This study assesses the impact of learning structures and processes, trust, and relative absorptive capacity on Knowledge Acquired from the Foreign Parents and on IJV performance. The sample consists of Hungarian IJVs which were surveyed originally in 1993 and resurveyed in 1996. On average the IJVs in our sample learned more and performed better in 1996 than in 1993. Results indicate that Training by the foreign parent and Relative Absorptive Capacity are significantly associated with Knowledge Acquired from the Foreign Parent. IJV performance is related to the IJV knowledge utilization through its business strategy, training and development, and utilization synergies. Our study shows that Knowledge from foreign parents mediates the relationship between some learning processes and IJV performance as well as between all three measures of relative absorptive capacity and IJV performance. 

International joint ventures (IJVs) play an important role in economies undergoing the transition from monopolistic industries with state allocated resources to market economies with competition for market share and resources. IJVs have the potential to meet the needs of not only the foreign and domestic firms which establish them, but also the needs of the host country. Foreign firms view their local partners as having resources that are useful and/or too costly to replicate (Hennart, 1991), and, hence, as a means of establishing a viable long-term presence (Yan & Gray, 1994; Parkhe, 1991). Domestic firms view their foreign partners as sources of knowledge regarding technology, decision-making processes, marketing, global support, and managerial know-how (Lyles & Salk, 1996; Pearce & Branyczki, 1996; Yan & Gray, 1994). National leaders similarly view the foreign firms as reservoirs of technical know-how and managerial knowledge (Child and Markoczy, 1993; Hisrich and Szirmai, 1993; Lyles & Baird, 1994), in addition to sources of foreign direct investment, all of which can accelerate their country's economic development. 

At the nexus of these complementary interests is the IJV itself -- a separate company formed and jointly owned by the foreign and domestic partners. Transferring knowledge between organizations is always difficult (Suzlanski, 1996) and the disparity between firms in established and emerging economies adds to the challenge. Forming a separate IJV organization facilitates learning by providing the expectation of a stable, long-term relationship which allows trust and knowledge sharing to develop (Beamish & Banks, 1987). 

The relationship between the partners and IJV is analogous to that of parents and a child. It is in both parents' interests to create structures and processes that enable the child to learn quickly and effectively--especially from the foreign parent (Inkpen & Beamish, 1997; Lyles and Salk, 1996; Nonaka, 1994). This ensures the survival of the IJV, the first step toward achieving each party's objectives. Note that IJVs are not typically parent-parent "learning races" as described by Hamel (1991). Instead they are collaborations which create competitive advantage by using the joint venture organization to create, store, and apply knowledge (Grant & Baden-Fuller, 1995). Thus, a central concern of all parties is how to manage foreign parent-IJV learning to enhance the capabilities and performance of the joint venture. 

Given the importance of learning from foreign parents to the ultimate success of IJVs, surprisingly little is known about the structures and processes needed to support it. In the lone study of this type of learning, Lyles and Salk (1996) found articulated goals for the IJV and the provision of training, technology, and managerial assistance by foreign parents to be associated with acquiring knowledge from the foreign parent. In keeping with the predictions from the literature, the acquisition of knowledge from foreign parents was found to be positively related to IJV performance. Inkpen (1997) identified four learning facilitation processes -- technology sharing, IJV- parent interactions, personnel movements, and flexible partner intents -- that are similar to those established in the Lyles and Salk (1996) study. However, the focus of the Inkpen study is learning by the foreign parent (harvesting), and the relationship between learning and IJV performance are not explored. 

Lyles and Salk's (1996) study produced important insights, but their study has limitations. Because their data were collected only a few years after major economic reforms, the average age of IJVs in their sample is less than 5 years; yet it is possible that the performance impact of new knowledge from foreign parents may decrease over time. This may occur because the IJV becomes more competent, because its local managers become more confident in their own administrative heritage, or both. Moreover, their data are cross-sectional in nature, only allowing for assessment of associations among static characteristics. There could be a lag between accumulation of knowledge from a foreign parent and IJV performance improvements as well as cumulative effects of prior learning and prior performance. Thus, a more complete understanding of the foreign parent-IJV learning requires examining IJV learning over time, and for older, as well as younger, IJVs. 

Toward that end, we propose and test a two-stage model that distinguishes between an IJV learning from its foreign parents and its use of that knowledge to enhance firm performance. Three sets of predictors of effective learning from foreign parents are contrasted: the IJV's learning structures and processes previously identified by Lyles and Salk (1996) and Inkpen (1997), the level of trust between the parents, and the IJVs relative absorptive capacity for its foreign parents. A number of researchers have recently theorized that trust is a prerequisite for learning in IJVs (e.g., Florin, 1997; Inkpen & Curall, 1997). However, this prediction has not been empirically tested. Relative absorptive capacity is a construct developed in the context of R&D capabilities and has not been previously applied to IJVs (Cohen & Levinthal, 1990; Lane and Lubatkin, forthcoming). It captures the important role of "student-teacher" similarities in learning between organizations. Our thesis is that while the structures and processes identified by prior IJV research may facilitate the acquisition of knowledge from foreign parents, they are of limited use absent trust and relative absorptive capacity. The second stage of our model depicts IJV performance as a function of the knowledge acquired from foreign parents, the IJV's business strategy, and its ability to leverage that knowledge through training and personnel development. Thus, our model proposes that knowledge acquired from foreign parents mediates the relationship between structures, processes, trust, relative absorptive capacity, and IJV performance. We test our two-stage model using data from Hungarian IJVs collected in 1993 and 1996. 

