Governance Structure and the Creation and Protection of Technological Competencies: International R&D Joint Ventures in China

International research and development (R&D) joint ventures have been widely used by multinational enterprises (MNEs) to enhance knowledge creation in a global network of foreign subsidiaries while at the same time, managing the critical task of protecting the knowledge transferred and created. In emerging economies where institutions for protecting intellectual properties are likely to be weak, equity joint ventures (EJVs) are often used to meet the needs for knowledge protection by aligning the interests of partners in collaboration. However, the advantages of using EJVs come at a price—higher organizational cost and lack of flexibility. This study suggests two key factors that would affect the choice of EJVs as a risk-mitigating mechanism in protecting technological competencies: the scope of R&D activities and the types of joint venture (JV) partners. We propose that MNEs can reduce their use of EJVs when the scope of R&D activities is limited to research-oriented ones or when academic institutions are chosen as local partners. Furthermore, a large cultural distance between the host and home countries of MNEs tends to strengthen these effects. Collecting data from China Business Review, Business China, and the LexisNexis and Proquest databases, the authors conducted an empirical test with data on 319 international R&D JVs established in China during 1995–2002. The results largely support these hypotheses.