Inter-firm Alliances Research Articles

Why aren't we learning from our partners? An investigation on the relationship between initial conditions and knowledge acquisition effectiveness

Although the theoretical literature has been favourable regarding the benefits of alliances, the empirical literature has been less clear. In part, we argue that this is because the literature generally ignores the initial organisational conditions of the firms before engaging in such activities. To address this issue, we designed a survey research to study the impact of initial product innovation conditions on the inter-firm networking patterns of entrepreneurial firms. We tested our hypotheses on small and medium biotechnology and IC design firms in the USA and Taiwan. The results suggest that inter-firm alliances serve as an effective platform of external knowledge acquisition when the knowledge recipients are strongly committed to the knowledge acquisition process. However, the efforts to acquire external knowledge are usually diluted as the size of the focal firm's inter-firm network increases. Such dilution effect reduces the effectiveness of external knowledge acquisition from external partners.

A Framework for the Choice of Compensation Types in Foreign Knowledge Acquisition through Strategic Alliances between Firms

Knowledge transfer through international inter-firm strategic alliances has recently become an essential source of competitive advantages of firms in the world economy. Existing studies on knowledge transfer have focused on the formal aspects such as the choice between equity and non-equity modes, failing to correctly capture the deeper and complex process in knowledge transfer, which is critical for the successful transfer. This paper analyzed the properties and characteristics of knowledge and various types of compensation for the transferred knowledge and the major processual issues regarding knowledge transfer from the perspectives of agency theory and the relation view of knowledge transfer. It also proposed a framework to guide the knowledge recipient's decision in choosing appropriate compensation types.

Coordination in Hinterland Transport Chains: A Major Challenge for the Seaport Community

Many different private companies – shipping lines, terminal operating companies, forwarders, hinterland transport providers, and inland terminal operators – are involved in hinterland transport. In addition, different public actors such as the port authority, customs, and infrastructure managers are involved. Creating effective hinterland transport chains requires the coordination between all these actors; coordination does not come about spontaneously. Its development may be hindered by free-riding problems, a lack of contractual relationships, information asymmetry, and a lack of incentives for cooperation. This paper presents analyses of the coordination problems in hinterland chains of seaports and arrangements to resolve these problems. The most relevant coordination problems in hinterland chains are discussed. Based on insights from institutional economics, four main categories of arrangements to improve coordination are identified: the introduction of incentives, the creation of an interfirm alliance, changing the scope of the organisation, and collective action. An analysis is presented of a substantial number of coordination arrangements in hinterland transport to and from the port of Rotterdam, thereby indicating how coordination could be improved.

Prior Relationships and M&A Exit Valuations

An empirical investigation was conducted into the effects that prior relationships between buyer and target firm have on the purchase price paid. Forty acquisitions of Canadian and US high-technology firms are examined using a set-theoretic approach (Ragin [2000]) to determine the effects of industry and inter-firm alliances on the price-to-book ratio. We find that specific combinations of prior relationship type are positively associated with higher prices. These results suggest that relationships at different levels of analysis can act to mitigate information asymmetries in a value-creating manner and may provide practitioner guidance on strategies to increase value in M&amp;A exits. <b>TOPICS:</b>Private equity, security analysis and valuation, statistical methods, developed

Corporate Alliances, Resource Reallocation, and the Propagation of Merger Activity

We model an economy of inter-firm alliances, and we show that such alliances are a channel for merger propagation. We confirm the model's main prediction in data, where the likelihood that a firm is involved in MA (ii) merger propagation also depends on indirect alliance-network connections; (iii) partner mergers also lead to a higher likelihood of entering into new alliances.

The effectiveness of learning from strategic alliances: a case study of the Taiwanese textile industry

Interfirm alliances provide a channel of communication between partnering firms. However, two notable communication barriers hinder the effectiveness of learning across firms. As the target knowledge is different from their existing knowledge base, the recipient firms' incumbent knowledge base may not be sufficient to identify target knowledge. In addition, inability to internalise and integrate acquired knowledge to the rest of organisation may handicap the effect of new knowledge. A growing number of recent studies have reported that the frequency of communication activities has positive contribution to the interaction quality between firms. However, we know relatively less about the role of transparency and receptivity in the relationships between communication activities and learning effectiveness. To address this issue, we designed a survey study based on the learning and knowledge transfer literature. The results of our analysis show that communication improves interfirm learning effectiveness, but such relationship is mediated by transparency and receptivity.

