Embeddedness and networking as drivers in developing an international joint venture

ARTICLE IN PRESS Scand. J. Mgmt. (2008) 24, 17–32 Available at www.sciencedirect.com http://www.elsevier.com/locate/scaman Embeddedness and networking as drivers in developing an international joint venture Tuija Mainelaa,, Vesa Puhakkab,1 a Department of Marketing, University of Oulu, P.O. Box 4600, 90014 University of Oulu, Finland Department of Management and Entrepreneurship, University of Oulu, P.O. Box 4600, 90014 University of Oulu, Finland b KEYWORDS International joint venture; Embeddedness; Networking Abstract In this article we regard embeddedness in relationship networks as a key issue in the development of an international joint venture (IJV). We look at IJVs from a perspective which highlights the role of network relationships and of networking behaviour. This perspective suggests that the development of an IJV is not a dyadic or an organisation-level process, but is rather a process embedded in extensive networks of relationships and driven by individual-level action for relationship-building. We elaborate on this network action perspective to IJVs by reference to a longitudinal case study of the 12-year development process of a greenfield equity IJV. In interpreting the findings we suggest convincing, compromising, resourcing, internal organising and legitimising as the behaviours associated with the changing of the relational embeddedness and the developing of the IJV. & 2007 Elsevier Ltd. All rights reserved. 1. Introduction International joint ventures (IJVs) are among the most prominent modes of international business today (Delios & Beamish, 2004; Zeira & Newburry, 1999). Yet IJVs have been reported as having a high rate of failure (Hennart & Zeng, 2002). Taken together, the shared ownership across national borders, the institutionalisation of relationships and the formal independence of joint ventures result in considerable organisational and managerial complexity (Borys & Jemison, Corresponding author. Tel.: +358 8 553 2595; fax: +358 8 553 2906. E-mail addresses: tuija.mainela@oulu.fi (T. Mainela), Vesa.puhakka@oulu.fi (V. Puhakka). 1 Tel.: +358 40 833 3776; fax: +358 8553 2906. 0956-5221/$ - see front matter & 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.scaman.2007.10.002 1989; Killing, 1988), and make an IJV a demanding way of organising a business. By definition an IJV is a small international network— a triad. It is the sum of the contributions of at least two firms as Shenkar and Zeira (1987) among others have pointed out: ‘‘An IJV is a separate legal organizational entity representing the partial holdings of two or more parent firms, in which headquarters of at least one is located outside the country of operation of the joint venture’’ (p. 547). In addition, through the parent relationships the joint venture often becomes, in its very initiation, embedded in an internal network of other subsidiaries of the parents (see, e.g., Andersson & Forsgren, 1995). Added to this complexity is the fact that despite having parent relationships to support it, an IJV—like any subsidiary—has to maintain contact with many external actors in its markets of operation (see, e.g., Birkinshaw, Hood, & Young, 2005; ARTICLE IN PRESS 18 Schmid & Schurig, 2003; Scott-Kennel & Enderwick, 2004). It thus becomes embedded in an extensive network of relationships, all of which affect the way it develops. Most previous research on IJVs has focused on the parents’ motives, partner selection, parental conflict/ control and performance measurement (Buckley & Casson, 1998; Gulati, 1998; Parkhe, 1993). Much less has been said about the implementation and development processes of the cooperative units (de Rond & Bouchikhi, 2004; Spekman, Forbes, Isabella, & MacAvoy, 1998). The present study shares the interest of IJV process researchers (e.g., Büchel, 2001; Hyder & Ghauri, 2000; Kemp & Ghauri, 1998; Woodside & Pitts, 1996) in the determinants of the development of joint ventures. However, the concentration of these studies on the parent relationship means that they pay rather less attention to the development of the joint venture itself. Here it is assumed that the embeddedness of organisations in networks of relationships means that relationships, and acting in relationship networks, are central determinants of the way an organisation develops (Anderson, Håkansson, & Johanson, 1993; Gulati, 1998; Granovetter, 1985; Håkansson & Snehota, 1989, 2006). The network action perspective, described in the present paper, will be adopted in an attempt to understand how and why an IJV evolves as a continuous process of relating the joint venture to its network context. This paper represents a contribution to existing research on IJVs and their management in two specific ways. First, we describe the development of an IJV as a process embedded in extensive networks of relationships, rather than as a dyadic or triadic relationship. Secondly, it will be shown that the development of an IJV is driven by individual-level action geared to relationship building in the course of which the joint venture is constantly being redefined. In this way new knowledge is brought to bear on the way an IJV is created and changed by a variety of actions on the part of the IJV managers having different relationship and networklevel influences. Below we first review previous research on IJVs revealing a gap in our understanding of the context-dependent and action-driven development of IJVs. We then present the key elements of the network action perspective on IJV development, and elaborate upon this perspective in a longitudinal case study concerning a greenfield equity IJV. An IJV will be approached from the focal net point of view (Anderson et al., 1993; Halinen & Törnroos, 1998; Salmi, 1995), whereby the joint venture is seen as the focal actor in a network of relationships. Consequently, we suggest five managerial ways of acting connected with changing of the relational embeddedness and developing the IJV. In conclusion we note the theoretical and managerial implications of the network action perspective on IJVs. 2. Overview of research on international joint ventures A great deal of research has looked at IJVs as entry modes to new foreign markets and has approached such IJVs from the transaction-cost or resource-dependence perspective (see also Borgatti & Foster, 2003). Hennart (1988) saw joint ventures as the best strategy in specific circumstances when T. Mainela, V. Puhakka markets are failing but full ownership is not an effective mode of governance due to, for example, high management costs, post-acquisition problems or economies of scale or scope (for further research see Chen & Hennart, 2002, 2004; Hennart & Reddy, 1997). Antecedents to foreign market entry, such as motives for joint venture establishment and partner selection, have been emphasised (Arino, Abramov, Skorobogatych, Rykounina, & Vila, 1997; Beamish, 1985). Performance measurement has often been included and the longevity of IJVs has been examined (Anderson, 1990; Barkema, Shenkar, Vermeulen, & Bell, 1997; Delios & Beamish, 2004; Hennart & Zeng, 2002). Control by the parents has been seen as a critical determinant of IJV performance (Geringer & Hebert, 1989; Johnson, Cullen, Sakano, & Bronson, 2001). Studies that view IJVs primarily as cooperative relationships stress the resource dependence and the cooperative motivations of the parent companies, emphasising the longterm advantages to the parents that result from learning (Hamel, 1991; Inkpen & Beamish, 1997; Inkpen & Currall, 2004; Kogut, 1988). Partner selection is a critical decision where a balance has to be found between a necessary fit and complementary strengths and resources (Lorange & Roos, 1992; Parkhe, 1991). Special attention is often paid to cultural differences (Kedia & Bhagat, 1988). Development of an IJV relationship is described as a process built on exchanges, actions and interpretations on the part of the parents (Büchel, 2001; Hyder & Ghauri, 2000; Kemp & Ghauri, 1998; Kogut, 1988). In general, the development process of the joint venture itself has not received much attention in studies of joint ventures as entry modes. Rather, the focus is on the antecedents of IJVs and then on their outcomes. The primary object of analysis has been the parent companies’ decisions and their satisfaction. Studies of interfirm cooperation have also concentrated on the relationship between the parents. Joint ventures have been regarded as a concrete expression of this relationship. In connection with embeddedness, some studies such as Woodside and Pitts (1996) and Hyder and Ghauri (2000), have noted the influence of external relationships—with governments or authorities, for example—on the IJV relationship and the way parent companies act. An approach closely related to that of the present study can be found in studies of subsidiaries adopting a knowledge perspective (Kogut & Zander, 1993). Here the subsidiary is acknowledged as a separate entity and the role of subsidiaries in corporate networks of multinational companies is examined (Birkinshaw, 1999; Birkinshaw & Hood, 1998; Frost, Birkinshaw, & Ensign, 2002; Moore & Birkinshaw, 1998; Schmid & Schurig, 2003; Taggart, 1998). Many crucial assets, especially of the intangible kind, are located in the various affiliated companies. New knowledge often emerges from interaction with clients and team members around the world, and the subsidiaries are mandated to transfer that knowledge to all parts of the global firm. Interaction between headquarters and subsidiary managers is thus important. Such relations are characterised by mutual dependence and learning that can affect the roles of both sides over time (Butler & Sohod, 1995; O’Donnell, 2000). This sort of research envisages the possibility of independent and important roles on the part of the subsidiaries and ARTICLE IN PRESS Embeddedness and networking as drivers their managers. However, with respect to the embeddedness of the subsidiaries, there is also the question of influence and interdependence within the corporate network. Below we will develop further the embedded view of the evolution of IJVs, seeking to answer questions about the organising of joint ventures in the network context and actions of relating over time. This, we suggest, means focusing on the joint venture itself, and regarding it as a context-dependent venture whose managers organise its activities through their development and management of relationships. 