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.     

Firm growth,adaptive capability,and entrepreneurial orientation

Research summary: This paper posits adaptive capability as a mechanism through which a firm's prior growth influences the exhibition of future entrepreneurial action. Defined as the firm's proficiency in altering its understanding of market expectations, increased adaptive capability is a consequence of the new resource combinations that result from expanding organizational boundaries. Increased adaptive capability in turn corresponds to expansion of entrepreneurial activity, as firms increase their entrepreneurial orientation as the strategic mechanism to capitalize on their improved understanding of market conditions. We find support for our research model in a two‐study series conducted in South Korea and the United Kingdom. Managerial summary: Most would agree that entrepreneurially oriented firms—being innovative, entering new markets, and taking risk—grow faster. But how a firm becomes entrepreneurial is a complicated question. In this study, we flipped the growth relationship around and found support for growth contributing to a firm's entrepreneurial orientation. But between growth and being more entrepreneurial is the firm's ability to recognize changes in market expectations. We argue that as a firm grows, it acquires new resources and new knowledge of how to use those resources. These new resource combinations increase its ability to recognize changes in market expectations—its adaptive capability. This capability uncovers new entrepreneurial opportunities for value creation. To capture this potential value, firms expand their entrepreneurial orientation. Copyright © 2016 John Wiley & Sons, Ltd.     

Alliance capability,stock market response,and long‐term alliance success: the role of the alliance function

This paper addresses two key questions: (1) what factors influence firms' ability to build alliance capability and enjoy greater alliance success, where firm‐level alliance success is measured in two ways: (a) abnormal stock market gains following alliance announcements and (b) managerial assessments of long term alliance performance; and (2) are the two alternate ways of assessing alliance success correlated? We find that firms with greater alliance experience and, more importantly, those that create a dedicated alliance function (with the intent of strategically coordinating alliance activity and capturing/disseminating alliance‐related knowledge) realize greater success with alliances. More specifically, firms with a dedicated alliance function achieve greater abnormal stock market gains (average of 1.35%) and report that 63 percent of alliances are successful whereas firms without an alliance function achieve much lower stock market gains (average of 0.18%) and only a 50 percent long‐term success rate. We also find a positive correlation between stock market‐based measures of alliance success and alliance success measured through managerial assessments. In addition to providing insights into the development of alliance capability among firms, this paper is one of the first to provide empirical support for the efficient markets argument by demonstrating that the initial stock market response to a key event positively correlates to the long‐term performance and value of the event. Copyright © 2002 John Wiley & Sons, Ltd.     

Factors influencing partner selection in strategic alliances: the moderating role of alliance context

The growth of alliances has generated considerable interest in this topic among both academics and practitioners. While multiple factors may affect alliance success, partner selection emerges as one of the most influential. Previous studies on alliances present general models that assume the factors (e.g., trust, commitment, complementarity, financial payoff) that drive partner attractiveness and, in turn, the likelihood of selection, are consistent across varying alliance projects and situations. In contrast, the present study proposes a contingency approach grounded in management control theory that suggests the criteria managers use in choosing alliance partners will vary by alliance project type. Specifically, it introduces a framework that addresses when and why managers select partners with certain, specific characteristics. The results of the present study strongly support hypotheses that the critical criteria for assessing alliance partner attractiveness and selection vary depending on the differential levels of process manageability and outcome interpretability inherent in a strategic alliance. Implications for theory and practice are discussed. Copyright © 2008 John Wiley & Sons, Ltd.     

Firm performance,rent appropriation,and the strategic resource divestment capability

Dynamic capabilities manifest the organizational capacity to purposefully create or modify the firm's resource base. In this paper, we consider resource divestment an important firm‐level resource management capability that manifests a two‐step organizational change routine. Firms must first be motivated to engage in resource divestment, and then decide which resources should be ‘sold off.’ In exploring this firm‐level capability, we employ factor market theory to consider the ‘seller side’ of the market, and provide a useful framework for conceptualizing how firms generate competitive advantage through resource divestment. We test our model of the resource divestment capability with a dataset of professional baseball franchises during the period 1969–83. Copyright © 2007 John Wiley & Sons, Ltd.     

