How does the partner type in R&D alliances impact technological innovation performance? A study on the Korean biotechnology industry

The number of strategic alliances for R&D activities in the biotechnology industry is sharply increasing. Some studies show that each alliance partner type has different alliance motives, resources and capabilities, organizational structures and cultures, and degrees of competition with partners, which can lead to different performances of strategic alliances. In this regard, this study conducts an empirical analysis of the different impact of each type of alliance partner on technological innovation performance and finds the moderating effect of absorptive capacity and potential competition by categorizing strategic alliances for R&D activities in the biotechnology industry into three types: vertical-downstream alliances, vertical-upstream alliances, and horizontal alliances. This study analyzed 206 Korean biotechnology firms and their strategic alliances for a total of 292 R&D activities. The results of the analysis showed that vertical alliances have a positive impact on technological innovation performance, while horizontal alliances have an inverted U-shaped relationship with technological innovation performance caused by the effect of competition. Additionally, it was confirmed that the R&D intensity of biotechnology firms has a moderating effect of increasing the impact of vertical-upstream alliances on technological innovation performance.     

Can entrepreneurial orientation improve R&D alliance performance? An absorptive capacity perspective

Research and Development (R&D) alliance studies maintain that alliance partners’ entrepreneurial interactions that pursue innovation opportunities through collective exploitation and exploration of knowledge resources lead to alliance success. Despite the importance of productive resource exchange and generation through such interactions, performance-by-alliance mechanisms remain under-researched. In this study, we develop a theoretical framework hypothesizing that the entrepreneurial orientation (EO) of alliance firms, which underlies their approach to seeking and utilizing resources productively, has a potential impact on their R&D alliance performance, depending on their absorptive capacity (AC). To specify the value creation and capture mechanism in the alliance, we adopt two performance indicators: technological competitiveness and business performance. Findings from a study of 218 small technology-intensive firms conducting R&D alliance projects show that EO translates into business performance through technological competitiveness and that AC leverages the alliance performance implications of EO. The results suggest that EO–AC complementarity is a strategic stimulant that triggers firms to extract greater benefits from R&D alliances.     

The Effects of Knowledge Depth and Scope on the Relationship between R&D Alliances and New Product Development

In this study, we extend the new product development (NPD) literature that proposes that firms' knowledge depth, defined as the reuse of well understood technical knowledge, and scope, defined as the use of newly acquired technical knowledge, and new knowledge accessed from R&D alliances all positively impact NPD. Building on the knowledge‐based view of the firm, we posit that the impact of firms' R&D alliances is limited when their internal knowledge depth and scope are adequate for NPD needs. We suggest that although firms form R&D alliances to gain the right to access external knowledge of R&D alliance partners, they are not obligated to invest in resources to integrate external knowledge from R&D alliances. We propose that they wait to see if their internal knowledge depth and scope prove sufficient for NPD. If the external knowledge proves to be unnecessary, firms choose not to invest the resources required to integrate this knowledge with their internal knowledge. Alternatively, we suggest an increased impact of R&D alliances on NPD when firms are more limited in their internal knowledge depth and scope. We propose that when knowledge depth and scope prove insufficient, firms make the additional investments required to integrate external knowledge from R&D alliances with their internal knowledge stock. This reasoning is consistent with real options theory as it has been applied in alliance research, where strategic alliances are characterized as real options. We find support for our hypotheses using panel data of 738 firm year observations for 143 U.S. biopharmaceutical firms operating in 2007. Our study contributes to the NPD literature and suggests new directions for future research.     

Those Who Know,Do. Those Who Understand,Teach. Disseminative Capability and Knowledge Transfer in the Automotive Industry