IJV formation has been linked to a variety of strategic objectives. These include risk reduction, economies of scale and scope, and access to technology or markets (Beamish & Banks, 1987; Contractor & Lorange, 1988; Hennart, 1988). More recently, researchers have begun to explore the implications of another objective: organizational learning (Hamel, 1991; Inkpen & Crossan, 1995; Inkpen, 1997; Kogut, 1988; Lyles & Salk, 1996; Parkhe, 1991; Pucik, 1991). IJVs can provide firms with access to knowledge embedded within other organizations and facilitate the internalization and adaptation of partner skills and capabilities. Huber (1991) refers to this type of learning as "grafting," the process by which an organization adds to its knowledge base by internalizing knowledge not previously available to it. 

While such learning is predicated on the two organizations possessing different and complementary knowledge, skills, and capabilities, those differences are a two-edged sword. Some knowledge differences are needed to create the potential for learning, but the difficulty in acquiring new knowledge increases with its degree of unfamiliarity (Cohen & Levinthal, 1990). 

Tiemessen, Lane, Crossan, & Inkpen (1997) suggest that there are three types of learning in IJVs: knowledge transfer, transformation and harvesting. Transfer is the movement of knowledge between parent firms, either directly or through the IJV. Research on this type of learning has primarily focused on the transfer of firm-specific technologies (e.g., Davies, 1977; Hamel, 1991; Inkpen, 1997; Kogut & Zander, 1993; Pucik, 1991) and other easily transported, interpreted, and absorbed knowledge (Hamel, Doz, & Prahalad, 1989). Learning through transfer requires incorporating what one's partner or parent organization does, integrating it into one's own systems or changing one's systems or resources to imitate it. Mechanisms for such learning can include explicit goals and plans and training programs (Lyles and Salk, 1996). 

Transformation is the process whereby existing knowledge is extended and new knowledge is created. In order to effectively leverage sources of competitive advantage internationally, firms must often adapt their technologies, systems, management practices, or all three to the local environment (Casson, 1993). This is especially true when entering new markets or facing significant cultural differences. In such cases, collaborating with a local partner ensures correct adaptation and allows the foreign parent's management to improve its own capabilities. This process is at the core of the MNC, exchanging firm-specific knowledge of production or marketing for market-specific knowledge of the local economy, politics, and customs (Beamish, 1988). Such information exchanges require an IJV organization that fosters flexibility and inventiveness. 

Harvesting involves the retrieving of knowledge that has already been created, tested, and found valuable within the IJV and internalizing into the parent or IJV organization for use in other contexts. This is a complex process that is fundamentally different from transfer or transformation, requiring more managerial intervention to bring about. For example, Lyles (1988) found that in order for parent firms to harvest knowledge created by IJV activities, the parent's top management must play an active role in overseeing the IJV and communicating with the IJV's managers. Inkpen (1997) suggests that technology sharing, interactions between parent and IJV personnel, the movement of personnel between parent and IJV, and the strategic integration of the IJV with the parent as key processes in knowledge harvesting. When foreign partners succeed at harvesting knowledge from their IJVs, this can shift the balance of power between a set of parent firms and create instability in the IJV (Inkpen & Beamish, 1997). 

These three types of learning, though distinct in their objectives and processes, are interdependent. Indeed, Tiemessen et al. (1997: 374) depict them as one system of iterative knowledge flows between and among the parents and the IJV. We contend, however, that one portion of this learning system, knowledge acquired from foreign parents by the IJV, is more important to IJV success than the others. Learning from foreign parents, especially in contexts such as transitional economies, is the engine that drives the system -- the starting point of the system of knowledge flows. Without learning from foreign parents, the IJV organization might have difficulty in screening its environment and allowing knowledge to flow across the IJV system. Such flows are necessary for subsequent transformation and harvesting of knowledge. Without learning from foreign parents, the survival of the IJV might be jeopardized (Inkpen & Beamish, 1997; Lyles & Salk, 1996). And as the IJV is the raison d'être for the collaboration between the parents, the early failure of the IJV would end their association and cut short efforts at parent-to- parent knowledge transfers. Thus, understanding the structures and processes which facilitate IJV learning from foreign parents is central to understanding the entire IJV learning system. 

Prior research on facilitating IJV learning from foreign parents has focused on the structures and processes needed. Lyles and Salk (1997) found that an IJV's capacity to learn is associated with the structure of its mode organization (its flexibility) and its use of mechanisms like articulated goals and objectives to focus both IJV and foreign-parent managers on the knowledge to be transferred. They further asserted and found that active involvement by the foreign parent--in terms of providing management training in the IJV and having a division of labor that explicitly mandates transfers of competencies and technology from the foreign parent--were significantly associated with both knowledge acquisition and with their measures of IJV performance. Conflicts identified as cultural in nature had a negative impact on knowledge acquisition from the foreign parent, but only significantly in the case of 50/50 equity arrangements. Finally, the high knowledge-acquiring IJVs in their sample (upper 1/3) made significantly more use of foreign parent expatriates than did low-knowledge acquiring IJVs. 

Inkpen (1997) studied knowledge management by American parent organizations in IJVs with Japanese partners and found a similar set of processes and constructs to be important. A receptive learning environment (Inkpen, 1997:357) bears similarity to the way Lyles and Salk (1997) talk about organizational flexibility and adaptability. The importance of having a learning intent and commitment to the IJV create levels of interaction and targeting of knowledge to be transferred. Transfers of personnel were also found to be important. 

These insights into foreign parent-IJV learning provide a foundation for understanding that phenomenon. However, it is unlikely that merely adopting the structures and processes identified by these studies will by itself bring about effective learning. Other factors will likely matter, particularly those related to the relationships between the IJV organization and its parents and between the parents themselves. Prior research suggests that two aspects of those relationships in particular, trust between the parents, and the IJV's capacity to learning from specific parents, may play a particular important role in facilitating parent-IJV learning. (See the left side of Figure 1.) 

