Dynamics of Joint Ventures between Multinational Enterprises and Local Firms in Emerging Economies: The Case of Financial Services

Abstract

Emerging economies present the case of rapid changes in markets and institutions. In this context, joint ventures between multinational enterprises (MNEs) and local firms are subject to a gamut of calculations between the partners for arriving at mutually beneficial contractual arrangements. In this note, we analyze two case studies utilizing a combination of the intangible asset theory of MNEs, Williamson’s concepts of asset specificity and holdup, and the resource-based theory of the firm. Both case studies involve financial services, namely, credit cards and insurance products. In these two cases, a large local bank provided the brand name, while the MNEs provided the back-end technical-support, which is a seeming reversal of the normal pattern in emerging markets. From a resource-based theory perspective, at the inception of such joint ventures, investments in relation to specific assets may be small and the possibility of holdup seems remote, but when markets become complex the possibility of holdup increases dramatically. In this kind of context, joint venture partners have to adopt a dynamic perspective and formulate ex ante strategies for addressing the holdup problem, even though static analysis may suggest that there is only limited or no possibility of such holdup. Our analysis brings forth fresh insights on the issue of joint ventures, especially in the context of financial services, in an emerging economy.