Network location and learning: the influence of network resources and firm capabilities on alliance formation

This paper presents a dynamic, firm‐level study of the role of network resources in determining alliance formation. Such resources inhere not so much within the firm but reside in the interfirm networks in which firms are placed. Data from extensive fieldwork show that by influencing the extent to which firms have access to information about potential partners, such resources are an important catalyst for new alliances, especially because alliances entail considerable hazards. This study also assesses the importance of firms’ capabilities with alliance formation and material resources as determinants of their alliance decisions. I test this dynamic framework and its hypotheses about the role of time‐varying network resources and firm capabilities with comprehensive longitudinal multi‐industry data on the formation of strategic alliances by a panel of firms between 1970 and 1989. The results confirm field observations that accumulated network resources arising from firm participation in the network of accumulated prior alliances are influential in firms’ decisions to enter into new alliances. This study highlights the importance of network resources that firms derive from their embeddedness in networks for explaining their strategic behavior. Copyright © 1999 John Wiley & Sons, Ltd.     

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.     

Strategic action and customer mobility: Antecedents and consequences of strategic actions in the Korean mobile telecommunication service industry

This paper investigates the sources and consequences of strategic actions in the Korean mobile telecommunication service industry. Based on competitive dynamics research and an organizational learning perspective, it suggests hypotheses and tests them with monthly data on service providers’ competitive and alliance actions, as well as statistics on monthly subscribers during 2002–2007. We show the positive effects of a firm’s own experience, other firms’ strategic actions, and firms’ alliance tendencies on the likelihood of firm-level competitive action and alliance. We also find that negative performance feedback accelerates the mimetic influence of rival firms’ competitive actions and that positive performance feedback strengthens the momentum effect of a firm’s own alliance experience on the likelihood of alliance. Both competitive actions and alliances appear to influence customer mobility across firms in a complex manner. Based on customer mobility data, this study finds that alliances increase market dynamism, that is, customer mobility. It also shows that competitive actions, in general, serve to effectively attract switching customers from rivals. This study partially answers questions regarding the triggers of competitive actions and alliance activities among mobile telecommunication service providers and their performance consequences.     

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.     

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.     

Learning from competing partners: outcomes and durations of scale and link alliances in Europe,North America and Asia

This paper investigates the outcomes and durations of strategic alliances among competing firms, using alliance outcomes as indicators of learning by partner firms. We show that alliance outcomes vary systematically across link and scale alliances. Link alliances are interfirm partnerships to which partners contribute different capabilities, while scale alliances are partnerships to which partners contribute similar capabilities. We find that partners are more likely to reorganize or take over link alliances than scale alliances. By contrast, scale alliances are more likely to continue without material changes. The two types of alliances are equally likely to shut down, at similar ages. These results support the view that link alliances lead to greater levels of learning and capability acquisition between the partners than do scale alliances. Copyright © 2000 John Wiley & Sons, Ltd.     

The legitimacy of strategic alliances: an institutional perspective

Drawing on an institutional perspective, this paper suggests that strategic alliances serve an important legitimating function for firms and that this role, mediated by alliance governance structure and partner selection preferences, has a significant influence on firm and alliance performance. A theoretical framework is proposed that identifies five types of legitimacy associated with strategic alliances and the specific conditions under which legitimation may be an important outcome of strategic alliances. Propositions are developed to explain when firms are most likely to enter into alliances for legitimacy purposes and how the legitimating role of strategic alliances contributes to firm and alliance performance. The paper concludes with a summary and implications of a legitimacy‐based view of alliances. Copyright © 2007 John Wiley & Sons, Ltd.     

Horizontal alliances as an alternative to autonomous production: product expansion mode choice in the worldwide aircraft industry 1945–2000

This study investigates why firms choose to undertake product expansion through alliances with competitors rather than on their own. We highlight product heterogeneity as a determinant of this make or ally choice. We propose that firms turn to horizontal alliances in order to implement product expansion projects that require greater resources than those available to them. More precisely, we hypothesize that a firm is more likely to launch a new product through a horizontal alliance rather than autonomously when the resource requirements of the project are greater, the resources available to the firm are more limited, there is a mismatch between resource endowment and requirement, and the firm's collaborative competence allows it to better cope with the interorganizational concerns that collaboration with competitors raises. We find support for our arguments on a sample of 310 new aircraft developments launched between 1945 and 2000, either by a single prime contractor or as a horizontal alliance in which prime contractorship is shared with another industry incumbent. Copyright © 2009 John Wiley & Sons, Ltd.     