3. A network-action perspective on international joint ventures To develop the network-action perspective on IJVs we will build on the basic assumption of the network approaches on business relationships (Anderson et al., 1993; Gulati, 1998; Håkansson & Snehota, 1989; Jarillo, 1988), that is to say, that the character of a particular social unit can be defined and understood only in terms of its exchange relationships with other social units. It suggests there is value in a perspective that looks at IJVs in terms of actors embedded in continually changing relationship networks driven by the actions of the IJV managers in relationship development. The idea is succinctly presented by Granovetter (1992, p. 7): ‘‘Economic institutions are constructed by individuals whose actions are both facilitated and constrained by the structure and resources available in social networks in which they are embedded’’. In this perspective a network consists of inter-organisational relationships between customers and suppliers and other actors such as financiers, research institutions and public administration. However, we restrict the network here to a specific focal net. We place one organisation at the centre of the network and look at the way this firm relates to its context (Halinen & Törnroos, 1998; Möller & Halinen, 1999). A focal net includes the direct and the indirect relationships that are perceived as relevant by the persons representing the focal firm (Anderson et al., 1993; Salmi, 1995). The focal-net point of view emphasises the role of individuals as the constructors of the field of activities of the firm (cf. Granovetter, 1985). Therefore, the inter-organisational relationships in the focal net are analysed by investigating the nature of the interpersonal relationships between joint venture managers and the people with whom they interact in business-related issues. Embeddedness in relationship networks provides the first key concept of the network action perspective. The focus is on the relational embeddedness that describes the characteristics of the relationships and the intensity of interaction in relationships (Andersson, 2001; Granovetter, 1973; Nahapiet & Ghoshal, 1998). Embeddedness can be regarded as describing the social side of business relationships; economic action is always embedded in personal relationships between individuals (Granovetter, 1985) and business relationships are generally built up as a social exchange process between individuals (Araujo, Bowey, & Easton, 1998; Håkansson & Snehota, 1989). Following Nahapiet and Ghoshal (1998) we define embeddedness as the kind of 19 interpersonal relationships that people have developed for business interaction in networks. The discussion of the nature of interpersonal relationships in business networks stems from the strong-tie weak-tie characterisation introduced by Granovetter (1973). He saw the strength of a tie as being dependent on the amount of time spent on it, and on the emotional intensity, intimacy and reciprocity characterising it. Later analyses of interpersonal relationships in business (see Haytko, 2004; Heide & Wathne, 2006; Uzzi, 1997) have added individualrelatedness of trust, the formality of interaction, the organisational role and task centrality, the feeling of friendship, and economic as opposed to affective considerations as dimensions of the strength of a relationship. The strength of a business relationship is further complicated by the fact that one inter-organisational relationship can include several interpersonal relationships. However, according to Heide and Wathne (2006), the two prototypical types can be seen as a form of identity for a relationship and, at any given time, a particular identity will dominate either party’s approach to a relationship. These characteristics can be used to describe a relationship as strong or weak in its nature at any given time. On the one hand, network action perspective looks at this relational embeddedness: the interpersonal intensity of interaction in the focal net relationships. On the other hand, the network action perspective looks at how change comes about within the networks through action at the level of the individual. To capture these dynamics we can look at the actions of the managers in terms of the concept of networking. Networking is the process of connecting actors through the bonding and commitment of individuals, and of undertaking activities to get access to the resources controlled by those actors (Halinen, Salmi, & Havila, 1999; Melin, 1989). Networking is also a strategic process in which relationships are changed and actions are undertaken to put a firm in a stronger competitive position (Håkansson & Snehota, 1989, 2006; Melin, 1989). In the present study networking is thus seen as an activity of the joint venture managers who by way of conscious action in the building, maintenance and disruption of relationships, attempt to coordinate resources and activities and to position the joint venture favourably in the market. This kind of network action perspective has rarely been used in research on IJVs. The focus has tended to be on the internal context of partner firms and their ventures, while little attention is paid to the broader context of the joint ventures themselves (for exceptions, see Gulati, 1998; Gulati & Westphal, 1999). However, research on subsidiaries in particular has indicated the relevance of an approach that emphasises wide network embeddedness and IJV action. Andersson and Forsgren (1995) and Birkinshaw and Hood (2000), for example, have shown how the integration of the subsidiaries into the MNC internal network varies, and that some units are more closely connected than others with the external network of local market relationships. This underlines the importance of taking account of the embeddedness of IJVs in internal parent-related, ownership-based networks and external local market networks. Recent research on subsidiaries has also indicated that these companies are not merely subordinate elements of their parents (Birkinshaw et al., 2005; Schmid & Schurig, ARTICLE IN PRESS 20 2003; Scott-Kennel & Enderwick, 2004). Rather, they have the potential for independent and entrepreneurial action. Birkinshaw et al. (2005) note that subsidiaries operate within business networks consisting of relationships with internal and external actors, and that within this context it is up to the subsidiary managers to take the initiative to respond to threats or opportunities. The actions of the IJV managers alter the relative position of the subsidiary concerned, giving it new opportunities for managing within its focal net. It obtains its position vis-àvis the parent companies first, but soon it establishes other relationships as well (Butler & Sohod, 1995; Hyder & Ghauri, 2000). In short, according to the network action perspective, a crucial process in the development of an IJV involves becoming embedded in the relevant context by way of the relationship building of the IJV managers. This brings us to the fundamental question expressed by Bengtsson and Powell (2004): ‘‘To what extent are managers able to fully understand structural conditions and act strategically to position their firms within networks?’’ The development of the joint venture is analysed in terms of the concepts of embeddedness, which depicts the nature of relationships and changes in the focal net, and of networking, which focuses on the actions of managers in the building and utilisation of relationships. The nature of relationships in the net defines the possibilities for action and affects the way the relationships can be used. On the other hand, the networking actions may lead to changes in the strength of the relationships. The network action perspective on IJVs will be elaborated below in a longitudinal case study of the 12-year development process of a greenfield equity IJV. 4. Methodology Processual research on organisations has been expanding significantly over the last couple of decades, and this methodological tradition will also be followed here. In line with Pettigrew (1997) and Van de Ven and Poole (2005) a process will be defined below as a sequence of individual and collective events, actions and activities unfolding in context over time. The case study method will be applied, whereby qualitative and longitudinal data are used to create understanding of the phenomenon and the generative mechanisms underlying the events examined. 