Innovations in the automotive industry are increasingly building on contributions from different technological fields. Correspondingly, firms in this industry more than ever tend to form research and development (R&D) alliances that aim at innovating new products through integrating separate fields and transferring knowledge. While, in symmetrical R&D alliances, each partner intends to ultimately maintain their distinctive and specialized knowledge base, overlapping knowledge facilitates cooperation and ultimately alliance success. Thus, the capability for knowledge transfer between partners is crucial in such R&D alliances. The literature provides ample evidence that such knowledge transfer is more likely to succeed if the recipient firm has absorptive capability. However, whereas the characteristics of the knowledge transfer process and the recipient firm are well understood, limited attention has so far been given to the issue of the knowledge source firm's ability to transfer knowledge to R&D alliance partners. This study focuses on the impact of source firm capability on successful knowledge transfer in R&D alliances. The study develops a theoretical framework of disseminative capability consisting of five dimensions and tests it on a sample of 59 projects in R&D alliances in the automotive industry. To ensure content validity and avoid common source bias, data were collected from both alliance partners. To test the hypotheses, multiple regression analyses were performed. The results reveal that the source firm's disseminative capability including the attainment of expert knowledge, assessing the recipient firm's knowledge base, and encoding knowledge are positively related to knowledge transfer success, while, surprisingly, detaching knowledge and support of knowledge application in the recipient firm are negatively related. Intentionally or unintentionally, disseminating knowledge across firm boundaries is widely perceived as detrimental to a firm's competitive advantage. Accordingly, the literature tends to downplay disseminative capability as an important means of exploiting external knowledge in collaborative settings. By demonstrating potential benefits for the source firm to transfer knowledge to the allying R&D partner firm, this paper reinvigorates the collaborative dimension in knowledge transfer. Further, the paper is the first of this kind to theoretically explain and empirically show that dimensions of disseminative capability of collaborators in R&D alliances are important for knowledge transfer, whereas disseminative capability is the complementary inverse of an organization's absorptive capacity.     

New product introductions below aspirations,slack and R&D alliances: A behavioral perspective

We develop hypotheses based on behavioral theory that explain how high technology firms' new product introduction (NPI) performance below aspiration levels impact the number of R&D alliances, and how slack moderates this relationship. Using panel data of U.S. biopharmaceutical firms, we find that as firms' NPI performance below historical aspiration levels increases the number of R&D alliances they form increases and slack intensifies this relationship. We contribute to alliance research by providing theory and empirical evidence that increases in the distance of NPI below aspirations serve as a motivation for increases in R&D alliances, and empirically to behavioral theory by revealing that NPI goals act similarly to financial performance goals in their impact on firms' actions and slack intensifies this relationship. Copyright © 2015 John Wiley & Sons, Ltd.     

Unpacking functional alliance portfolios: How signals of viability affect young firms' outcomes

This article investigates how alliance portfolio composition affects young firms' outcomes. Drawing on signaling theory, we propose how alliance portfolio composition—number, functional domains (R&D, manufacturing, and marketing), and single‐purpose or multi‐purpose nature of alliances within the portfolio—may affect a firm's likelihood of achieving a liquidity event (IPO or acquisition). We study 8,600 U.S.‐based, VC‐backed firms during the period of 1990 to 2002 from 10 industry sectors. We find that alliance portfolios (to a certain extent) increase a firm's liquidity event likelihood. Further, firms with heterogeneous alliance portfolios, including portfolios emitting greater efficiency signals versus endorsement signals, are more likely to experience an IPO versus acquisition. Our findings lend support to the value of multi‐function alliances within portfolios. Copyright © 2013 John Wiley & Sons, Ltd.     

Comment on “fishing for sharks: Partner selection in biopharmaceutical R&D alliances” by diestre and rajagopalan

A recent study of R&D alliances between new biotechnology firms (NBFs) and pharmaceutical firms investigated how NBFs deal with the “swimming with sharks” dilemma involved in allying with firms capable of appropriating value. It concludes that NBFs are less likely to select alliance partners with related expertise because of greater appropriation risk. Based on our experience as NBF managers and a survey of NBF executives, we believe that such situations are uncommon, and that the study more likely shows pharmaceutical firms seeking diversification. Thousands of NBFs seek alliances with the top 100 pharmaceutical firms, and the larger company is much more likely to be the one to select among multiple potential partners. Copyright © 2013 John Wiley & Sons, Ltd.     