An examination of the effects of venture capitalists on the alliance formation activity of entrepreneurial firms

Research Summary : Alliances offer benefits such as access to capital, knowledge, and markets. Yet, due to their lack of legitimacy, entrepreneurial firms find it challenging to engage in alliances. Thus, it is important to examine which factors may drive alliance formation for entrepreneurial firms. We examine whether the presence of venture capitalists (VCs) is such a factor. Whereas current research suffers from endogeneity concerns that make the comparison of VC- and non-VC-backed firms problematic, our empirical design reduces this problem. Overall, we find that the presence of a VC and a VC's experience with taking firms public are positively associated with entrepreneurial firms’ alliance formation, and that VCs are more active in forming an alliance when the exit outcome is an acquisition, rather than going public. Managerial Summary : Alliances can be of fundamental importance to the growth of entrepreneurial firms. However, because entrepreneurial firms hold limited resources, their access to alliances may be limited. We study whether entrepreneurial firms backed by venture capitalists (VCs) are more likely to enter into alliances than firms without VC backing. A major problem with this sort of analysis is that VCs may cherry pick the best firms, which in turn are more likely to engage in alliances to begin with, irrespective of VCs. Accordingly, we control for the quality of funded firms, and therefore, isolate the VCs’ contribution to alliance formation. In doing so, we find support for the importance of the role VCs play in entrepreneurial firms’ alliance formations.     

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.     

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.     

Alliance portfolios and firm performance: A study of value creation and appropriation in the U.S. software industry

This study reveals the multifaceted contribution of alliance portfolios to firms' market performance. Extending prior research that has stressed the value‐creation effect of network resources, it uncovers how prominent partners may undermine a firm's capacity to appropriate value from its alliance portfolio. Analysis of a comprehensive panel dataset of 367 software firms and their 20,779 alliances suggests that the contribution of network resources to value creation varies with the complementarity of those resources. Furthermore, the relative bargaining power of partners in the alliance portfolio constrains the firm's appropriation capacity, especially when many of these partners compete in the focal firm's industry. In turn, the firm's market performance improves with the intensity of competition among partners in its alliance portfolio. These findings advance network research by highlighting the trade‐offs that alliance portfolios impose on firms that seek to manage and leverage their alliances. Copyright © 2007 John Wiley & Sons, Ltd.     

Honeymoons and Liabilities: The Relationship between Age and Performance in Research and Development Alliances

The use of strategic alliances by technology ventures has increased dramatically over the last 20 years. During this period companies not only have increased the use of alliances but also have used them in more strategically important areas, particularly in research and development (R&D) and new product development. Thus, successful management of strategic alliances in high‐technology industries has become critical to a firm's new product development and ultimately to firm performance. Yet little is known about what determines the performance of individual alliances. This article examines the relationship between the age of an alliance and the performance of the alliance. Two competing hypotheses regarding the form of the functional relationship between alliance age and alliance performance are developed and are tested. First, a liability of newness hypothesis, which posits that alliance performance increases in a linear fashion over time, is tested. Then a honeymoon hypothesis, which posits that the relationship between age and alliance performance is nonlinear with alliance performance decreasing initially but increasing over time, is tested. It is proposed further here that alliances that are more important to the focal firm exhibit longer honeymoon periods. A measure of individual alliance performance is developed based on our field study in the biotechnology industry. The competing hypotheses are tested using regression analysis on the sample of 115 R&D alliances. Then the analysis is extended by splitting the sample into high‐ and low‐importance alliances to enhance the robustness of the findings. Further, such a split‐sample approach enables testing for a potential moderating effect of alliance importance on the hypothesized relationship between alliance age and alliance performance. The results suggest that the relationship between age and alliance performance seems to be U‐shaped curvilinear rather than linear, with the minimum point of alliance performance occurring after approximately four and one‐half years. Thus, the results indicate that strategic alliances appear to face a liability of adolescence rather than a liability of newness. Contrary to expectations, it also is found that important alliances exhibit generally shorter honeymoons.     

