Preferred partner diversity and firm performance: a study of Swedish small firms

Abstract

Small firms’ partner selection is universally acknowledged as a critical stage of alliance formation. However, the performance implications of initial orientation towards a more diverse alliance portfolio are not well understood. Conflicting findings suggest a need for further understanding of what moderates the relationship between preferred alliance partner diversity and small firm performance. Hence, in this study we develop a preference-based measure of partner diversity and empirically test its effects on firms’ performance using an original survey dataset of 1077 Swedish small firms, micro-matched with register records. We show that a more diverse set of partner preferences - that reflect both the awareness of various partner types’ strength and weaknesses and the ability to align specific tasks with a particular partner type - indeed constitutes a competitive advantage for young growing ventures. However, small firms older than six years - especially the ones that experienced zero growth or declined in previous years - should consider fewer partners at the selection stage as they gain no or negative performance benefits from increasing their consideration set. We also show that entrepreneurial orientation positively moderates the effects of preferred partner diversity.