4.1. Research approach The fundamental idea underlying this type of process research is that the world consists of entities embedded in time and context, acting in events and unfolding over time (Langley, 1999; Pettigrew, 1997; Van de Ven & Poole, 2005). Organisations are regarded as being composed of organising processes, and the process research approach is applied (Van de Ven & Poole, 2005). As Rehn, Strannegård, and Tryggestad (2007) have put it, processual research is about the ‘‘exploration of complex dynamic relations involved’’. Thus, processual research is not simply a methodological choice but is also an ontological and epistemological question about how to approach the organising behaviour T. Mainela, V. Puhakka of human beings. Human behaviour is recognised as being embedded in time, agency, structures, contexts, emergence and development (Dawson, 1997; Dubois & Gadde, 2002; Orton, 1997). In the practical realisation of process research the aim here has been to narrate the social construction of the emergence and continuous re-emergence of the IJV and its network embeddedness (Van de Ven & Poole, 2005). A qualitative case study has thus been chosen to explore the dynamic process whereby change unfolds within a contextual, multidimensional phenomenon (Dawson, 1997; Langley, 1999; Orton, 1997). Case research represents a particularly strong method for studying change in network-level processes (Borch & Arthur, 1995; Dubois & Gadde, 2002; Easton, 2000; Halinen & Törnroos, 2005). Here the principles of realist case research (Easton, 2000; Tsoukas, 1989) have been adopted to explain the sequence of events during the development process of the IJV. The fundamental principle of realist case studies is that the world exists, without necessarily any human awareness of this existence. However, when we as researchers study the social world we question whether law-like predictions are possible, given the open and continuously changing nature of human behaviour (Bhaskar, 1998). Instead, it is the generative mechanisms that are interesting, that is to say the underlying processes that generate and explain observed associations between events (Hedström & Swedberg, 1998; Tsoukas, 1989). Consequently, the idea is not to search for the causal relations and their contingent boundaries but to try to understand the mechanisms that drive human behaviour that is historically contingent and socially situated. As regards research design, the realist case study is well suited to exploring a process and searching for the generative mechanisms that underlie it (Easton, 2000; Tsoukas, 1989). In the present case the search for the mechanisms underlying the development process of an IJV was based on the narratives of the IJV managers. These narratives can be taken to contain indicators for an underlying process theory (Pentland, 1999). It was a question of getting close to the phenomenon via the subjective accounts of the IJV managers, and letting the object of study gradually reveal its characteristics (De Cock & Sharp, 2007). This meant moving back and forth between process theory and process data to produce process knowledge (see Orton, 1997). The aim of the analysis was to generate a well-grounded account of the process by using three sense-making strategies (Langley, 1999). We adopted a narrative strategy to construct a detailed story from the raw data and to prepare a chronology of events for further analysis. A visual mapping strategy was used to build on the narrative with a view to making the changes in the embeddedness of the joint venture visible (see Fig. 1). A relevant event in the process was defined as the one relating to change in the focal net. These two strategies we used as supporting s teps to a temporal decomposition strategy. We defined six periods of development as having certain continuity within each period and certain discontinuity at their frontiers. This decomposition of the data allowed us to examine how actions in one period led to changes in the context, which in turn affected actions in subsequent periods. ARTICLE IN PRESS Embeddedness and networking as drivers 1989-90 1991 1992-93 1994-96 1997-98 1999-2000 headquarters sister company government/authority financier distributor supplier customer potential customer competitor university/other expert Explanations: parent firm parent firm/financier 21 strong relationship weak relationship part-time existing relationship international joint venture Fig. 1 Development of the embeddedness in the focal net of an international joint venture. 4.2. Data collection The object of study was a greenfield equity IJV that was established in Poland in December 1990 by Nordic and Polish partners. This joint venture was chosen because it allowed for the tracking of its development from the first steps in 1989 up to its tenth anniversary in 2000. A decisive factor was the cooperative willingness of the key informants. A further advantage of this case company was that it operates in the field of chemical water treatment, for which no real markets existed in Poland at the end of the 1980s. The markets had to be created from scratch in the turbulent situation of a transition economy. This could make the case more revealing as regards the changing embeddedness of the firm and the networking action than cases in other industries or countries might have done. The case study process involved two phases of interviewing the IJV managers in 1997 and 2000, plus feedback discussions with key informants after each round of interviews and an analysis of the data. The details of data collection are presented in Table 1. The interviewees include the IJV managers who have been operationally involved in IJV development over a 12-year period. The three managers representing the Nordic parent are those who in practice acted on its behalf to realise the establishment and networking of the joint venture in its early years. We can thus regard them as IJV managers rather than simply representatives of the parent. The Polish interviewees include the whole management team of the IJV. One of the managers was the leader of the Polish IJV establishment team and another is its supervisory board member. Interviews with these persons were regarded as useful on two counts. First, they had been involved in and responsible for different aspects of, and different times during the IJV development. In addition, they had had good opportunities to follow the process even outside their own operational responsibilities (e.g., as supervisory board members), as well as being knowledgeable about and involved in many of the key events. Secondly, they were all able to provide personal views and different perspectives. The interview guides differed somewhat between the two rounds of interviews. In the first round the managers were asked to give an account of the whole development process of the IJV. Describing the development of the joint venture in the form of a narrative helped the interviewees to recall their experiences and actions in connection with events that had occurred several years earlier. Narratives are not only stories told by people; they also describe a sequence of events as well as they are tools for the participants for making sense of and enacting their world (Pentland, 1999). Thus process theory drawing on narrative data is particularly close to the phenomenon to be explained (cf. Langley, 1999). The second round of interviews began by sending a onepage questionnaire to all the operative managers in the joint venture. The questionnaires served as a tool for preparing the face-to-face interviews with the managers and as a reference data set for the in-depth interviews. The managers were asked for information on their background, their history in the joint venture, their responsibilities in its operations, and the relationships that they considered to be most important to the performance of their jobs. Questions were asked about the development of the joint venture in so far as the interviewee had been involved in it and knew something about it. We also discussed internal and external relationships, and the interactions within these. The second round of interviews with the IJV managers from the parent firms were more in the form of free discussions. The interview with the Polish manager focused on the manager’s active period on the supervisory board of the IJV, and on the parent relationship. The interview with the Nordic manager built on his earlier interview. The exact questions discussed in the individual interviews differed considerably, as they were based on particular interviewee’s experience and were often spontaneous reactions based on their personal stories. The interviews lasted one to three and a half hours, and were tape-recorded. Some of them continued as informal discussions over lunch or dinner. These last added some new aspects to the data, and were important in creating a relaxed atmosphere for the interaction. To ensure as good a fit as possible between reality and the studied aspects, data were also collected from written sources (Easton, 2000). The secondary data included the feasibility