Offshoring, local market entry, and the strategic context of cross-border alliances: The impact on the governance mode

Abstract

International alliances have been studied in considerable depth, but almost entirely as host market entry options. And while much global value production is done through international alliances, the organizational forms used to control dispersed value chains are often reduced to “make or buy”—that is, captive operations vs. market-based outsourcing. We examine how strategic purpose (vertical or offshore production vs. horizontal or production for local market entry) affects the choice of cooperative governance form. We contend that an offshore production role, as opposed to a market entry strategy, makes an alliance more likely to be governed as a contractual alliance than as a joint venture. Data on 261 cross-border alliances in the major appliances industry largely support our hypotheses. Further, strategic purpose moderates the effects of alliance activities and of the institutional environment of the host country on the choice of governance form.