Trust and IJV Learning 

Trust is a subjective experience that refers to confidence in the reliability of a partner and the perception that another has fulfilled its promised obligations and intends to continue to do so in the future (Johnson et. al., 1996). It lies at the center of relationships and determines how one party treats the other (Robinson, 1996). Wathne, Roos & von Krogh (1996) contend that trust develops over time as a consequence of dependability and predictability and leads to openness (Makino & Delios, 1996; Inkpen and Beamish, 1997). 

Trust and its by-product, openness, can influence the knowledge gained from the foreign parent in joint ventures (Beamish, 1988; Harrigan, 1986). Several authors go so far as to argue that learning in IJVs depends upon a high level of trust (Buckley & Casson, 1988; Inkpen and Currall, 1997; Lyles & Baird, 1994; Smith et. al.., 1995). Trust influences learning between organizations because without it, "the information exchanged through the parents directly or indirectly through the JV may not be highly accurate, comprehensive or timely" (Inkpen, 1997:359). Trust is particularly important in established, long-term, relational collaborations where it functions as a social control mechanism and risk reduction device (Florin, 1997). In that setting, trust can help to reduce the costs of transaction costs (Kogut, 1988; Parkhe, 1993) and improve the efficiency of resources and knowledge exchanges between organizations. Simply put, the level of trust will influence the extent of knowledge exchanged (Inkpen, 1997; Johnson et. al., 1996). We therefore hypothesize that: 

Most research on learning in IJVs and other collaborations alliances has implicitly assumed that each organization has a certain ability to learn from other organizations. Cohen and Levinthal (1990: 128) term that general ability 'absorptive capacity,' a firm's ability "to recognize the value of new, external knowledge, assimilate it, and apply it to commercial ends." They suggest that absorptive capacity is a by-product of prior innovation and problem solving, and is itself dependent on the individual absorptive capacities of the organization's members. 

Implicit in Cohen & Levinthal's work is the assumption that absorptive capacity is a general or absolute characteristic of an organization. That is, an organization has one level of capability to learn from any other organization and for any purpose. This absolute view of absorptive capacity has influenced how subsequent researchers has theorized about and measured absorptive capacity. For example, studies of the U.S. banking industry (Pennings & Harianto, 1992a & 1992b) and of the U.S. pharmaceutical industry (Nicholls-Nixon, 1993) adopt the absolute view of absorptive capacity in their theories and measures. Within the IJV literature, Lyles and Salk (1997) indirectly assessed the absolute absorptive capacity of IJV organizations using measures of organizational flexibility and adaptability. 

There is, however, evidence that an organization's capacity to learn is not absolute but rather varies with the learning context. Hamel (1991) observed that alliance partners vary in the "transparency" of their organization and of their skills, and argues that this transparency influences learning between partners. Similarly, Parkhe (1991, 1993) found evidence that differences in partner nationality and culture will negatively influence the success of an alliance, particularly the ability to benefit from knowledge spillovers. 

Research on individuals' cognitive structures and problem-solving (e.g., Ellis, 1965; Estes, 1970; Bower & Hilgard, 1981) suggests these broad types of firm differences, though important, are unlikely to be the only determinants of absorptive capacity. An individual's ability to learn is greatest when the new knowledge is related to what the student already knows, and when the student and teacher share similar cognitive structures. Given Cohen and Levinthal's (1990) suggested link between individual and organizational absorptive capacity, it therefore is likely that similar factors will influence an IJV's ability to learn from its foreign parent. 

One attempt to specify those factors is the theory of relative absorptive capacity (Lane, 1997; Lane & Lubatkin, forthcoming). It proposes that a "student firm's" ability to learn from a specific "teacher firm" is dependent on (a) its familiarity with the new knowledge offered by the teacher firm, (b) the compatibility of the student and teacher firms' values and norms, and (c) the similarity of the student and teacher firms' operational priorities or "dominant logics" (Prahalad & Bettis, 1986; Bettis & Prahalad, 1995). Thus, effective interorganizational learning is suggested to be largely determined by a firm's relative capacity to absorb knowledge from a specific source, not its absolute absorptive capacity as suggested by Cohen and Levinthal (1990). Lane and Lubatkin found support for this theory in a study of R&D capability transfers between US pharmaceutical and biotechnology firms. Furthermore, their measures of relative absorptive capacity were shown to have greater explanatory power than the established measure of absolute absorptive capacity (R&D spending). 

To understand the importance of relative absorptive capacity to the transfer of organizational expertise or capabilities, consider the relationship between a computer operating system, a program, and the type of computer in which they reside. A program represents a proven method for accomplishing an important activity (handling complex calculations, creating and revising text). An operating system controls and coordinates the various pieces of hardware that make up a computer and establishes rules for how programs interact with the hardware, with the operating system, and with other programs. The nature of those rules are will be heavily influenced by the purpose of the computer: a home PC optimized for ease of use, a desktop publishing workstation optimized to match screen and print images, or a math intensive engineering workstation. In order to move a proven method (a specific program or capability) from one entity (a computer or organization) to another, the underlying infrastructures (the operating systems or values and norms) must be sufficiently similar. If not, the solution, though desirable, cannot be assimilated. If the transferred program or capability was not developed within an environment with similar priorities, it may have limited value to the recipient, or even conflict with existing programs or capabilities, and be discarded. 