Firm dynamic governance of global innovation by means of flexible networks of connections

Today a plethora of inter-company alliances exists. Firms have networked value chains, disclosing consequently their strategy, which assets are internalized or externalized, and their ability to cope with fast change. The picture of all interfirm alliances in high tech sectors is that of an unstable complex network, or macrostructure, that evolves quickly and into which firms are differently entwined. Structural metrics borrowed from network research in sociology such as centrality and constraint (or lack of “structural holes”) can be used to assess dynamically a firm’s position in the macro structure and therefore the market: does the firm occupy a dominant or dominated position in an industry? How do its partners and competitors perform? Drawing also from recent theories on complex networks developed by statistical physicists, we show that firms are embedded in dynamic complex networks that have a ‘scale-free’ format, with only a few firms or “hubs” controlling the system, as well as a cohesive or ‘small-world’ structure. This small-world structure, which allows rapid diffusion of innovation along very short paths, also constrains firms continuously and can lead to a fast reversal of their position on the market. Taking as an example a major sector of the biopharmaceutical industry, this study offers insights for managers to assess effectively their environment and navigate under constant pressure within these ever-changing networks.JEL Codes: L14, L24, L65, O3

The role of personal relationships in inter-firm alliances: Benefits, dysfunctions, and some suggestions

Strategic alliances have become an important means for developing and improving a firm's level of competitiveness. Although attractive, alliances are risky and difficult to manage. One crucial mechanism in managing and reducing alliance risk is reliance on personal relationships between managers in partnering firms. Personal ties are beneficial in that they can form the basis for developing trust between partners, and aid joint decision-making and information sharing, thereby reducing some of the risks inherent in alliances. Despite their usefulness, however, personal relationships may have drawbacks. For example, strong interpersonal ties in alliances can sometimes prevent dissolution of faltering arrangements, as feelings may prevent the making of difficult, yet prudent, termination decisions. In order to combat this possibility, firms can reduce the downside of personal relationships by carefully managing the role of performance managers across the life of the relationship.

Simmel's Treatise on the Triad (1908)

In the literature on firms and organizations, in economics, sociology, and business studies, there has been an increasing awareness that firms need others, outside the firm, in order to function, and particularly in order to innovate. This has led to the proliferation of studies on subjects such as outsourcing, inter-firm alliances, and networks of firms. Still, though, most of these studies focus on dyads of firms (i.e., strategic interaction of firms). Even in network studies, networks were seen mostly as aggregates of dyads. In contrast, in network analysis in sociology there has been, for some time, attention to roles and effects of third parties and of triads. In particular, the work of Ronald Burt (e.g. Burt, 1992) noted the importance, especially in the context of the acquisition of new information, of being a third party in ‘bridging structural holes’ between unconnected nodes or networks, and the opportunities for advantage as a tertius gaudens (laughing third) in playing agents off against each other. While in network analysis this attention to triads is relatively new, it has, in fact, a long history, going back, in particular, to the work of the sociologist Georg Simmel. A recent publication that acknowledges this is Krackhardt (1999).

Transaction Costs and Reputation-Based Trust in Biotech Alliances

Reputation-based trust, reflecting the time-dependency of trust, influences inter-firm alliances. A literature review resulted in hypotheses which were tested in an empirical study based on a quantitative analysis and in-depth interviews with firms in the bio tech sector of human health in the Netherlands. In high dynamic markets firms use reputation-based trust as an informal coordination mechanism for alliances. However, it does not reduce the necessity of contracts. Reputation results in a decline of overall transaction costs of alliances. Reputation-based trust reduces the uncertainty between alliance partners and the frequency of interaction. It does not result in an increase of asset specific investments.

Inter‐firm collaboration: configuration and dynamics

Cooperative strategies, both domestic and foreign, have become an important component of the strategic repertoire of firms. Various forms of interfirm alliances are redefining and transforming the very nature of competition. Considering their importance, a solid understanding of their fundamental dynamics is necessary. Different forms of alliances exist: from those that emerge because partners have some preexisting advantages such as geographic proximity or shared history to those that arise because third parties such as governments have created the enabling environment. Looking at the context and operational dynamics of various alliance configurations may help our understanding of how to manage them. This paper presents four configurations or clusters of alliances based on their origins and link the context to operational dynamics. The policy and research implications of the paper are also presented.

Agency Costs, Reputation and Collaboration: Syndication in the UK Market for Private Equity

Syndicates are a form of inter-firm alliance in which two or more private equity firms co-invest in an investee firm and share a joint pay-off, and are an enduring feature of the private equity industry. This study examines the relationship between syndication and agency costs at the level of the investee, and the extent to which the reputation and social embeddedness of the lead investor mediates this relationship. We examine this relationships using a sample of 732 buyout investments by 64 private equity companies in the UK between 1993 and 2001. Our findings show that where agency costs are highest, and hence ex-post monitoring by the lead investor is more important, syndication is less likely to occur. The negative relationship between agency costs and syndication, however, is mediated by the reputation and social embeddedness of the lead investor firm. That is, the reputation and social embeddedness of the lead investor helps to alleviate the costs associated with a syndicate arrangement. The results further highlight potential problems of adverse selection in the market for syndication.

External Environment, Trust and East-West Trade

A model of trust and commitment in international interfirm alliances in conditions of legal uncertainty/hostility is presented with propositions for testing. Conditions in four Central and East European countries are profiled with respect to varying legal environments and the potential effects of those environments on foreign investment and cooperation.

Do alliances promote knowledge flows?

