Influence of Institutional Differences on Firm Innovation from International Alliances

Abstract

This paper explores the contribution of the institutional perspective in understanding firm innovation returns from international alliances. It argues that formal and informal national institutions are of different nature, and give rise to explicit and tacit differences respectively between alliance partners. Partners exhibit different attitudes and abilities to negotiate and address such differences in leveraging the innovation potential of international alliances. As a result, we expect such differences to have distinct effects on partners' innovation performance: a) the effect of informal institutional differences is approximating sigmoid (S-shaped), with innovation performance slightly increasing first, then improving further and finally reaching a flattening plateau as informal institutional difference between partners increase; and b) the effect of formal institutional differences resembles an inverted U. Support is provided for both our contentions in a longitudinal sample of 110 UK biopharmaceutical firms. The paper contributes to existing understanding of firm innovation performance from international alliances, and broadly, to the management of internationalization in alliance portfolios.