Applying the concept of relative absorptive capacity to IJVs suggests 

Unless the IJV has some understanding of its foreign parent's operations and practices, it will have difficulty understanding their expertise and capabilities. Unless the IJV's culture is compatible with that of the foreign parents and their relationship is relatively free of cultural misunderstandings, it will have difficulty assimilating their expertise or capabilities. Unless the IJV and the foreign parents are in related businesses, the expertise and capabilities offered may not fit the IJV's dominant logic and thus fail to be fully integrated into the IJVs knowledge base. Thus, while trust will encourage the sharing of valuable knowledge, and adopting certain structures and processes will facilitate its transfer, an IJV's ability to understand, assimilate, and utilize knowledge from its foreign parent fundamentally rests on its relative absorptive capacity for those parents. This suggests 

Prior research on JV learning and performance has primarily focused on the importance of knowledge transfers to the parent's performance (e.g., Kogut & Zander, 1992; Szulanski, 1996). Knowledge acquired by the IJV organization from its foreign parents should influence its performance as well. Porter (1986) notes that leveraging the knowledge, capabilities, and skills of a foreign parent can enhance the competitive advantage and performance of an IJV. Lyles and Salk (1996) found evidence of this with regard to relatively young IJVs. 

While it is possible that the performance impact of knowledge from foreign parents may decrease over time as the IJV's meets its original needs and begins to develop its own capabilities, the nature of transitional economies makes continued learning valuable. In his analysis of strategic management in sophisticated, high velocity or "hypercompetitive" markets, D'Aveni (1994) argues that competitive advantage fundamentally rests on the ability to continually learn, adapt to environmental changes and shape the direction of market changes. This, in turn, forces firms to learn from highly skilled organizations to speed their development of their own knowledge and capabilities. Organizations based in transitional economies generally lack the resources and managerial sophistication D'Aveni ascribes to hypercompetitive firms. However, transitional economies are marked by the long periods of rapid and discontinuous change that are the essence of a hypercompetitive environment. Thus, while IJVs in transitional economies are rarely hypercompetitive themselves, the environment they face places the same premium on learning from highly skilled organizations that a hypercompetitive market does. This leads us to propose 

IJV Business Strategy 

The fundamental choices in business strategy available to firms in established market economies can be categorized as cost leadership or differentiation (Porter, 1980). These generic strategies, along with most strategic choice theories, assume a market economy in which the legal environment supports property rights as well as the ability to reduce transaction costs (Peng & Heath, 1996). In former communist countries, however, the institutional framework creates a far different environment (Child & Markoczy, 1993). The governments still control much of the access to resources and to established distribution channels (Brouthers & Bamosy, 1997; Peng & Heath, 1996), and political influence plays an important role in governing their use. 

This especially poses problems for new firms and small- and medium-sized firms. They lack the bargaining power to gain enough resources and access to distribution channels to compete on the basis of cost with state-owned enterprises or large enterprises. They frequently lack access to the financial institutions. However, some small-to-medium sized firms in transitional economies possess other resources which the large enterprises do not. When properly utilized, these resources can produce a competitive advantage for a small-to-medium sized firm despite the forces arrayed against it. 

In the case of IJVs, they have both knowledge of the domestic market and access to foreign expertise about marketing, service, and product development. This knowledge can be used to avoid direct competition with large and state-owned enterprises, develop distinct competitive advantages, and help to further expand demand in the transitional economy. IJVs that acquire knowledge from foreign parents related to cost leadership will face far more obstacles to turning that knowledge into competitive advantage. Thus, the more IJVs emphasize differentiation, the greater their performance will tend to be. 

While some of the knowledge an IJV acquires from its foreign parents may be acted on by the individuals directly involved in the learning, it is more likely that the knowledge will have to be adapted and disseminated internally before it can be commercially utilized (Cohen & Levinthal, 1990). Boyacigiller and Alder (1991) suggest that because of differences in global environments, knowledge transferred by foreign firms may not directly fit the local context. This may in part account for the lag between the acquisition of knowledge and its influence on decision-making (Fiol & Lyles, 1985). The mechanisms needed to adapt and disseminate new knowledge varies with the type of knowledge. For example, the R&D literature documents the success of in-house conferences, symposia, and knowledge brokers for disseminating scientific knowledge . In transitional economies, the knowledge acquired from foreign parents tends to relate to skills in management, marketing, and decision-making. Such skills are best adapted and disseminated through the training and development of an organization's staff. In addition, managerial training can help managers in transitional economies overcome behavioral patterns developed while operating in centrally owned economies but inappropriate for market economies (Child & Markoczy, 1993). Thus, an IJV's ability to train and develop its own personnel can help its performance in two ways: (1) by adapting and disseminating the new knowledge acquired from foreign parents, and (2) by helping managers develop the new skills needed to compete in emerging markets. Hence, 

We have proposed that knowledge acquired from foreign parents, business strategy and training competence will each be positively associated with an IJV's performance. Yet if the logic for each of these relationships is correct, then there should also be a cumulative effect. Firms that can effectively learn from their foreign parents and also emphasize differentiation in their strategic decisions should, ceteris paribus, have higher performance than firms who excel at only one or the other. Similarly, firms that can effectively learn from their foreign parents and also are competent in training and personnel development should have higher performance than firms that are less effective in those areas. This suggests that those IJVs with all three characteristics (high learning from foreign parents, differentiation, and competence in training and development) should enjoy special knowledge utilization synergies which, in turn, lead to even higher performance. 

Underlying the two-stage model depicted in Figure 1 is the belief that the acquisition of knowledge from foreign parents has certain prerequisites and that its commercial utilization has other prerequisites. Both are important to the health and profitability of an IJV and neither is sufficient by itself. However, research to date has tended to emphasize the knowledge acquisition component of IJV learning and understate the importance of knowledge utilization. This model restores the balance between these two components of IJV learning by proposing that the acquisition of knowledge from foreign parents mediates the relationship between the prerequisites of knowledge acquisition (learning from foreign parents) and IJV performance. 

