Determinants of Alliance Duration in Uncertain Environments: The Case of the Biotechnology Sector

Abstract

This study aims to examine the factors influencing alliance longevity in a rapidly evolving environment—the Biotechnology sector. We argue that, due to limited opportunities for achieving synergies, shorter-duration alliances will exhibit inferior performance than longer-duration alliances. We examine the hypotheses that prior alliance experience of partners (formation as well as termination), prior relationship with each other and the presence of equity would be the key drivers of alliance longevity. Our sample consisted of 83 alliances formed and terminated in the Biotechnology sector between 1980 and 1996. A key finding of our study is that only 17% of the alliances in the sample are terminated due to scientific problems. We find that alliances where partners had previous alliance experience, or where the purchase of an equity stake was involved, tended to be longer–lasting. Previous relationships between the partners, or previous experience of alliance terminations did not lead to increased longevity however, and dissimilarity of size, type or culture/nationality of partners (as in alliances between small entrepreneurial biotech firms and large general pharmaceutical firms, or between commercial and academic partners) appeared not to impact longevity negatively. The managerial implications of these findings are discussed.