study and the initial agreements from 1990, the yearly reports of the ARTICLE IN PRESS 22 T. Mainela, V. Puhakka Table 1 Primary data collection for the case study Interviewees Roles in the IJV Years covered Date of interview Length of interview 29.4.1997 30 min 1989–1997 4.7.1997 60 min 1991–1997 23.10.1997 90 min 1989–1997 10.12.1997 90 min 1990–1997 10.12.1997 75 min 1989–1997 10.9.1998 60 min 1993–2000 18.9.2000 125 min 1989–2000 18.9.2000 150 min 1991–2000 19.9.2000 210 min 1993–2000 20.9.2000 90 min 1993–2000 20.9.2000 55 min 1998–2000 20.9.2000 60 min 1989–2000 13.12.2000 85 min 19.11.2001 15.12.2001 Written In phone Initial co-operation discussion General Manager, Nordic parent, Finnish headquarters, Finnish First round of personal interviews General Manager, Nordic parent, Finnish headquarters, Finnish Managing Director, IJV, Polish Vice-Managing Director, Nordic parent, Swedish unit, Swedish Managing Director, Nordic parent, Norwegian unit, Norwegian IJV establishment, market creation 1989–93 Marketing and company follow-up 1994– Controller of IJV 1991–92 Managing Director of IJV 1993– IJV establishment, negotiations 1989–90 Member of the IJV supervisory board 1990–97 IJV establishment, company creation 1990–92 Member of the supervisory board 1990– Feedback discussion on the first round interpretations General Manager, Nordic parent, Finnish headquarters, Finnish Second round of personal interviews Logistic and Equipment Manager, Sales Engineer of IJV 1992–93 IJV, Polish Logistic and Equipment Manager of IJV 1994– Production Director, IJV, Polish Leader of Polish establishment team 1989–90 Production Director of IJV 1991– Managing Director, IJV, Polish Controller of IJV 1991–92 Managing Director of IJV 1993– Marketing Manager, IJV, Polish Marketing Manager of IJV 1993– Finance Director, IJV, Polish Financial Controller of IJV 1993–96 Finance Director of IJV 1997– General Production Manager, Polish Member of the IJV supervisory parent, Polish board Assistant Vice-President, Nordic IJV establishment, market parent, Finnish headquarters, creation 1989–93 Finnish Marketing and company follow-up 1994– Feedback on the second round interpretations Managing Director, IJV, Polish Assistant Vice-President, Nordic parent, Finnish headquarters, Finnish managing director of the joint venture for the period 1992–2000, and published articles about the joint venture. The secondary data was an important supplement to the interview material, when it came to constructing the case study narrative over a 12-year period. The triangulation of data, i.e., combining sources of evidence while moving ARTICLE IN PRESS Embeddedness and networking as drivers between data collection, analysis and interpretation, revealed new issues to be covered in later interviews (Dubois & Gadde, 2002). During the joint venture visits in Poland, researcher triangulation was achieved by the participation of a second researcher in these events. This second researcher wrote observation notes, which provided an additional source of evidence and a basis for the exchange of ideas. The ideal situation for process research would be for the process to be followed in real time. In the present study the interviews and field trips took place at two different times: in the autumn of 1997 and the autumn of 2000. The description and analysis of the earlier developments are based on retrospective interview data and secondary data. Some interviewees also referred to the latest developments in their comments in the original interview transcripts. The feedback discussion in 1998 also provided a useful opportunity for data-gathering, as the preliminary research results and ideas were presented to the key informant and the subsequent feedback on these was then available. More comprehensive feedback regarding the truthfulness of the findings and interpretations of the researcher in the eyes of the managers came in from two key informants at the end of 2000. To get an idea about the last developments we contacted the Managing Director of the joint venture in February 2007. She provided us with her official yearly reports for the period 2001–2006, her unofficial presentation of the joint venture, and her description of the state of the joint venture in 2007. The analysis of this last data is summarised in Section 5.3. 4.3. Data analysis and interpretation The verbatim interview transcripts provided the raw data for the analysis. After each round of interviews, the responses were written up as chronological descriptions of the IJV development and were sent to the interviewees, who checked the accuracy of the early reports and added details if needed. The outcome was a description of the development of the joint venture through the various interaction episodes as experienced by individual interviewees. We then constructed a detailed description of the development of the joint venture based on all the individual descriptions and the secondary data. The resulting analytical report was then used for acquiring a holistic view of IJV development. The time-frame from the beginning of the joint venture process in 1989 to the year of the joint venture’s 10-year anniversary in 2000 provides the chronology that generated the first organising mechanism for the analysis. In constructing the chronology, attention was paid to key action sequences and transition points, i.e. interaction episodes and critical events in the development of the joint venture and its focal net. The narrative of the development of the joint venture includes 40 interaction episodes. These were related to radical changes adding or dissolving a relationship or incremental changes in the strength of relationships in the focal net of the joint venture (see Halinen et al., 1999). This narrative was the basis for defining the changing network context of the joint venture that is illustrated in Fig. 1. The visual mapping of a network and its change process is a challenge and is never complete. 23 A further challenge arose when we wanted to illustrate an organisational network based on interpersonal relationships and the stories of several managers. In defining the relationships, and their strength, we adopted a joint venture view and aimed to define the relationships in relation to the joint venture as an organisation and its business activities. We then imported the word-by-word interview data into the QSR N’Vivo program and reorganised the data by coding. The coding system included the basic categories of actors, relationships and actions which arose from the network action perspective outlined above. The subcategories in the coding structure and their definitions were then allowed to rise from the data. This was important in order to reveal the special characteristics of the case, and to describe the development of the IJV in the managers’ own words. The coding process included constant comparison of various documents of primary and secondary data, and the writing of notes in which emerging ideas were stored for further consideration (cf. Dawson, 1997). In addition to the triangulation of the data, we sought to maintain a continuous interplay between theory and empirical analysis (Dawson, 1997; Dubois & Gadde, 2002; Langley, 1999; Orton, 1997). The biggest change occurred when the initial analysis of the first round of interviews resulted in significant changes in the theoretical framework of the study. The dyadic parent-centred framework deduced from the previous IJV literature did not match the reality described by the managers sufficiently well. The managers talked about interactions in much wider networks. This was the basis for the development of the network action perspective on IJVs. The theoretical changes then affected the following collection and analysis of the data. In the subsequent analysis of the data we defined six periods of development. These were the result of a crosscoding of the actors, relationships and action categories, and their connection with the chronological sequence of events. During the six periods, significant changes took place in the embeddedness and actions that were primarily driving the developments. The case study narrative is presented below. 5. Network action in the development of a Nordic-Polish joint venture Below a case study of an IJV is presented, applying the network action perspective. The evolving embeddedness of the joint venture is described by reference to the primary actors and relationships in the six periods of development (see Fig. 1), and the managers’ actions that affect the network embeddedness. 