Data 

Our model is tested using data on a sample of Hungarian IJVs collected in1993 and 1996. This is an appropriate context for testing our model for two reasons. First, the Hungarian economy is widely-recognized as being in transition and the private firms in it are playing an increasingly important role (Lane, 1995). Second, we are studying members of the same sample first studied by Lyles and Salk (1996) by building on their survey data they collected in 1993 and adding to it data from a second survey in 1996. The 1996 Survey contains new items as well as the items from the earlier survey. Our sample is the subset of their sample that survived to 1996, responded to the second survey, and provided usable responses. Revisiting these firms facilitates the comparisons between our model and theirs. 

The original Lyles and Salk survey in 1993 was a stratified sample where the sampling frame was determined in cooperation with a Hungarian government agency to intentionally ensure inclusion of a representative diversity of industries. For our 1996 resurvey of these organizations, all organizations surveyed in 1993 were contacted again and of those still in existence our response rate was 44%. Our sample consists of firms with complete data for 1993 and for 1996. A comparison of the IJVs in our sample and those surveyed in 1993 but not in our sample reveals no significant differences in terms of the means for age, size, or knowledge acquired from foreign parents in 1993. The firms in our sample did, on average, have higher performance in 1993 than those not in our sample. This is not surprising as firms with high performance in 1993 are more likely to have survived to 1996 than firms with low performance in 1993. 

Measures 

Data from 1993 was used to create two measures: Prior Knowledge Acquired from Foreign Parents and Prior IJV Performance. All other measures in this study use data from the 1996 survey. 

Knowledge Acquired from Foreign Parents. The knowledge acquired from foreign parents in 1993 and in 1996 was measured by a five-item scale based on Likert-type responses to the question "To what extent have you learned from your foreign parents (a) new technological expertise, (b) new marketing expertise, © product development, (d) managerial techniques, and (e) manufacturing process (with 1 = little and 5 = to a great extent). The Cronbach's alpha for these five items was .88 for the 1993 data, and .96 for the 1996 data. 

IJV Performance. Both the 1993 and 1996 surveys included two sets of performance scales. The business performance of the IJV was assessed using four five-point Likert items (1=poor and 5=excellent) on the IJV's performance in terms of increasing business volume, increasing market share, achieving planned goals, and making profits. The general performance of the IJV was assessed using a three item scale that summarizes how the Hungarian parent, foreign parents, and IJV respondent evaluate the IJV's overall performance. Factor analysis of the 1996 data revealed that the items for both performance scales where unidimensional. The responses for the performance items were standardized and then added to create an overall IJV Performance Index for 1996 (alpha = .87). The performance measures for 1993 were similarly combined to create a measure of IJV Performance Index for 1993 (alpha = .85). 

Learning Structures and Processes. The IJVs use of structures and processes to facilitate learning from foreign parents was assessed using measures developed by Lyles and Salk (1996) but based on data collected in the 1996 survey. The IJV's Flexibility and Adaptability was measured using a three-item scale of Likert-type items based on the extent to which the IJV is flexible and adapting to change, is creative, and rewards performance (alpha = .67). Contributions of Management Support by Foreign Parents to the IJV was measured using a six-item that summarizes the degree to which the foreign parent(s) contribute to the IJV sales/marketing support, managerial resources, administrative support, emotional support, training, and time (alpha = .82). The extent to which managers in the IJV were given education and Training by Foreign Parents was measured by a single item (1=little, 5=great extent). The IJV's use of Formal Goals and objectives was also measured with a single item (1= either or both written, 0=neither written). The Specialization by Foreign and Domestic Parents was measured using a single item on the extent to which the foreign parent(s) provides technology to the IJV while the domestic parent provides the manufacturing capability (1=little, 5=great extent). 

Trust. The level of Trust Between Parents was measured using a single item (1=low level of trust, 5=high level of trust). 

Relative Absorptive Capacity. Relevant prior knowledge was measured using the scale for Knowledge Acquired from Foreign Parents in 1993 described above. Cultural differences are easier to detect than cultural compatibility. Accordingly, the Cultural Compatibility of the domestic and foreign parents was measured by reverse scoring a two-item scale on the extent to which cultural misunderstandings and cultural differences have been issues in the IJV (alpha = .91). The Relatedness of IJV's and Foreign Parents Businesses was measured by reverse scoring a single item for unrelatedness (in reverse form: 1=related, 0=unrelated). 

Knowledge Utilization. The IJV's Business Strategy was measured using a six-item scale on the degree to which the IJV emphasized over the past two years: developing new products, promotion and advertising expenditures above industry average, a broad product line, extensive customer service capabilities, highly trained personnel, and strong influence over the channels of distribution (alpha = .75). IJV Training and Development Competence was measured using a two-item scale on how effective the IJV was in the prior year with regards to providing adequate worker training and improving management skills (alpha = .72). Knowledge Utilization Synergies was measured using a dummy variable that equals 1 for IJVs with scores above the median for Knowledge Acquired from Foreign Parents, Business Strategy, and IJV Training and Development Competence (i.e., above median for all three measures) and equals 0 for all other IJVs. 

Controls. Three controls for constraints on learning were used for testing the hypotheses related to learning from foreign parents. The age and size of an organization may contribute to its inertia and thus inhibit learning. IJV Age was calculated as 1996 minus the founding date. Size was measured as the log of the IJV's capitalization in forints (the Hungarian currency). Prior research on relative absorptive capacity has found that while some relevant prior knowledge facilitates learning, too much relevant prior knowledge reduces current learning--an organization doesn't need to learn what it already knows (Lane & Lubatkin, forthcoming). Accordingly, a dummy variable for High Prior Learning was created to control for IJVs that may have completed most of their learning objectives prior to 1996. This measure was created by multiplying a dummy variable for the third of the sample with the highest scores for "Knowledge Acquired from Foreign Parents in 1993" (1=upper third, 0=lower two-thirds) with the dummy variable for IJV-foreign parent relatedness (1=related, 0=unrelated) previously described. 

