DIMENSIONS OF INTERNATIONAL JOINT VENTURE ACTIVITY IN GHANA AND NIGERIA ...

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DIMENSIONS OF INTERNATIONAL JOINT VENTURE
ACTIVITY IN GHANA AND NIGERIA
by
Agyenim Boateng
Submitted in accordance with the requirements for the degree of
Doctor of Philosophy
University of Leeds
Leeds University Business School
November, 2000
The Candidate confirms that the work submitted is his own and that appropriate
credit has been given where reference has been made to the work of others.
ACKNOWLEDGEMENT
This document is not the end of a process, but it does represent a transition of sorts
from one part of an odyssey to another. The journey began as early as 1995 when I was
offered an admission to pursue a PhD program. Circumstances made that impossible.
In 1996, the timing was right to take up the challenge.
Once the process began, there were a number of people who contributed to the
preparation of this thesis. First, there is my supervisor, Professor Keith W. Glaister
whose support has been beyond measure. I am extremely grateful for his gentle
guidance, consistent encouragement and wise counsel. He is a true teacher, and one of
the highlights of these ‘doctoral years’ is that the relationship which started as
supervisor has become friend and mentor.
I wish to express my sincere thanks to Professor Peter Buckley, Dr Jeremy Clegg and
Dr Des Thaiwes for their comments during my upgrading interview. My gratitude also
goes to the two academics for their comments during the pre-testing of my
questionnaire
Many thanks, too, are due to Neneh and Dr. Raphael Akamavi whose valuable
suggestions at various stages of the research project contributed immensely to its
completion. At the Leeds University Business School, the support and friendship of
my colleagues and the entire administrative staff especially Mrs Mary Shearsmith and
Mr Ken Hales have been wonderful.
My wife Mary and sons Evans, Michael and Nana deserve special thank you. They
have unreservedly supported me throughout the course of this study, even when it must
have looked to them that I was over the edge. A huge debt of gratitude is owed to my
mother Kyeiwaa and brothers Okyei, Asante and Afriyie who have in diverse ways
supported me throughout my education up to this level.
Finally, many thank to managers who participated in the study for giving part of their
precious time and openly sharing with me their success and failures to the extent I
would never have believed possible.
It should also be noted that the findings of chapter 4 have been published (Boateng and
Glaister, 1999).
ABSTRACT
This study investigates four key dimensions of international joint venture (JV) activity
in Ghana and Nigeria: strategic motives, host country location factors, finance and
performance. These dimensions are explored in a multi-method empirical study.
Drawing on official annual aggregate and project level data, the trends and patterns of
FDI in Ghana and Nigeria are examined across several characteristics, trends over
time, ownership type of FDI, origin of foreign investor, geographical location of
projects and distribution by sector. The result shows that the more preferred mode of
entry for FDI is through the equity joint venture.
Primary data was collected by means of a self-administered questionnaire survey from
a cross section sample of 57 JVs in Ghana and Nigeria, with partners from Western
Europe, North America and Asia/Pacific. First, the relative importance of a set of
strategic motives and host country location factors influencing foreign investors’
decisions to form JVs in Ghana and Nigeria are identified. The main strategic motives
of the foreign partners are to overcome government-mandated barriers, risk and cost
sharing and to facilitate international expansion. The study finds government policy
towards foreign investors, political stability and market size as the main location
factors. Exploratory factor analysis is employed to identify the underlying dimensions
of strategic motives and host country location factors for the JVs. Hypotheses are then
tested (using t-test or Anova) by considering strategic motives and host country factors
in terms of the characteristics of the sample. Second, the manner in which JVs are
financed, the relative importance of barriers to JV investment finance and the
determinants of the financial structure of JVs in Ghana and Nigeria are examined.
Hypotheses are tested using contingency table analysis and t-test on the relative effects
of the barriers and the factors influencing the capital structure of JVs. Finally,
measures and determinants of performance are examined. A multiple regression
analysis is conducted to identify the main predictors of successful performance for JVs
in Ghana and Nigeria. The study identifies capital adequacy, partners’ capabilities and
congruity of motives and goals of the partners as important determinants of
performance. A paired sample t-test was also conducted to compare the performance of
JVs with host government partners and those with private sector partners, the results
indicate that JVs with private sector partners are perceived to perform better.