Growth dynamics: the bidirectional relationship between interfirm collaboration and business sales in entrant and incumbent alliances

This paper demonstrates the existence of bidirectional relationships between interfirm collaboration and business sales. Controlling for factors that influence whether firms form collaborative relationships, the analysis shows that entry and post‐entry collaboration often contribute to superior performance, which in turn attracts more partners. However, the performance influences vary across types of collaborators and collaborations, with differences among entrant and incumbent partners, between marketing and R&D partnerships, by partner size, and across time. The empirical analysis examines businesses that operated in the U.S. hospital software systems industry between 1961 and 1991. Copyright © 2005 John Wiley & Sons, Ltd.     

Flexibility,Firm-Specific Turbulence and the Performance of the Long-lived Small Firm

The hypothesis that flexibility enhances the long run prospects of the small firm is explored by examining precipitating causes of organizational change within it, and consequential adjustments. The study is fieldwork based and uses evidence gathered directly from entrepreneurs. New measures of flexibility and firm-specific turbulence are used to explain long-run performance, measured over 28 distinct attributes. Econometric estimates (using GLS and Heckman selectivity correction) are reported, on the relationship between flexibility, firm-specific turbulence and performance. Firm-specific turbulence is shown to have a negative effect on performance, but the latter is enhanced by increasing the flexibility of the small firm.JEL classification: C42, D21, G33, L2, M13, M21.     

Cooperation with competitors and product innovation: Moderating effects of technological capability and alliances with universities

The relationship between cooperation with competitors and product innovation performance was investigated along with the moderating effect of the innovating firm's technological capability and its alliances with universities. The hypothesis that cooperation with competitors has an inverted U-shaped relationship with product innovation performance was tested using data on new product introductions from 1499 Chinese firms. The results support the existence of a bell-shaped relationship between co-opetition and product innovation performance. Technological capability and alliances with universities were shown to weaken the relationship. The findings add significantly to the emerging literature on dynamic co-opetition.     

The choice among acquisitions,alliances, and divestitures

This paper investigates how firms choose among acquisitions, alliances, and divestitures when they decide to expand or contract their boundaries. The dataset covers 9276 deals announced and completed by 86 members of the Fortune 100 between 1990 and 2000. Our findings support explanations based on resources, transaction costs, internalization, organizational learning, social embeddedness, asymmetric information, and real options, and suggest that these theories are highly related and complementary. We find less consistent support for theories based on agency costs and asset indivisibilities. The strong role of firm attributes explains in part why firms may pre‐specify whether they will pursue acquisitions, alliances, or divestitures as part of their corporate strategies. Copyright © 2005 John Wiley & Sons, Ltd.     

A note on the dynamics of learning alliances: competition,cooperation, and relative scope

Khanna, Gulati, and Nohria (1998) examine the dynamics of alliance learning and develop a conceptual framework designed to capture the tension between cooperation and competition. Based on the concepts of private and common benefits and relative scope, the authors explore firms' learning behavior patterns. This note comments on the framework and suggests that although the framework introduces some interesting concepts, the reliance on simple models from economic theory leaves the framework somewhat disconnected from the process of alliance management. Copyright © 2000 John Wiley & Sons, Ltd.     

Learning: The interface of quality management and strategic alliances

In this paper, we investigate the practice of quality management in strategic alliances. By employing a relational view of inter-organizational competitive advantage, the paper addresses the concept of quality management in strategic alliances and networks. We argue that institutional/network relationships influence the practice of quality within a network. In that regard, firms that have adopted quality management practices are more effective in managing and coordinating their interactions with other firms in the network, which results in their enhanced learning capability within the alliance.The proposed framework recognizes the role of trust and cooperative learning as critical factors that affect the success of strategic alliances. It has been argued that firms within an alliance need to achieve the paradox of control and learning. We examine the role of trust as a control mechanism in strategic alliances and address the importance of cooperative learning within alliances. Several hypotheses have been proposed and future research has been outlined.     

Unpacking Firm Exit at the Firm and Industry Levels: The Adaptation and Selection of Firm Capabilities

Evolutionary theory of business activity studies how firms are selected out of environments in which they do not fit, but most existing work underemphasizes the distinction between acquisition and dissolution as selection processes. We address this gap with a multilevel analysis that investigates how managerial and functional organizational capabilities affect whether struggling firms exit by acquisition or dissolution. We demonstrate that managerial and functional capabilities have heterogeneous effects on selection processes, with managerial capabilities having particularly strong influence on acquisition exits by struggling firms. The work provides a bridge between adaptation and selection views on organizational change; exit by dissolution represents selection of both firms and capabilities, while exit by acquisition represents firm selection but capability adaptation. Copyright © 2011 John Wiley & Sons, Ltd.     