Experience effects and collaborative returns in R&D alliances

Focusing on the link between prior alliance experience and firm benefits from R&D collaborations, this paper explores whether firms learn to manage their alliances. While prior experience should increase collaborative benefits from the current alliance, I expect these returns: (1) to be most beneficial when alliance activities are more uncertain; and (2) to diminish at high levels of experience. Results from a sample of 464 R&D alliances in the telecom equipment industry generally match these expectations. The positive benefits of prior experience in complex alliances suggest that a broader set of alliance management processes allows the firm to manage situations of ambiguity more readily. The lack of cumulative benefits from prior experience appears to be partly due to knowledge depreciating over time, since only recent experience has a positive impact on collaborative returns. Overall, these results provide empirical evidence of the effect of prior experience on collaborative benefits, both directly and conditionally on alliance characteristics, and have implications for learning to manage organizations more generally. Copyright © 2005 John Wiley & Sons, Ltd.     

The impact of R&D‐specific factors on the attractiveness of small‐ and medium‐sized enterprises as partners vis‐à‐vis alliance formation in large emerging economies

This study examines the impact of research and development (R&D)‐specific factors in determining the likelihood of small‐ and medium‐sized enterprises (SMEs) from developed countries to be attractive partners vis‐à‐vis forming alliances with SMEs from large emerging economies (LEEs). This study is founded on the knowledge‐accessing theory of alliance formation, which emphasises the higher efficiency gains of knowledge application as opposed to knowledge generation. We extend this theory to SMEs on the basis that smaller firms, because of their resources constraints and drive to survive, are likely to use alliances to access external knowledge bases leading to new product development (NPD) opportunities because of the low feasibility of acquiring knowledge. As a mix of complex knowledge is necessary to develop most modern products and services, SMEs are also likely to adopt a more flexible operational approach and to accept compromises to forge knowledge‐accessing alliances. We illustrate this theoretical development using primary data collected from British and German biotechnology SMEs, declaring the intention prospectively to form alliances with their counterparts in Brazil. Binary logistic regression was used to identify the factors influencing the likelihood of a firm as an attractive alliance partner. Our results indicate that R&D‐specific factors influence the likelihood of firms to be attractive alliance partners. In particular, firms showing an in‐house innovation history focused on one or few products are more likely to be attractive alliance partners with LEE firms than those that do not. Another R&D‐specific predictor that enhances the chances of alliance partner attractiveness with LEE firms is the firm's focused searching and identifying capability relative to technology or equipment that demonstrates good prospects to improve the firm's line of products. A third predictor refers to the firm's awareness regarding non‐cost obstacles for its own technological development. Implications for policy makers and practitioners are also discussed.     

Determinants of alliance partner choice: Network distance,managerial incentives,and board monitoring

Research Summary: We ask if managerial opportunism is a significant problem in alliance partner choice and examine the role of corporate governance mechanisms in explaining this choice. Using a sample of 313 alliances of U.S. firms from the pharmaceutical and biotechnology industries from 1992 to 2010, we find that managerial incentives lead to managerial preference for relationally risky distant partners over existing and new close partners. Further, board monitoring encourages managers to pursue existing and distant partners over new close ones, choices aligned with shareholder interests. In addition, we find that board monitoring substitutes for managerial incentives in alliance partner choice. We contribute to the literature on alliance partner choice to identify an important, and hitherto, unexplored perspective. Managerial Summary: This article examines whether managers and shareholders view alliance‐related risks differently, and how the divergent interests between managers and shareholders affect alliance partner choice. We argue that managers’ concern about their loss of employment and compensation from alliance failure impedes the choice of relationally risky alliance partners that may increase shareholder value. We also argue that managerial stock ownership and board monitoring mitigate this managerial propensity. Our findings suggest that stock ownership owned by managers and strong board monitoring are effective governance mechanisms to align managers’ interests with those of shareholders. Our study offers a novel perspective to understand alliance partner choice by viewing the firm as an entity comprised of fragmented interests.     

Cross-Pacific internationalization of R&D by U.S. and Japanese firms

Efforts by MNCs to develop coordinated international R&D networks have taken place from different historical bases of internationalization and in the context of differing trends in the role of R&D within the corporation, as the cross-Pacific R&D investment in leading U.S. and Japanese firms in the electronics industry shows. Japanese firms, although they espouse a strategy of 'localization', are establishing wholly-owned R&D centres in the U.S. with highly specialized technology mandates that to be used by the company must be networked with their parent organizations. U.S. firms rely on joint ventures or wholly-owned labs with a wider array of technologies that face strong pulls to a local orientation. The patterns are somewhat out of line with the models of internationalization each side is espousing.     

