Inter-firm alliance portfolio distance and the partners’ preferences for the distal governance modes to manage endogenous uncertainty in the biotechnology sector

Abstract

Inter-firm alliances play a pivotal role in the swiftly evolving high-tech landscape, yet they often introduce uncertainty, especially when partners have varying degrees of asymmetry. This study explores the dynamics of such alliances, focusing on endogenous uncertainty (technology and partner-specific) over external factors (culture and institutions). We investigate whether the alliance portfolio distance between partners aligns with distal governance modes, which refers to the continuity from the upfront payment mode to equity investments on the timeline. Furthermore, does the investor’s comparative position influence this alignment between construed uncertainty and governance modes? Drawing on Construal Level Theory (CLT), inter-partner distance corresponds to high-level construal in distal governance modes, while proximity aligns with low-level construal in proximal modes. The analysis includes 13,000 biotechnology sector alliance events across 1,700 firms in 29 countries over a decade. Findings reveal a shift in governance mode preferences from the concrete and proximal (upfront) to abstract and distal (equity), touching milestones and licensing in the middle. The investor’s lead in the alliance portfolio asymmetry further strengthens the preference for abstract modes in the distal and high abstract construal levels. This study advances CLT as a framework, offers an integrated approach, and highlights a preference for high-value tech collaborations despite increased cost and risk over temporal and abstract governance conditions.