5.1. Initial motives and IJV structure At the end of the 1980s a Nordic firm operating in chemical water treatment, was seeking new markets. At the time there was no chemical sewage water treatment in Poland, and only about 10% of the outlets for Poland’s municipalities and industries were being adequately purified. Moreover, only aluminium sulphate was being used for the treatment of drinking water, and for that there was only one local ARTICLE IN PRESS 24 T. Mainela, V. Puhakka Table 2 Changes in the ownership structure of the joint venture Owners 1990 (%) 1991 (%) 1992 (%) 1995 (%) Swedish water chemical company Polish titanium dioxide producer Nordic risk investor Polish Environmental Fund 50 50 – – 40 40 20 – 34 34 17 15 51 34 – 15 producer. However, a major government-owned titanium dioxide producer was generating as a side product of its operations a vast amount of the basic raw material of water treatment chemicals, namely ferrous sulphate crystal or copperas. The Nordic managers recognised the business opportunities arising from a combination of factors: underdeveloped water treatment, an emerging environmental awareness, a cheap raw material, and the opening up of the Polish market after the collapse of the communist regime. It was recognised that to exploit these opportunities to the full would mean using Polish raw materials and labour to achieve a competitive cost position in the Polish market. The Nordic firm was also threatened by price competition in its home market, since the Polish firm planned to export copperas to the Nordic countries. The Nordic managers suggested that copperas should be processed in a joint venture together with the Polish firm. Copperas was causing the Polish firm to create a big environmental problem, so the joint venture would provide a way of getting rid of the waste—as well as a chance to learn more about business. In December 1990 agreements about establishing a 50–50 joint venture were signed. Table 2 describes the changes in the ownership structure of the joint venture over time. 5.2. Evolving embeddedness of the IJV Fig. 1 shows the six periods of development for the studied IJV illustrating its focal net as perceived by the managers concerned. It shows how, over time, the net grows wider and more layered. The more complicated relationship set-up tends to call for more varied ways of acting on the part of the managers. During the initiation period in 1989–1990 there was as yet no joint venture. The early net illustrated in Fig. 1, is thus a net around the focal dyad of the major partners. However, the net is already quite big. Through the early contacts of the Nordic establishment team managers, the local market embeddedness of the joint venture began to emerge. The relationships with the governments and authorities were created for the purpose of obtaining market information. Financing questions and legal issues also led to the establishment of relationships with ministries, embassies and other institutional actors. The managers ensured the existence of demand by making contact with customers and local experts floating the suggestion of establishing a joint venture for the local production of water treatment chemicals. These relationships were then used to convince the Nordic headquarters to invest in the joint venture. The initial access to the chosen Polish partner needed a letter of recommendation from the Polish Ministry of Industry, and a visit to the Ministry was thus made. Following the letter of recommendation the Nordic managers were invited to visit the Polish parent to discuss the idea. Selling the idea to the Polish partner required using the personal power of its top managers, because some of the other managers would have preferred to handle the copperas problem without the Nordic partner. From the managerial point of view, initiation was primarily a question of opportunity recognition and convincing the parent’s top management of the feasibility of the idea by establishing some first contacts with external actors. Although there were several face-to-face meetings between managers while relationships were being created, the early contacts led mainly to weak relationships based on the reputation of the Nordic parent. At the beginning of 1991 the implementation of the joint venture agreements began. A risk investor, referred to here as NordicCo, became a shareholder in the joint venture with 20% ownership. Facilities and the most important supplies were arranged by the managers working in the establishment team. The procedures had been largely agreed when the contract was drawn up. However, differences in the values and ways of doing business between the partners with different cultural and economic backgrounds soon became evident, and led to misunderstandings. The joint venture was very dependent on its parents for resources. This resulted in its strong embeddedness in internal parental networks. However, this was not matched by any strong relationships between the managers of the parent companies. For instance, intermediation was needed to deal with the problem of plant construction exceeding its budget. The manager of NordicCo was able to understand both parties’ point of view, and to win the personal trust of both the major parents. This strong relationship was crucial to the necessary compromising between the parents. At the same time the establishment team managers were seeking to position the joint venture in the market. With its resources—knowledge, physical and human resources and local market relationships—it was prepared to start doing business as soon as possible. One interesting relationship, with a view to speeding up the creation of a market, was established via an export marketing agreement with a Czech competitor. The competitor’s chemicals were transported to Poland and the product was presented there leading to many customer relationships at this early stage. The establishment team was thus establishing contact with customers, suppliers and others. Direct relations of the joint venture were still limited to one or two weak relationships, as shown in Fig. 1. From the managerial point of view, it was a ARTICLE IN PRESS Embeddedness and networking as drivers question in the internal network of acquiring basic resources and in the external network of making an initial impression on possible customers. Production began during the period 1992–1993. At the same time the joint venture began to acquire direct customer and supplier relationships, although customer relationships were still being largely nurtured by the experts of the Nordic parent. The relationship with the biggest customer was particularly strong due to the dependence of the joint venture on these sales and to the technical cooperation between the two companies. In 1992 the Polish government devalued the Polish Zloty. The joint venture had loans in foreign currencies and found itself with a severe shortage of money. Due to these financial problems there was intensive interaction between the parent firms. The solution was to convert the parental loans into share capital. The financial situation and the legitimacy of the venture as a whole were also enhanced by the establishment of an owner relationship with a Polish governmental fund, to which 15% of the shares were sold. The development of the manufacturing and sales sides was held back by the inability of the appointed managing director to handle relations with the crucial local actors, with the Polish parent and customers, and even with IJV employees. He was on a 2-year contract and when it ended he was replaced by the controller of the joint venture who had been involved in it from the very beginning. As the joint venture evolved, its external market embeddedness became stronger. Getting resources to make the joint venture into an independent business-maker was the focus of most of the action. In building customer relations, experienced members of the Nordic parent transferred marketing knowledge to the Polish salesmen, with the result that customer confidence grew. All this called for personal interaction and personal trust between those involved, such that strong relationships began to dominate the focal net. During 1994–1996 the joint venture became more operationally independent of its parents. The focal net was extending as a result of success in getting more customers and the consequent increase in contact with transport and equipment suppliers. The Polish IJV managers dealt directly with all relations with customers, suppliers and other local actors. The support of the Nordic managers was required only in connection with particular problems, and the Polish managers were in fact being used as experts vis-à-vis more recently established subsidiaries. Due to the various technical co-operation projects, the joint venture and the Nordic parent and its other subsidiaries came to interact more intensively with one another and to form strong relationships. In relation with the Polish parent the quality of the raw material supplies and changes in the supervisory council members did cause problems. In its organisational role the Polish parent was mostly a sleeping parent who provided raw materials. Consequently the relationship was perceived as weaker than that with the Nordic parent. But in dealing with the dependence on the raw material supplies, the IJV managers had to rely on old personal acquaintances and friends, which meant that even here strong relationships were emphasised. The parents met one another only at the supervisory council meetings, and their 25 interaction was largely mediated via the personnel of the joint venture. The relative stabilisation of the business allowed the IJV managers to concentrate on the internal organisation of its business and the strategic development of its network position. In the case of the internal network this meant transferring knowledge to the Nordic headquarters and the sister companies and dealing with the resource dependence on the Polish parent. As regards the external network the intensive build-up of customer relationships also meant setting up new relationships with transport and equipment suppliers. Being at the customer’s disposal