iii
TABLE OF CONTENTS
Abstract i
Acknowledgement ii
Table of Contents iii
List of Figures vii
List of Tables xi
List of Abbreviations xii
Chapter 1
Introduction to the Study
1.1 Introduction 1
1.2 Definition of FDI and Joint Ventures 3
1.3 Aims and Scope of the Study 5
1.4 Importance of the Study 6
1.5 Generalisability of the Findings 8
1.6 Organisation of the Thesis 9
1.5 Summary 11
Chapter 2
Theoretical Approaches to FDI and Joint Ventures
2.1 Introduction 12
2.2 Theories of FDI 12
2.2.1 Market Organisation Theory 13
2.2.2 Product Cycle Theory 14
iv
2.2.3 Capitalisation Rate Theory 14
2.2.4 Follow-the Leader Theory 15
2.2.5 Diversification Theory 16
2.2.6 Internalisation Theory 17
2.2.7 The Eclectic Theory 18
2.2.8 The Dynamic Comparative Advantage Theory 19
2.3 Explaining Joint Ventures Theoretical Perspectives 20
2.3.1 Transaction Cost Theory 20
2.3.2 Strategic Behaviour 22
2.3.3 Resource-based Theory 23
2.4 Strategic Motives for JV Formation 28
2.5 Host Country Location Factors for JV Formation 28
2.5.1 National Policy and Regulation 30
2.5.2 Resources Endowment 30
2.6 Finance of Joint Ventures 31
2.6.1 Sources and Barriers to Finance 33
2.6.2 Factors Influencing JV Capital Structure 36
2.7 Performance of Joint Ventures 36
2.7.1 Measurement of Performance 37
2.7.2 Factors Influencing JV Performance 38
2.8 Summary and Limitation to the Literature 39
Chapter 3
Research Methods
3.1 Introduction 40
V
3.2 Choice of Methodology 41
3.3 Secondary Data Collection 41
3.4 Primary Data Collection 43
3.4.1 Sample Choice 44
3.4.2 Sample Design and Characteristics 45
3.4.3 Choice of Survey Strategy 46
3.4.4 Questionnaire Design 47
3.4.5 Pre-testing the Questionnaire 48
3.4.6 Mail-Out Procedures 49
3.4.7 Response Rate 54
3.5Validity and Reliability of the Instrument 5 5
3.6 Data Analysis 57
3.7 Summary 59
Chapter 4
FDI in Ghana and Nigeria: Patterns of Activity, Distribution and
the Role of Government Policy
4.1 Introduction 60
4.2 FDI in Ghana 61
4.3 Location Specific Advantages and FDI Capital Inflows 62
4.4 National Policy Environment as a Determinant of FDI 64
4.4.1 Liberalisation of FDI Regulatory Framework 65
4.4.2 Macroeconomic Stability 66
4.4.3 Privatisation 67
4.4.4 Infrastructure Development 68
vi
4.5 Source of Data 69
4.6 Trends of FDI in Ghana 78
4.7 Discussion and Implications 85
4.8 Conclusion 86
4.9 FDI in Nigeria 86
4.10 Background to Nigerian Economy 86
4.11 Government Policy Reforms 87
4.11.1 1960-1971: Open Door Policy 87
4.11.2 1971-1983: Restrictions 88
4.11.3 1983-1997: Economic Reforms Program 92
4.12 Sources of Data 93
4.13 Trends in Nigeria 93
4.14 Summary and Discussion 96
Chapter 5
Joint Venture Formation in Ghana and Nigeria: Strategic Motives
and Location Factors
5.1 Introduction 97
5.2 Hypotheses 99
5.2.1 Organisational Type of Host Partner 99
5.2.2 Ownership Level 100
5.2.3 Origin of Foreign Partner 101
5.2.4 Sector of Operation 102
5.3 Statistical Analysis 103
5.4 Results and Discussion 103
5.4.1 Strategic Motives 104
vii
5.4.2 Location Factors 105
5.4.3 Factor Analysis and Strategic Motives 107
5.4.4 Host Country Selection 109
5.4.5 Strategic Motives and Host Partner Type 111
5.4.6 Location Factors and Host Partner Type 113
5.4.7 Strategic Motives and Ownership Level 115
5.4.8 Host Country Factors and Ownership Level 116
5.4.9 Strategic Motives and Nationality 119
5.4.10 Host Country Selection and Nationality 121
5.4.11 Strategic Motives and Sector of JV 124
5.4.12 Host Country Selection and Sector of JV 126
5.4.13 Country of Ownership by Industry 129
5.5 Discussion and Policy Implication 130
5.6 Conclusion 133
Chapter 6
Financing International Joint Ventures in Ghana and Nigeria:
Sources of Funds, Barriers and Determinants of
Capital Structure
6.1 Introduction 134
6.2 Hypotheses 136
6.2.1 Sources of Finance and Partner Choice 136
6.2.2 Initial Capital and Host Partner Type 137
6.2.3 Regulatory Barriers and Investment Finance 137
6.2.4 Capital Structure and JV Size 138
6.2.5 Capital Structure and Industry 139
viii
6.3 Statistical Analysis 140
6.4 Results and Discussion 140
6.4.1 Sources of JV Finance 140
6.4.2 Initial Capital and Host Partner Type 141
6.4.3 Regulatory B arriers and Investment Finance 142
6.4.4 Barriers to JV Finance 143
6.4.5 Factor Analysis and Barriers to Finance 144
6.4.6 Barriers to Finance and Sector of JV 147
6.4.7 Capital Structure and JV size 148
6.4.8 Capital Structure and Sector of JV 149
6.5 Summary and Conclusion 153
Chapter 7
Performance of International Joint Ventures: Evidence from Ghana
and Nigeria
7.1 Introduction 154
7.2 Hypotheses 155
7.2.1 Assessment of JV Performance 155
7.2.2 Host Government and Performance Relationship 156
7.2.3 Control and Performance 157
7.2.4 Motives and Congruity of Goals 159
7.2.5 Parent Capability and Performance 160
7.2.6 Capital and Performance 161
7.3 Data Analysis 162
ix
7.4 Dependent Variable 162
7.4.1 JV Successful Performance 162
7.5 Independent Variable 163
7.6 Results and Discussion 169
7.7 Summary and Conclusion 171
Chapter 8
Summary and Conclusions
8.1 Introduction 172
8.2 Research Aims and Background to the Study 173
8.3 Summary of Methodology 175
8.4 Summary of the Main Findings 178
8.4.1 FDI in Ghana and Nigeria 181
8.4.2 Strategic Motives and Host Country Location Factors 185
8.4.3 Financing IJVs in Ghana and Nigeria 186
8.4.4 Performance of IJVs in Ghana and Nigeria 188
8.5 Contribution of the Study 190
8.6 Managerial and Public Policy Implications of the Study 192
8.7 Concluding Remarks 194
8.8 Limitations of the Study 196
8.9 Areas of Future Research 198