Chapter 8: Dynamic Evolution of Equity Joint Venture Relationships: Role of the Parent Companies and Joint Venture Control

Equity joint venture (JV) relationships have a complicated organizational form. AJV relationship is a long-term transactional relationship between at least two independent companies that have established a new legal entity for jointly executing new activities. The independent companies are the owners or parent companies of the new legal entity or joint venture (JV). AJV relationship includes both hierarchical and horizontal (or lateral) relationships. The relationship between the parent companies and the JV itself can be described as a hierarchical relationship (Kogut, 1988). Through their ownership, the parent companies have an authority position vis-à-vis the JV. However, as the parent companies possess this authority position jointly, the horizontal relationship between the parent companies also plays a crucial role in the control of JV relationships. In this horizontal relationship, parent companies cannot just enforce their will on each other by means of an authority position. To exercise control in such a horizontal relationship, parent companies have to turn to other control mechanisms, which obviously adds complexity to the control of aJV relationship (which we from now on callJV control).