Globalization is rapidly becoming imperative for U.S. businesses. Last year, 82 percent of middle-market companies expected more than 20 percent of their sales growth would come from foreign markets, according to a survey by the National Center for the Middle Market (NCMM). Furthermore, the U.S. government will be hard-pressed to achieve its goal of doubling exports within five years without the active participation of such firms.
However, just 58 percent of U.S.–based middle-market companies are active outside of the country, according to the NCMM study. And many of those have only limited foreign operations. Roughly a third of mid-sized companies cite lack of knowledge about international markets as a significant barrier to expansion.
International joint ventures are among the most common mechanisms used by such companies to overcome the lack-of-knowledge handicap. Unfortunately, approximately 50 percent of international joint ventures fail. By virtue of their size and lack of experience, middle-market companies are more vulnerable to failure than their large counterparts. Since their bargaining power tends to be weaker, they also are more likely to be exploited by unscrupulous partners or government agencies. Consequently, they must learn to get these alliances right.
Oded Shenkar, fellow of the National Center for the Middle Market, investigated the effect of a parent company’s size on the success of international joint ventures. He analyzed data from a nationwide survey of 265 CEOs of such alliances, based in China and gathered in the 1990s. He focused on China due to middle-market companies identifying it as their top investment priority. It also is home to hundreds of thousands of alliances and is one of the most challenging investment environments for foreign businesses.