trusted information about potential local partners is a critical factor for international joint venture (IJV) stability and success in emerging economies. We build on social network theory and examine how foreign investors can benefit from their alliance networks in accessing reliable information on the availability, resources, and behavior of potential local IJV partners. More specifically, we examine positional embeddedness in networks and network density and how these factors help foreign firms mitigate behavioral uncertainty in IJVs and thus reduce the likelihood of failure. We use data on 349 IJVs formed by 132 European firms in emerging economies during the 1995–1997 period and event history analysis to test our hypotheses. Our findings indicate that having an alliance network is a necessary but insufficient condition to mitigate behavioral uncertainty of local partners. We find that only densely tied networks offer benefits of reliable information on potential local partners that ensure the longevity of IJVs and that a central position in an alliance network translates into lower IJV failure.

► The paper examines how foreign investors can benefit from their alliance networks to form successful IJVs in emerging economies. ► It analyzes how positional embeddedness in networks and network density help foreign firms mitigate behavioral uncertainty in IJVs. ► It uses data on 349 IJVs formed by 132 European firms in emerging economies and event history analysis to test the hypotheses. ► It indicates that having an alliance network is a necessary but insufficient condition to mitigate behavioral uncertainty in IJVs. ► It also shows that only densely tied networks offer information benefits that ensure the longevity and success of IJVs.