Alliance portfolio reconfiguration following a technological discontinuity

Research summary : We study how technological discontinuities generate first‐ and second‐order effects on alliance formation and termination, leading to reconfiguration of firms' alliance portfolios. Following technological shocks, we argue that firms often seek alliances that provide new resources while also having incentives to form alliances for reinforced and challenged resources that complement the new resources. In parallel, alliance terminations, even involving resources otherwise unaffected by the discontinuity, increase due to limits in firms' alliance carrying capacity. We study biopharmaceutical firms between 1990 and 2000, which faced a technological discontinuity in 1995 in the form of combinatorial chemistry and high‐throughput screening. We improve understanding of how technological discontinuities affect the value of resources and how firms reconfigure alliance portfolios in response. Managerial summary : When firms form alliances to gain new resources during technological discontinuities that disrupt their industry, they cannot consider only the focal new partnerships. Instead, new alliances create complementarity and substitution pressures that lead to broader reconfiguration of the firms' alliance portfolios: (1) complementarity creates incentives to also form alliances for resources that the technological discontinuity reinforces or challenges in order to improve the collective value of co‐specialized assets; (2) substitution creates incentives to terminate existing alliances, even if their value is otherwise unaffected by the discontinuity, in order to create carrying capacity for new alliances. Thus, one new alliance can generate a cascade of reconfiguration that challenges the balance between the benefits of stability and the need for change in an alliance portfolio. Copyright © 2016 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.     

Network resource stocks and flows: how do alliance portfolios affect the value of new alliance formations?

We examine how new network resources accessed through alliance formations interact with network resources present in a firm's alliance portfolio. We test our theoretical model using event study methodology and data from the global air transportation industry. We find that the market rewards firms forming alliances that contribute resources that can be synergistically combined with firms' own resources as well as with network resources accessed through their alliance portfolios. Our results also indicate that the market penalizes firms entering into alliances that create resource combinations that are substitutes to resource combinations deployed by existing alliance partners. Copyright © 2011 John Wiley & Sons, Ltd.     

Learning to collaborate through collaboration: How allying with expert firms influences collaborative innovation within novice firms

Research summary : Strategic alliances have been recognized as a means for firms to learn their partners' proprietary knowledge; such alliances are also valuable opportunities for partner firms to learn tacit organizational routines from their counterparts. We consider how relatively novice technology firms can learn intraorganizational collaborative routines from more experienced alliance partners and then deploy them independently for their own innovative pursuits. We examine the alliance relationships between Eli Lilly & Co. (Lilly), a recognized expert in collaborative innovation, and 55 small biotech partner firms. Using three levels of analysis (firm, patent, and inventor dyad), we find that greater social interaction between the partner firm and Lilly subsequently increases internal collaboration among the partner firm's inventors. Managerial summary : Can collaborating externally advance internal collaboration? Yes. Our research found that collaboration among scientists at small, early‐stage biotechnology firms significantly increased after these firms formed highly interactive R&D alliances with a large pharmaceutical company known for its expertise in such collaboration. It is well known that alliances help new firms learn specific new technologies and commercialize innovations. Our study broadens the scope of potential benefits of alliances. New firms can also learn collaboration techniques, deploying them internally to enhance their own abilities in collaborative innovation. Managers should take this additional benefit into consideration in developing their alliance strategies. Pursuing alliance partners with expertise in collaboration and keeping a high level of mutual interactions with partner firm personnel should be important considerations to extract this value. Copyright © 2015 John Wiley & Sons, Ltd.     

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.     

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.     

Managing alliance relationships: Key challenges in the early stages of collaboration

Recent surveys indicate that executives of technology companies consider strategic alliances to be central to their competitive strategies. Yet the barriers to successful alliances are formidable. In many instances, these barriers develop in the early stages of an alliance. This study identifies and analyzes the types of challenges that companies face in the start–up phase of their alliances. It is based on a survey and interviews with executives in the Canadian high technology industry. The study finds that the principal challenges in the first year of an alliance relate to relationship issues between the partners. It suggests stronger attention to these issues in the design and implementation of an alliance. The paper concludes with guidelines to build and sustain effective working relationships between partners.