The intra‐alliance division of value created through collaboration

The differential benefits reaped by individual partners are a major determinant of the impact of strategic alliances on firm performance and an important (dis)incentive for alliance partners to collaborate in value creation. Theoretically, we lack an explicit theory of intra‐alliance value division; empirically, previous analysis has been hampered by methodological challenges. We propose a bargaining framework for intra‐alliance value appropriation, as well as a measure for capturing its variation. We test our hypotheses on a sample of 200 biotechnology R&D alliances, and are able to explain variation in value appropriation across alliance partners, partner types, and individual firms of each type. Copyright © 2010 John Wiley & Sons, Ltd.     

Stock Market Response to Strategic Technical Alliances between Drug and Biotechnology Firms

Traditionally, firms in the pharmaceutical industry have depended on their internal research and development (R&D) capabilities to maintain a productive new product pipeline. During the past two decades, however, the industry's pipeline productivity has decreased compromising the industry's ability to meet shareholder expectations. As a strategy to invigorate pipeline productivity, and impact financial performance, pharmaceutical firms have increased utilization of strategic technical alliances. Earlier research shows that the degree of financial impact resulting from strategic technical alliances varies in terms of partnership type and differences between client and partner firms. This research studies strategic technical alliances between pharmaceutical and biotechnology firms from 1985 to 2012. Event study methodology is used to determine the relationship between stock market response to alliance announcements, measured as cumulative abnormal returns, and factors representing the absorptive capacity of the pharmaceutical firms in the sample. Then, variables indicating the development stage of the drugs included in the alliances are added to assess the effect of project risk on the market response. The study finds that, in general, the stock market responds in a positive manner to strategic technical alliances in the pharmaceutical industry reflecting the market's immediate response, and expectations of future firm value, resulting from the alliance. The degree of the market's response varies in terms of the client firms’ absorptive capacity with new product introductions being the strongest driver. The market responds similarly to alliances across different drug development stages, however, a stronger response is observed in preclinical and extension stages.     

The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry

We examine the determinants of control rights in biotechnology alliances through three case studies and a quantitative analysis. Aghion and Tirole [1994] argue that control rights will be assigned so as to maximize the value of the final output, as long as the R&D firm has sufficient financial resources. Consistent with this framework, the allocation of control rights to the R&D firm increases with the firm's financial resources. The empirical evidence regarding the relationship between control rights and the stage of the project at the time the alliance is signed is more ambiguous.     

Exploration or exploitation? Small firms' alliance strategies with large firms

How do small firms manage their alliance strategies with large firms? This study compares the relative impacts of exploration and exploitation alliances with large firms on small firms' valuation. Integrating the literatures on the exploration/exploitation paradigm and alliance governance, we argue that exploitation alliances with large firms will on average generate higher values for small firms than exploration alliances with large firms due to a heightened risk of appropriation in exploration alliances. However, if small firms can manage their alliances with large firms via proper alliance governance, they will increase their valuations from exploration alliances with large firms. Analyses of the U.S. biopharmaceutical industry from 1984 to 2006 largely support our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.     

Transitory alliances: an instrument for surviving turbulent industries?

Over the past decades, firms have constantly struggled to deal effectively with their rapidly changing environment. Especially in high tech industries, costs of R&D have rocketed, whereas steep learning curves and ever shortening product and technology life cycles have reduced the time to recoup these costs. Under such conditions of turbulence, a new form of alliances becomes an important part of the innovator's toolkit: transitory alliances. Transitory alliances can be defined as short–lived alliances that focus on completing narrowly defined tasks in a very short time frame. Companies can no longer rely exclusively on their traditional alliance and M&A practices to survive industry turbulence. Furthermore, transitory alliances can be a wellspring of innovation and provide companies with access to a portfolio of new ideas. They can help companies to acquire knowledge in a swift manner, thereby strengthening their ability to survive the high speed of change. The specific characteristics of this alliance type are discussed in this paper. Typical examples are taken from Internet related sectors.     