Two other controls were used when examining the relationship between foreign parent-IJV learning and IJV performance. Prior IJV performance was controlled for using the 1993 IJV Performance Index. A measure was created to control for IJVs whose performance would likely be highly independent of its foreign parent learning. A dummy variable for Low Current Learning was created by multiplying a dummy variable for the third of the sample with the lowest scores for "1996 Knowledge Acquired from Foreign Parents" (1=lowest third, 0=upper two-thirds) with a dummy variable for the IJVs unrelated to foreign parents (1=unrelated, 0=related). 

Analyses 

The hypotheses were tested using three sets of multiple regression analyses. First, we regressed the learning structures and processes, trust, and relative absorptive capacity measures on the knowledge acquired from foreign parents in 1996 to test Hypotheses 1-3. Next, we regressed the measures for knowledge acquired from foreign parents, IJV business strategy, IJV training competence, and knowledge utilization synergies on IJV performance in 1996 to test Hypotheses 4-5. Finally, we used multiple regression to test the prediction that knowledge from foreign parents mediates the relationship between the determinants of knowledge acquisition and IJV performance (Hypotheses 8-8c). 

There were five missing responses in the final data set, one each for Size, Prior Performance, Management Contribution, Parent Specialization, and Trust (five out of 1,170 data points or 0.04%). Deleting the associated cases would reduce the sample size from 78 IJVs to 74 (a reduction of 5.1%). In order to preserve as much statistical power as possible, all regression analyses were conducted using a mean substitution correction. Substituting for such a small percentage of the data points will result in a slight reduction in the variance in each of these five measures. Thus, any bias introduced by the mean substitutions is conservative. 

Following Fox (1991), the square root of variance inflation factor was calculated for the independent variables in each regression model to check for problematic multicollinearity. All the variables in the our analyses fell within Fox's acceptable range with one exception. Knowledge Utilization Synergy was not used in the mediation tests due to a high degree of multicollinearity. 

Table 1 presents the means and standard deviations among the variables used in the regression analyses. All variables exhibit reasonable variance in responses and normality. The mean for the IJV Performance Index in both 1993 and 1996 are close to zero, but slightly negative. This is due to the fact the items were standardized and then summed to create the index. Interestingly, the 1996 measure Knowledge Acquired for Foreign Parents is slightly higher than the 1993 learning measure and the 1996 measure of IJV Performance is slightly larger than the 1993 performance measure. Thus, on average the IJVs in our sample learned more and performed better in 1996 than in 1993. 

The correlation matrix is presented in Table 2. The patterns of association are largely as might be expected. Prior and current learning from foreign parents positively associated (r = .34, p < .001) as are prior and current IJV performance (r = .45, p < .001). The use of differentiation has a strong positive association performance in 1993 (r = 37, p < .001) and in 1996 (r = .43, p < .001). There are, however, several surprises. Most notably, trust is not associated with either learning measure, but is positively associated with prior performance (r = .27, p < .05) and performance in 1996 (r = .47, p < .001). 

Results from the Learning Analyses 

The regression analyses testing the first stage (learning stage) of our model are presented in Table 3. Model 1 retests the learning structures and processes examine by Lyles and Salk (1996) using data from the 1993 survey. The model is significant (Adj. R²=.19, F=3.22, p < .01) and our results parallel theirs with one exception. Management Support by Foreign Parents has a positive and significant (p < .01) relationship to learning from foreign parents in Lyles and Salk's study, but is not significant here. This may mean that management support by foreign parents facilitates learning early in IJVs when the knowledge and skill disparities are the greatest, but is not needed once the IJV has begun mastering the basics of Western-style management. 

Model 2 tests Hypothesis 1 which predicts that Trust Between Parents will be positively associated with learning from foreign parents. As the correlation matrix suggested, there is no association between trust and learning. The model is not significant (Adj. R²=.01, F=1.02) and the hypothesis is not supported. Thus, even when there is high trust between the parents, it does not mean that there will be an impact on learning from the foreign parent. 

The hypotheses concerning relative absorptive capacity are tested in Model 3. The model is significant (Adj. R²=.16, F=3.48, p < .01) and the control for high prior learning is weakly significant and negative as expected (p < .10). Both Prior Knowledge and Relatedness are significant and positive (at p < .01 and p < .05, respectively) which supports Hypotheses 2b and 2c. Contrary to our predictions, Cultural Compatibility has a significant negative association with learning from foreign parents (p < .05). Thus two out of three results In Model 3 support Hypothesis 2's prediction that relative absorptive capacity is positively associated with learning from foreign parents. 

The last regression analysis in this table tests the prediction that relative absorptive capacity is positively associated with learning from foreign parents even after controlling for learning structures and processes, and trust (Hypothesis 3). Model 4 is the most robust of the learning models with an Adjusted R² of .25 and F equal to 3.19 (p < .001). As in Model three, the prior learning control is negative, but it is now more significant (p < .05). Of the learning structure and process variables, only Training By Foreign Parent maintains its significance (p < .05) and direction. Trust is once again not significant. Conversely, the three relative absorptive capacity measures are still significant and with the same direction of association as in Model 3. However, Cultural Compatibility and Prior Knowledge are slightly less significant in Model 4 than they were in the prior model (p < .10 and p < ,05, respectively). Overall, the results in Model 4 support Hypothesis 3 on the importance of relative absorptive capacity to IJVs learning from foreign parents. 