Asymmetric performance: the market share impact of scale and link alliances in the global auto industry

This study investigates how participating in strategic alliances with rivals affects the relative competitive positions of the partner firms. The paper builds on studies that show significant differences in the outcomes of scale and link alliances. The study argues that the more asymmetric outcomes of link alliances translate into greater changes in the relative market shares of the partner firms, due to unbalanced opportunities for inter‐partner learning and learning by doing. We find support for this argument by examining 135 alliances among competing firms in the global automobile industry, from 1966 to 1995. Copyright © 2004 John Wiley & Sons, Ltd.     

Developing relationships in strategic alliances: Commitment to quality and cooperative interdependence

Organizations are using strategic alliances to develop competitive advantages in quality, innovation, and cost. To capture the potential synergies of these alliances requires that the partners develop long-term relationships. This study develops a model of strategic alliance relationship development based on the theory of cooperative and competitive goal interdependence. Thirty pairs of supplier and customer organizations in Xian, China participated in a survey where the supplier indicated the commitment and goal interdependence and the customer rated the relationship's long-term orientation. Results suggest that the commitment by both supplier and customer organizations to quality develop cooperative interdependence, which leads to effective strategic partnerships.     

Interorganizational alliances and the performance of firms: a study of growth and innovation rates in a high‐technology industry

This paper investigates the relationship between intercorporate technology alliances and firm performance. It argues that alliances are access relationships, and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners. In particular, large firms and those that possess leading‐edge technological resources are posited to be the most valuable associates. The paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition. Particularly when one of the firms in an alliance is a young or small organization or, more generally, an organization of equivocal quality, alliances can act as endorsements: they build public confidence in the value of an organization's products and services and thereby facilitate the firm's efforts to attract customers and other corporate partners. The findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners. Consistent with the status‐transfer arguments, the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations. Copyright © 2000 John Wiley & Sons, Ltd.     

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.     

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.     

Exploration and exploitation alliances in biotechnology: a system of new product development

We link the exploration–exploitation framework of organizational learning to a technology venture's strategic alliances and argue that the causal relationship between the venture's alliances and its new product development depends on the type of the alliance. In particular, we propose a product development path beginning with exploration alliances predicting products in development, which in turn predict exploitation alliances, and that concludes with exploitation alliances leading to products on the market. Moreover, we argue that this integrated product development path is moderated negatively by firm size. As a technology venture grows, it tends to withdraw from this product development path to discover, develop, and commercialize promising projects through vertical integration. We test our model on a sample of 325 biotechnology firms that entered 2565 alliances over a 25‐year period. We find broad support for the hypothesized product development system and the moderating effect of firm size. Copyright © 2004 John Wiley & Sons, Ltd.     

National and corporate culture differences in international strategic alliances: Perceptions of Chinese partners

We consider the effect of national culture and corporate culture differences on the management of international strategic alliances (ISAs). Findings are based on the perceptions of a relatively large sample of Chinese partner firms in ISAs with foreign partners. We find that differences in national culture and corporate culture have contributed to a similar extent to differing views on ISA management. However, findings indicate that differences in national culture and corporate culture have a differential impact on aspects of ISA management. Perception of national culture and corporate culture differences and the contribution of those differences to differing views on the management of ISAs are greater in relatively younger ISAs compared with older ISAs. Managers in equity-based ISAs report fewer problems with culture related impediments to managing ISAs than managers in non-equity-based ISAs.

Sources of alliance partner trustworthiness: Integrating calculative and relational perspectives

Research on the sources of organizational trustworthiness remains bifurcated. Some scholars have adopted a calculative perspective, stressing the primacy of actors' rational calculations, while others have approached trustworthiness from a relational perspective, focusing on its social underpinnings. We help to reconcile these seemingly disparate views by adopting an integrative approach that allows us to clarify the boundaries of both perspectives. Based on dyadic survey data from 171 strategic alliances, we find that the calculative perspective (represented by contractual safeguards) has higher predictive power when the partner lacks a favorable reputation. In contrast, the relational perspective (represented by organizational culture) predicts trustworthiness more strongly when familiarity with the partner organization is high. Copyright © 2013 John Wiley & Sons, Ltd.