Do ongoing networks block out new friends? Reconciling the embeddedness constraint dilemma on new alliance partner addition

Research Summary: This study addresses a theoretical dilemma regarding how alliance network constraint (reflected by network cohesion) affects a firm’s alliance formation with new partners. Using a network pluralism approach, we separate a firm’s ego alliance network into two activity‐based networks—an exploratory network and an exploitative network—based on the primary value chain activity involved in each alliance. We argue that the cohesion of exploratory or exploitative networks has an inverted U‐shaped effect on the addition of new partners in the same activity‐based network, and a positive effect on the addition of new partners in the other network. Results based on data from the biotechnology industry largely support our predictions with one exception. Our study contributes to both scholarly understanding of network embeddedness and alliance practice. Managerial Summary: The structure of firms’ ongoing alliance networks may have paradoxical implications for their efforts to search for and form alliance with new partners. That is, when a firm’s alliance partners are tightly connected with each other, the cohesive network tends to both encourage and impede the focal firm to add new partners. We resolve this dilemma by showing that when a firm is deeply entrenched in a cohesive alliance network conducting a certain type of activities (e.g., R&D activities), it may not easily add new R&D alliance partners. However, it may still be able to escape from the cohesive R&D alliance network by seeking new partners conducting other activities (e.g., manufacturing activities).     

Strategic alliances between large and small research intensive organizations: experiences in the biotechnology industry

Abstract
For many firms, entering into some form of collaborative arrangement with other organizations has become a necessary step towards improving their competitive positions. This is particularly true of research intensive companies which frequently participate in such strategic alliances (SAs). This paper reports on the experiences of some 70 North American firms with SAs in the biotechnology industry. The sample includes small dedicated biotechnology companies (DBCs) and large organizations, such as pharmaceutical firms.     

Managing liquidity in research‐intensive firms: signaling and cash flow effects of patents and alliance activities

The effective holding and management of liquid assets is critical to success in research‐intensive industries. The primary output of invention is new knowledge. However, because of its ‘sticky’ characteristics, knowledge may not easily diffuse to external shareholders, leading to knowledge asymmetries between managers/employees and external suppliers of capital. Many valuable R&D projects may thus fail to attract external financing, limiting a firm's ability to invest in R&D. In this study, we examine how the cash flow and signaling properties of a firm's patents and certain aspects of its alliance strategy can attenuate such problems. Specifically, we suggest that a firm's R&D investments positively predict the level of its liquid asset holdings. This is due to the fact that invention‐induced knowledge asymmetries increase the firm's cost of accessing external liquid capital. However, holding cash entails opportunity costs. In this regard, we also find that patent production and certain alliance activities provide important signaling mechanisms, which reduce knowledge asymmetries between the firm and capital markets, and consequently lower the firm's need to hold liquid assets. Empirical tests were conducted using a sample of 108 U.S‐based biotechnology firms. Copyright © 2009 John Wiley & Sons, Ltd.     

Agglomeration and the choice between acquisitions and alliances: An information economics perspective

Research summary : This research extends agglomeration theory by joining it with information economics research to better understand the determinants of firms' organizational governance choices. We argue that co‐location in a common geographic cluster fosters lower levels of information asymmetry between exchange partners and thus leads firms to employ acquisitions rather than alliances for their external corporate development activities. We further extend agglomeration theory by arguing that the impact of sharing a cluster location on acquisitions versus alliances strengthens with the level and dissimilarity of the exchange partners' knowledge‐based resources as well as with the intra‐cluster geographic proximity of the partners. Evidence from a sample of over 1,100 alliance and acquisition transactions in the U.S. semiconductor industry provides support for our hypotheses. Managerial summary : This paper investigates the role of geographical clustering for firms' external corporate development activities in acquisitions and alliances. We explain how better information is likely to be available among firms co‐located in the same cluster. This suggests that managers should have less need to use alliances over acquisitions as a means of reducing the risk of adverse selection (e.g., overpaying for acquisitions). Our investigation of over 1,100 transactions in the U.S. semiconductor industry shows that common cluster co‐location increases the probability of acquisition relative to alliance. Our arguments and evidence also indicate that the information‐related benefits of cluster co‐location are even more impactful when the parties have more divergent technology bases, possess larger stocks of knowledge‐based resources, or are located in closer geographic proximity. Copyright © 2015 John Wiley & Sons, Ltd.