Results from the Performance Analyses 

The regression analyses for IJV performance in 1996 are presented in Table 4. All four models are robust with Adjusted R²s ranging from .24 to .45 and F-values from 9.26 to 13.04 (all at p < .001). The control for prior IJV performance is positive and significant in all four models. As might be expected, the control for low learning is significant only in the two models that include Knowledge from Foreign Parents (Models 5 and 8). However, in both models it is positively associated with IJV performance contrary to expectations. 

Models 5, 6, and 7 test the predictions that three aspects of knowledge utilization will be positively associate with IJV performance. Model 5 shows a strong positive association between Knowledge from Foreign Parents and the IJV performance index (p < .001) which supports Hypothesis 4. Model 6 shows a positive association between IJV Business Strategy (differentiation) and performance (p < .01) as predicted by Hypothesis 5. Model 7 tests the association between IJV Training & Development Competence and performance. This association is positive and highly significant (p < .001) and thus supports Hypothesis 6. 

Model 8 tests these three measures concurrently plus the dummy variable for Knowledge Utilization Synergies. When tested together, the independent variables from Models 5,6, and 7 maintain their signs, but are slightly less significant than they are when used individually. The dummy variable for synergies is also significant (p < .05). This supports the prediction Hypothesis 7 that even when the direct performance implications of knowledge from foreign parents, IJV strategy, and training competence are accounted for, those firms who excel at all three will likely have an additional performance advantage. 

Results from the Tests for Mediation 

The models used to test the prediction that knowledge from foreign parents mediates the relationship between learning prerequisites and IJV performance are presented in Table 5. (Model 5, which demonstrated a strong positive association between knowledge from foreign parents and performance, is repeated here for ease of comparison.) Model 9 tests for a direct association between structures and processes that facilitate learning and IJV performance. Recall that in Model 1 (Table 3), Flexibility, Training by Foreign Parents, and Specialization of Parents were significant and positively associated with Knowledge from Foreign Parents. Of these, only flexibility is significantly related to IJV performance (a positive association at p < .01). Thus, knowledge from foreign parents mediates the relationship between training by foreign parents and IJV performance as well as the relationship between parents' specialization and IJV performance. However, Management Support by Foreign Parents, which was not associated with knowledge from foreign parents, is positively related to IJV performance (p < .01). Lyles and Salk (1996) reported similar results which suggests that while the importance of management support for learning may diminish over time, its contribution to effective utilization of acquired knowledge may not. Taken as a whole, Model 9 provides mixed support for Hypothesis 8a. 

Model 10 provides more surprising results. Trust Between Parents, which was not associated with learning, has a strong positive association with IJV performance (p < .001). This supports the results of Inkpen and Currall (1997) who find a significant indirect relationship between trust and performance, but does not support Aulakh et. al. (1997) who find no direct relationships between trust and performance. It is also contrary to the prediction in Hypothesis 8b and suggests that the role of trust in IJVs may be different than theory would suggest. The association between trust and performance is in keeping with the transaction cost view of alliances (Williamson, 1985; Gulati, 1995). As trust develops between organizations, the need to monitor each other decreases which allows them to focus on more productive activities. In the case of IJVs, however, the nature of the productivity gains due to increased trust remains to be specified. 

Finally, the prediction that knowledge from foreign parents mediates the relationship between relative absorptive capacity and IJV performance is tested in Model 11. While the control for prior performance and the model itself are significant (p < .001 and p < .01, respectively), none of the three measures of relative absorptive capacity are significant. Given the associations between these measures and knowledge from foreign parents reported in Table 3, and the strong association between knowledge from foreign parents and IJV performance, these results support the mediated relationship predicted in Hypothesis 8c. 

In summary, knowledge from foreign parents mediates the relationship between some learning processes and IJV performance as well as between all three measures of relative absorptive capacity and IJV performance. This constitutes partial support for H8. At the same time the strong positive associations between management support and IJV performance, and between trust and IJV performance, suggest that further theoretical work on learning and performance in IJVs is needed. 

Post Hoc Analyses 

One unresolved question is why the relationship between low learning in 1996 and IJV performance is positive. Given the strong association between learning and performance, this would be expected to be negative. An comparison of IJVs that are low learners to other IJVs using t-tests suggests one possible explanation (see Table 6). There are no meaningful differences between low learners and other IJVs in terms of prior performance, business strategy, flexibility, or training competence. The learning IJVs did have, on average, higher learning from foreign parents in 1993 than other IJVs (p < .05) and parents with more specialized roles (p < .001). This suggest that the knowledge the IJVs needed from their foreign parents may have been more well defined, narrower in scope, and transferred prior to 1996 and thus, requiring less learning now. If so, the positive relationship between low learning and performance in 1996 could reflect the value of knowledge that the IJV has had time to adapt, disseminate, and utilize. The results of these post hoc analyses suggest that the learning processes and priorities of low learning IJVs may be fundamentally different than those of other IJVs. Additional research is needed to explore these differences. 