made the relationships with the biggest customers strong. In 1997 and 1998 the most critical events occurred in the customer relationships of the joint venture which lost two of its biggest customers as well as a big export tender for 1 year. These setbacks led the joint venture managers to rethink their customer strategy. They decided to reduce dependence on a few big customers by extending the customer base to include small and medium-sized customers. This meant a big change in the nature of the joint venture’s embeddedness since it was no longer possible to handle all customer relationships on a direct basis and it became necessary to rely on distributors instead. From the managerial point of view the critical issue was to legitimise the joint venture and its products in face of the pressure created by competition from the biological water treatment system and one old local competitor. In developing customer relations, strong relationships and an easily applicable and adaptable product were important factors. The joint venture began production of a new water treatment chemical to provide better service for its growing customer base. However, these issues proved insufficient to cope with the competitive pressures. Lobbying became an important undertaking. Relations with the authorities and with academics, designers and consultants became more importance in the attempts to influence both customers and the relevant legislation. This meant reinforcing the joint venture’s political relationships. All in all, the increasing local competition called for action on many fronts. During the last period analysed here, namely in 1999 and 2000 managers were engaged most consistently with securing better customer service by acquiring new resources and improving their internal organisation. They established new cooperative relationships with the chemical producers of complementary products, and with distributors, designers, transport companies and equipment suppliers. One important new arrangement involved an agency relationship with a big chemical producer in the United States. All these actions were aimed at developing the joint venture as an all-embracing problem-solver for its customers, and were all connected with raising the resources necessary for the job. The development of the joint venture is summarised in Table 3. 5.3. Networking action affecting the development of the IJV The idea here has been to show how the embeddedness of an IJV changes over time by focusing on the dimension of relational embeddedness of the network action perspective. ARTICLE IN PRESS 26 T. Mainela, V. Puhakka Table 3 Summary of the case study Development period 1989–1990 Opportunity recognition Embeddedness Network Relationship type Internal Weak/third party mediation to stakeholders Strong/internal disagreement solving Weak/authorities, governmental actors Weak relationships/potential customers Weak/third party-mediated parent relations Strong/first customer and potential customers Strong/Polish parent External 1991 Plant construction Internal External 1992–1993 Operation start-up Managerial action Internal Strong/Nordic parent External 1994–1996 Stable growth 1997–1998 Legitimising in competitive pressures External Strong/customers, potential customers Weak/suppliers Weak/Nordic financiers Strong/Nordic parent and sister subsidiaries Strong/main customers Internal Strong/Nordic parent Internal External Strong/big customers Strong/designers, consultants, academics Weak/smaller customers Weak/distributors, suppliers 1999–2000 Partnering Internal Strong/Nordic parent Strong/Polish parent External Weak/principal for an agency Strong/bigger customers By analysing the data it was also possible to identify a repertoire of action for developing relationships and their use by the IJV managers, which drove the embedded evolution of the joint venture. Table 4 provides primary data regarding these ways of acting. Convincing means actions on the part of the managers to persuade critical stakeholders to make decisions favourable to the joint venture. There were two ways in particular whereby the IJV managers convinced the crucial network actors, namely parents and customers. Firstly, the IJV Convincing Convincing Seeking information for convincing Creating initial contacts for convincing Compromising Convincing Resourcing Resourcing; transferring knowledge to IJV Convincing customers Resourcing; creating supply network Resourcing Internal organising to influence by transferring knowledge from IJV Internal organising for customer service Legitimising by adding a new product to a production line Legitimising by way of personal trust Lobbying for chemical water treatment Legitimising through better reachability Internal organising for indirect customer service Resourcing by keeping pace with technological development; supporting others in the internal network Securing daily raw materials; selling to the Polish partner Resourcing through an agency relationship Convincing establishment team managers had to persuade the Polish parent and the Nordic headquarters to invest in the joint venture. In both cases, the managers proactively built relationships with third parties, namely the Polish Ministry of Industry and potential customers, and used these relationships as weapons of persuasion. The relationships with the third parties and the resulting parental relationship can both be regarded as weak relationships, since the managers’ contacts were based on organisational roles and reputations instead of on personal trust (see Table 4). ARTICLE IN PRESS Embeddedness and networking as drivers Table 4 Network action in the development of the Nordic-Polish joint venture Action Relationship Data from the IJV Convincing Weak ‘‘Before we went to [the Polish partner] we actually visited the Ministry in Warsaw and talked to people there that we were looking for a partner. We listed the characteristics which were important to us. We knew that the answer should be this firm but by doing this we got the Ministry to send a letter to the firm. The door was already opened.’’ Vice-Managing Director, Nordic parent ‘‘It was a market about which people said: Do not go there, they do not have money even for food. I needed to get a commitment, e.g., from the city of Gdansk that if we start to produce in Poland they will buy from us. Then when I presented it to the board in the headquarters I had already created customers.’’ Vice-Managing Director, Nordic parent ‘‘Internally there was different politics in [the Polish parent] how they should continue. Some said that let’s do this [with the Nordic parent] and others that we can do something by ourselves. There was a lot of convincing of those people who didn’t want to do it with us. Fortunately, the greatest managers were working for our idea and managed to convince the others.’’ ViceManaging Director, Nordic parent ‘‘The people in my department have extremely good relations with the clients. We are friends of the clients even. Sometimes it is not easy because sometimes they call us also in other matters, not connected with our work. But it works.’’ Marketing Manager, IJV ‘‘I introduced them to new calculations. Then I remember [the project manager of the Nordic parent], he was very good friend of mine, said to me: ‘Impossible, there will be no joint venture if you introduce these figures’. I said to him: ‘I will not leave Sweden before we have solved the problem’. And it was negotiation after negotiation and then we finally compromised.’’ Production Director, IJV ‘‘It was a very good guy from [NordicCo]. Oh, I liked him very much, very qualified, smiling, silent. [y] We made a compromisey still smilingy and finally we solved the problem.’’ Production Director, IJV ‘‘This Czech firm produced similar kind of water treatment chemicals [y]. We made firstly a marketing agreement with this firm. We helped them to export to Poland because we did not yet have own production. [y] We got for example Warsaw water works as a customer and then when our production began we had a couple of customers ready.’’ General Manager, Nordic parent ‘‘He [the production manager] employed first three operators. They were specially chosen people who he knew personally from [the Polish partner], one from outside. [y] He chose the best ones.’’ Managing Director, IJV ‘‘There was Nordic expert about every second week. Simultaneously it was training of the local sales engineers. They were firstly trained in Sweden and then our experts travelled with them to meet the customers. It is en effective way to transfer knowledge.’’ General Manager, Nordic parent ‘‘We have a lot of small clients. So big number that we deal with them through distributors. It was impossible to load for such small clients here. Two years ago we didn’t have in the Polish market good distributors. But now we have two companies from Holland and we signed agreements with them. They supply now these small firm markets and that satisfies everyone.’’ Managing Director, IJV ‘‘Now we are investing in production of poly-aluminium chloride, which is a completely different product from iron-based coagulants: [The Production Manager] is busy [y] he is responsible for the investment, not the Nordic experts in fact. They are consultants for him.’’ Managing Director, IJV ‘‘I thought that asking this governmental fund as a shareholder could create an interesting effect. The fund is known in Poland and it created legitimacy in the customer base. Before that the joint venture was seen as some Nordic ‘garage firm’. But when there was suddenly a governmental fund involved there was much more trust in it.’’ General Manager, Nordic parent ‘‘From time to time we contact the authorities and inform them about what is going on. For example this year we organised a special seminar for the local authorities responsible of water and wastewater treatment.’’ Marketing Manager, IJV ‘‘As soon as we were able to start to sell coagulants in Poland this had a great impact. We could show them how chemicals are used. When these first customers see the figures showing the low investment needs and high cost efficiency and start to communicate with other potential customers, that has a tremendous effect.’’ Managing Director, Nordic parent Strong Compromising Strong Resourcing Weak Strong Internal organising Weak Strong Legitimising Weak Strong 27 ARTICLE IN PRESS 28 Nonetheless, these actions resulted in significant changes in the structure of the focal net, by extending it with a large number of weak relationships. However, when the establishment of the joint venture was confronted with unexpected problems (e.g., delay in the participation of the risk investor, NordicCo) and when internal disagreements arose in the Polish parent, personal relationships and trust were the means of convincing the Polish parent to continue. Similarly, convincing customers to try chemicals, and later to stay with the joint venture, meant developing and maintaining strong relations between the staff of the joint venture and the staff of the customer firms. Both types of convincing—relying on weak relationships with third parties and relying on personal trust in strong relationships—are typical of entrepreneurial behaviour during the creation of new ventures (see Larson, 1992). Compromising is suggested here as the second important way of acting required of the IJV managers. Compromising means taking action to achieve a win-win solution in situations where disagreement prevails. A natural element in alliances is the avoidance or managing conflict between those involved (de Rond & Bouchikhi, 2004). In the present case compromising was seen as a way of acting, and one that requires strong relationships: personal trust must develop between at least some of the representatives of the partners. What seems to be specific to the cross-cultural setting of the present case was the difficulty in developing personal relationships and trust between the managers of the parent firms. The problems that arose in organising the joint venture were largely handled by certain individuals who were able to encourage trust in both the main parents. Granovetter (1973) emphasised that in the absence of personal relationships between certain individuals any cooperative effort becomes dependent on intermediary personal contacts that can ensure the trustworthiness of each side to the other. In our case, the representative of a financier—who was regarded as a kind of neutral party by others involved—acted as such a mediator. This person possessed the appropriate kind of calm personality that won the trust of the representatives of both the main parents. The managing director and production director of the joint venture were other mediators who were capable of understanding the interests of both parents and who developed trusting relationships with the relevant managers. Relations between the parents were never strong, although the joint venture was dependent on them both. Rather, it was the IJV managers who developed the strong relations with both parents. Compromising thus needs strong relationships, which, in turn, may need creating triadic structures (see, Havila, Johanson, & Thilenius, 2004; Ritter, 2000) inside the networks. Resourcing the joint venture is a third activity for the IJV managers to influence and use dyadic relationships. We define it as resource acquisition through interaction with others. In the present case resources included physical resources such as raw materials, equipment and other supplies, as well as human resources in the form of employees and knowledge. Acquisition of the physical resources was organised mainly by the way of formal contractual arrangements as is usually in the case of normal T. Mainela, V. Puhakka loan arrangements, and parent company decisions concerning shareholder structures and supply agreements. Strong relationships were very important when it came to the acquisition of human resources. When it came to finding good personnel in a Poland in transition, the production manager’s earlier work relationships were extremely important. At the same time, the transfer of knowledge between the Nordic parent and the joint venture called for close personal relations. Thus the resourcing activities had a dual effect on the network structures. The transfer of certain hard resources led to the creation of organisationally weak relationships, while resources of the tacit and human kind were best handled by the creation or activation of strong personal relationships. Internal organising has been defined here in terms of the IJV managers’ strategic decisions about changing organisational structures, improving quality, adding new products or generally making changes so as to improve services for the customers. Some of these actions generated new weak relationships in the network. The strategic decision to start serving the smallest customers through distributors (see Table 4) is one example of this. Other internal organising called for new strong relationships or reinforcing some of those already existing. In the present case, for example, introduction of new products called for the blessing of the Nordic parent, which stemmed from trust in the capability of the production director of the joint venture and of his team. Legitimising a joint venture means gaining external approval and credibility for it. This is often achieved via the proven quality of its operations, its image, the quality of its business partners and its reputation. In the present case, and particularly at the beginning when competition was slight, a reputation for good service and a good product that was spread by word-of-mouth proved to be quite effective way of legitimising the joint venture in the eyes of its potential customers. Later, relations based on close friendship together with the existence of a tailored product, were important in winning credibility. However, under the pressures of competition with another treatment system, this venture-based way of legitimising was insufficient. Lobbying became important to influence the political decision-making. The first step was to bolster the shareholder relations with the Polish government fund for environmental protection. Later, when the modernisation of water treatment plants in Poland began on a larger scale, it was led to a great extent by designers and consultants. Thus, legitimising chemical water treatment as a treatment system meant influencing the decisions of the designers and consultants concerned, which—in the early phases of this legitimising—entailed a reliance on new strong relationships. Subsequently, however, legitimising came to mean creating and acting in a political type of weak relationship network. Acting through such relationships the IJV managers were both proactively creating the network embeddedness of the joint venture, and reacting to changes in the network. Convincing, compromising and resourcing are actions taken primarily in order to influence dyadic relationships. Internal organising and legitimising are actions taken to influence wider networks and the position of the joint venture within these networks. As regards the depth of embeddedness, we ARTICLE IN PRESS Embeddedness and networking as drivers found it to be possible to act (except in the case of compromising) via strong and weak relationships. There is a difference, however, when it comes to the kind of influence created, and the kinds of problems that can be solved, via either of these types of relationship. Although this typology of ways of acting remains tentative, it does illustrate how the networks that emerge as IJVs evolve come into being, how they are used and how they change over time. Further, the way in which the IJV managers acted in the present case can be said to represent a repertoire of successful managerial action leading to a profitable development. The joint venture has also continued to develop profitably and to grow into the 21st century. In her yearly reports for 2001–2006, the managing director has announced a growth in sales and a profit of 8–10% each year. This far surpasses the growth of GDP in Poland, which was 1.0–5.3% for 2001–2004 (Pirilä, 2005). The features of the joint venture’s embeddedness that began to appear 1999–2000 seem to have become more marked. Relations with the bigger customers are still based on close co-operation, while an increasing number of the smaller customers are served via distributors. The growing customer base means that the internal arrangements and the external relationships for logistics are becoming more complex. Marketing has been supported by the introduction of a specialised PR-agency and regular audits for maintaining and upgrading ISO quality standards. There have been several rounds of investment in production capacity and product variety. The biggest investment has been the acquisition of a Polish competitor in 2004. By means of this acquisition the joint venture became the producer of a full range of water-treatment coagulants, as well as increasing its assets by 55%, its expected sales by 40% and the number of its employees by 50%. It is impossible to say anything specific about the managers’ actions here on a basis of this secondary data alone. Nonetheless, some indications of their convincing, resourcing, internal organising and legitimising behaviour does appear in the reports. The acquisition may have emphasised compromising or the need to create new ways of acting. For instance, a lot of the managerial action was said to have focused on integrating the two plants. 