We explore the role of interfirm alliances as a mechanism for sharing technological knowledge. We argue that knowledge flows between alliance partners will be greater than flows between pairs of nonallied firms, and less than flows between units within single firms. Using patent citations as a proxy for knowledge flows, we find results that are consistent with these expectations. We then explore how firm characteristics affect knowledge flows within alliances and find positive effects due to technological, geographic, and business similarities between partners. We use alliance data from MERIT, patent data from the USPTO, and firm data from Compustat.

OPTIMAL COGNITIVE DISTANCE AND ABSORPTIVE CAPACITY.

Our study tests hypotheses concerning the relation between innovative performance and cognitive distance in inter-firm alliances. The central hypothesis is that performance is an inverted-U shaped function of cognitive distance, which implies a certain optimal cognitive distance. A second hypothesis claims that optimal cognitive distance is higher for exploratory than for exploitative learning. A third hypothesis claims that optimal cognitive distance is a function of absorptive capacity, which depends on cumulative past R&D. Most hypotheses are confirmed on the basis of data from 994 alliances in a variety of industries, in the ten-year period 1986-1996. The results indicate a new hypothesis that with a large stock of knowledge one needs greater cognitive distance for further novelty.

Entrepreneurial alliances as contractual forms

Advancing upon taxonomical research on interfirm alliances, we investigate the design of entrepreneurial firms' alliances in more fine-grained terms by focusing on the specific contractual provisions that firms negotiate into their alliance contracts. Drawing upon transaction cost arguments, we examine the determinants of the contractual complexity of collaborative agreements in the German telecommunications industry. The findings reveal that alliance contracts vary greatly in their complexity, yet contracts for non-equity alliances tend to be no more or less complex than those for equity alliances on average. Furthermore, multivariate findings on the roles of transaction-specific investment, relational capital, search costs, and so forth demonstrate that firms' contractual and governance choices have distinct antecedents.

Innovation, agglomeration, and regional development

This paper provides a critical examination of the widely disseminated view that innovation in all or most activities is favoured by certain common characteristics in the local ‘milieu’, involving a cluster of many small firms benefiting from flexible inter-firm alliances, supported by mutual information exchanges of both an informal and formal nature. The general applicability of this model, and the localness of crucial linkages, is questioned initially on the basis of a review of different hypotheses about the geography of innovation. Moreover, examination of new survey evidence from a large number of firms in the London conurbation suggests that the importance of specifically local informal information spillovers for successful innovation is very much more limited than has been suggested, as are the supposed advantages of firm smallness.

Trust as sensemaking: the microdynamics of trust in interfirm alliances

Although contracts are an important part of any interorganizational relationship, it is generally accepted that informal understanding, based on trust, may prove even more powerful than contracts in assuring a successful relationship. This study presents an empirical test of a theory of trust creation in economic exchange. The paper explores the theoretical proposition that trust creation may be viewed as a process of sensemaking in which small cues are enlarged through the incremental accumulation of evidence. Interview and questionnaire data obtained on strategic partnerships from chief executive officers and senior management in the biotechnology, pharmaceutical, and medical equipment manufacturing companies in North America showed that trust building in partnerships may be a sort of self-fulfilling prophecy in which initial expectations positively impact behavior and trust building. The results also show that there may be some optimal level of expectations. Both too low and too high an expectation were counterproductive to trust building.

Knowledge management in production alliances

This paper develops a managerial model of production network organizations (PNOs), inter-firm alliances for product development and delivery, in which inter-firm network structure and knowledge management practices play a major role in venture performance. The paper addresses the issue of alignment between the adopted network structure, the scope of the joint production task, and consequent inter-firm information flow require- ments, hypothesizing that venture performance is a joint function of network structure and task integration scope. In situations with a difficult alignment between the chosen network structure, joint task scope, and information flow requirements, knowledge management investments across the PNO are proposed as a moderating factor leading to improved venture performance. The paper demonstrates the proposed model with three case studies, providing preliminary verification of the key proposition that knowledge management interventions can mediate the impact of loose integrating structures for joint production ventures that are undertaking complex joint tasks.

Inter-firm alliance and network relationships and the eclectic paradigm of international production: an exploratory analysis of quasi-internalisation at the subsidiary level

At a conceptual level, the eclectic paradigm of international production has evolved in response to the growth of inter-firm alliances and networks. Yet, there is little empirical research on the nature, extent and compatibility of external network relationships formed at the subsidiary level to support this development. We propose that these relationships may be incorporated into the eclectic paradigm by measuring the extent of quasi-internalisation (transfer) of firm-specific advantages and resources between the subsidiary and local customers, suppliers, and alliance partners. Two distinctive features of this paper are observation of quasi-internalisation via subsidiary–network relationships, and exploration of the complementarity of quasi-internalisation with FDI. The study is based on data concerning 516 foreign subsidiaries headquartered in New Zealand. Our results indicate that quasi-internalisation of resources occurs via external network relationships, and complements FDI by allowing the subsidiary to become an organiser of both internal and external resources.