This study proposed and tested a two stage model of IJV learning and IJV performance. It was proposed that IJV's acquisition of knowledge from its foreign parents was a function of its use of structures and processes that facilitate learning, trust between its parents, its relative absorptive capacity for its foreign parents. The IJVs performance was suggested to be a function of not only that acquired knowledge, but also the IJV's business strategy and competence in training. This two-stage model suggests that knowledge acquired from foreign parents mediates the relationship between the determinants of learning (facilitating structures and processes, trust, relative absorptive capacity) and IJV performance. The model was tested using data on Hungarian IJVs collected in 1993 and again in 1996. Three measures of relative absorptive capacity (prior relevant knowledge, cultural compatibility, and similar dominant logics) as well as training of IJV managers by the foreign parents were found to be significant predictors of knowledge acquired from foreign parents. However, cultural similarity had a negative association not the predicted positive association. Knowledge acquired from foreign parents, IJV strategy, and IJV training competence were shown to have positive associations with IJV performance. Knowledge acquired from foreign parents also mediates the relationship between the relative absorptive capacity measures and firm performance along with the relationship between IJV flexibility and performance. Surprisingly, trust, which was not associated with learning, had a strong positive association with IJV performance. 

The negative association between cultural compatibility is at odds with the theories underlying relative absorptive capacity (Cohen & Levinthal, 1990; Lane & Lubatkin forthcoming). There are two possible explanations for this inconsistency. First, given the profound differences in business knowledge and skills between managers from Western economies and managers from transitional economies, the cultural compatibility may represent the degree to which the Hungarian parent has already adopted Western management practices. Second, the finding is consistent Boyacigiller and Adler's (1991) contention that multi-cultural diversity can be synergistic for multi-national teams and organizations, in that it forces them to be more open to knowledge and information. If so, then perhaps the role of similar norms and values suggested by relative absorptive capacity theory operate on a more fine-grained level than national culture. 

The findings concerning trust were surprising in that the IJV literature has emphasized importance of the role that trust is believed to play in learning. The strong relationship between trust and performance suggests that trust may play a number of roles in IJVs and new theory is needed to explore them. The absence of support for the relationship between trust and learning may be because our single item measure of trust was not sufficiently fine-grained to provide a strong test of our hypothesis. Another possible explanation is that trust affects learning indirectly. Trust is highly correlated with IJV flexibility and adaptability, and with management support by foreign parents. This suggests that when the foreign parent's willingness to create IJV organizations well equipped to learn may be a function of the degree to which foreign and domestic parents trust each other. 

The results of our study have several implications for IJV research and management. It is important to place an emphasis on longitudinal data and to analyze the impact of prior conditions with current performance. Particularly when one is researching processes such as knowledge acquisition, a longitudinal perspective provides important influencing factors. Further empirical research is critical to helping us determine the processes for knowledge transfer and the utilization of knowledge. 

Knowledge represents a capability that must be managed in order to be utilized effectively. Our study suggests several avenues that may help managers in knowledge utilization. First relatedness of the nature of the business and training by the foreign parent are important to current knowledge transfer. The ability of the joint venture to have learned in the past has an important effect on the IJV's current learning. We find that knowledge is an important mediator for performance. Furthermore, performance is related to the training provided by the foreign parent as well as defining a strategy that differentiates the IJV by producing new products and services. Managers that can effectively direct the IJV toward current learning, differentiation, and continual training will have the greatest probability for improved performance. 

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Table 1 
Descriptive Statistics^a 
 

Variable	Mean	Std. Dev.
1. IJV Age in 1996	7.89	2.13
2. Size (log of capitalization)	10.29	2.74
3. Cultural Compatibility	8.24	2.30
4. IJV Strategy (emphasis on differentiation)	19.80	4.96
5. IJV Flexibility & Adaptability	12.67	2.07
6. IJV Learning from Foreign Parents in 1993	12.48	5.92
7. IJV Learning from Foreign Parents in 1996	13.71	5.79
8. Foreign Parent Contribution of Management Support	18.02	5.19
9. Training of Domestic Managers by Foreign Parents	2.16	1.24
10. Formal Goals for IJV	1.37	.74
11. IJV Competence at Training & Development	6.56	1.62
12. Conflict Between Parents	3.35	1.97
13. Relatedness of IJV and Foreign Parents' Businesses	.52	.50
14. Parent Specialization (Foreign Parent provides technology & Domestic Parent provides manufacturing)	2.53	1.50
15. Trust Between Parents	4.06	1.13
16. IJV Performance in 1993 (index of Business & General performance)	-.03	1.78

 

a All variables from 1996 survey unless 1993 is indicated.

  
 

VARIABLES

MODEL 5

MODEL 6

MODEL 7

MODEL 8

b

b

b

b

Controls

Prior IJV Performance (1993)

.451

***

.327

**

.319

**

.279

**

Low Current Learning (1996)

.462

**

-.002

.001

.304

*

IJV Knowledge Utilization

New Knowledge from Foreign Parents (1996)

.587

***

.321

*

IJV Business Strategy Strategy

.306

**

.163

?

IJV Training & Development

.410

***

.283

**

Knowledge Utilization Synergy

.207

*

Adjusted R2

.28

.24

.32

.45

F

10.99

***

9.26

***

13.04

***

11.32

***

N = 78 ? p < .10 * p < .05 ** p < .01 *** p < .001

  
 

VARIABLES

MODEL 9

MODEL 10

MODEL 11

MODEL 12

b

b

b

b

Controls

Prior IJV Performance (1993)

.451

***

.297

**

.338

** *

.431

***

Low Current Learning (1996)

.462

**

.033

-.007

-.026

Knowledge from Foreign Parents (1996)

.587

***

Learning Processes & Structures

IJV Flexibility & Adaptability

.278

**

Management Support by Foreign Parent

.279

**

Training by Foreign Parent

-.027

Goals for IJV

-.050

Specialization by Foreign & Domestic Parents

.039

Trust

Trust between Parents

.384

***

Relative Absorptive Capacity

Cultural Compatibility

.034

Prior Knowledge from Foreign Parents (1993)

.043

Relatedness of IJV & Foreign Parents

-.045

Adjusted R2

.28

.31

.30

.14

F

10.99

***

5.94

***

12.12

***

3.51

**