6. Discussion and conclusions There has been a wealth of research focusing on firms’ entry or operation modes, with special attention to the characteristics of IJVs as governance structures for parent-firm operations. Much research has also explored the benefits and problems of international, interfirm co-operation in the shape of joint venturing. Recent research on MNCs has looked particularly at the role of the subsidiaries. However, we seem to know less about the development of IJVs in wider networks of relationships or the managerial challenges arising from network embeddedness. 6.1. Theoretical implications We have been looking at the development process of an IJV. The network action perspective suggested here focuses on the joint venture itself and allows us to analyse the way it 29 develops within wider networks of relationships. The emphasis is then on individual-level managerial action as a driving-force behind changes in the embedded character of the venture. We offer two contributions in particular to the theory of IJVs. First, we identify three interactive levels of operation that affect IJV development: individual managers, the joint venture as an organisation, and networks of relationships. The development of the joint venture is determined by a continuous interplay between individual-level managerial action, organisation-level changes in the joint venture and network-level changes in the nature of the embeddedness. The individual managers’ actions affect the way the joint venture is defined as an organisation. Here they are both constrained and aided by the network in which the joint venture is embedded. As a result of managerial action the joint venture is related to its focal net, i.e., to the organisations that the managers regard as being relevant to its business (see e.g., Anderson et al., 1993). For example, if the joint venture is to be seen as a comprehensive problem-solver, the managers have to do some convincing. The convincing, in turn, may call for the development of special products for certain customers. This is often impossible without trusting relationships among technical persons within the organisations. The individual-level relationships that are thus created mean that the joint venture becomes more firmly embedded in the customer network as well as leading to changes in the organisation’s product portfolio. Secondly, we emphasise managerial action as a drivingforce behind IJV development. Here, diverse capabilities of locally operating managers are crucial. Naturally, the parent companies often control a good many resources (Butler & Sohod, 1995), but the operative managers in the IJV establishment teams and in its management team create, and maintain, relations with both internal and external actors. The existence and nature of these relationships greatly affect the development of the joint venture’s business. On the basis of our own study we suggested five specific ways in which IJV managers could act in order to influence both relationships and the network as a whole. The development of concepts for studying such ways of acting is still at a tentative stage but it is expected that this core element in IJV development will attract the attention of further research. The parent-centred approaches, we suggest, can help us to understand the development of IJVs especially in their early phases. At that point it is natural that the emphasis should be on the parents and their contributions because they establish the joint venture. However, early in its development it is inevitably confronted with the challenges of any new ventures when the managers want to create a favourable position for it in its particular markets. Various relationships—customer, supplier and other—may increase in importance, thus greatly affecting its development. It is in the recognition of just these changes that the strength of the network action perspective lies. We have studied IJV development in the specific context of Polish transition markets. The context is likely to have emphasised strong-relationship-based embeddedness and ways of acting (see e.g., Salmi, 1995). However, we also believe that the turbulent context in this case made the ARTICLE IN PRESS 30 network action especially transparent, as weaknesses in the market structures and the often drastic changes that occurred, made quick and innovative reaction necessary as well as constantly providing opportunities for proactive business development on the part of the IJV managers. As regards future research, the network-action perspective requires that the joint venture be taken as the focal actor in a network of relationships with various actors whose importance varies at different times during its development. Also, we need to look at the individual-level actions, to overcome the deficits noted by, e.g., Spekman et al. (1998, p. 748) who claimed that ‘‘little is known about the managerial requirements of the different life cycle stages through which alliances pass’’ and ‘‘too little attention is given to the alliance manager as a central figure in determining the success/failure of an alliance’’. Managerial action in IJVs needs to be examined in greater depth in future research. 6.2. Managerial implications Adopting a network-action perspective we have suggested that the posited inability of previous research to help managers leading IJVs to achieve better long-term results (e.g., Spekman et al., 1998), stems partly from the lack of attention paid to the context-dependence of the joint ventures. In most previous research, the network of the joint venture is restricted to the parent relationships. Or the joint venture’s development is analysed in terms of the parent relationship. However, the development of an IJV is greatly affected by a much more extensive network than just the parent-dominated triad. What is developing, and what has to be managed, is thus a complex network of continually changing interactive relationships. Researchers and managers often see the initiation of IJVs as a strategic decision about the most appropriate mode of entry into foreign markets. Our longitudinal study, however, suggests that it is an emergent decision whereby a commonly held understanding of the feasibility of the joint venture is constructed through interaction. Embedding the idea of a joint venture in wide networks of relationships could be described as the ultimate managerial question (cf. Gulati, 1998). This kind of embedded idea generation is likely to be especially important in turbulent business environments where reaching of the right decision is sure to be difficult. It is not a question of top management reaching a strategic decision based on the appropriate analyses. Rather, the idea is often sold to crucial stakeholders through middle management actions. In this way middle managers become the ‘‘fathers of the venture’’, as one of our interviewees put it. As regards the choice of partner, the present study has emphasised that although the choice itself may be quite straightforward, like choosing a crucial raw material source, convincing the partner may mean involving many different stakeholders. At the same time we have noted the instability of IJVs (e.g., Inkpen & Beamish, 1997), which may mean, for instance, that the very ownership structure may be renegotiated as the joint venture evolves. Nonetheless, through interacting in relationships the managers are able to secure their interests (e.g., majority ownership) T. Mainela, V. Puhakka and to stabilise the business of the joint venture, for example, by involving new partners. A challenge for any new market entrant is to position the venture concerned and to legitimise its existence in the eyes of other market actors. Social networks play an important part in this. Legitimacy and a favourable market position can seldom be built on an organisation’s reputation or on high quality products only. The managers need to get personally involved, build legitimacy and position with the help of existing social relationships and the establishment of new ones. Our study has laid particular emphasis on convincing and legitimating in local customer networks. The managers of the joint venture put much effort into continuously organising of the value activities with the needs of the end-customers in mind. Finally, we would like to emphasise the dynamic nature of the IJV development, confronting managers with everchanging challenges. IJV development is an inherently insecure process requiring intensive involvement of the managers. 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