4 Int. J. Strategic Business Alliances, Vol. 1, No. 1, 2009 Copyright © 2009 Inderscience Enterprises Ltd.
A fresh look at strategic alliances: research issues and future directions Refik Culpan The Pennsylvania State University at Harrisburg, Middletown, PA 17057, USA E-mail:
[email protected] Abstract: This article reviews the current state of strategic alliances between and among firms by discussing the confusion concerning their epistemology and taxonomy; it offers a plain definition and typology of such ventures. Also examined are their evolution and theoretical foundations and important research questions reflected in the extant literature. After clarifying existing misconceptions and presenting a systematic treatment of strategic alliances, it aims at delineating new research issues and stimulating further research for advancement of the current body of knowledge on interfirm cooperation. Keywords: strategic alliances; interfirm partnership; equity alliances; joint ventures; non-equity alliances; network alliances; community of firms; alliance issues; alliance research. Reference to this paper should be made as follows: Culpan, R. (2009) ‘A fresh look at strategic alliances: research issues and future directions’, Int. J. Strategic Business Alliances, Vol. 1, No. 1, pp.4–23. Biographical notes: Refik Culpan is a Professor of Management and International Business at the School of Business Administration, The Pennsylvania State University at Harrisburg in the USA. He holds a PhD from New York University. He teaches strategic management and international business at both graduate and undergraduate levels. Also, he has extensive international experience in teaching at various universities and conducting seminars and workshops in many countries. He has published three books and numerous articles in reputable business and management journals. His recent book on Global Business Alliances: Theory and Practice has been translated into Chinese. He is the Editor-in-Chief of International Journal of Strategic Business Alliances.
1 Introduction Strategic business alliances refer to a variety of interfirm partnerships between and among firms to gain a competitive advantage; albeit they are called by various names that I will discuss later. For the purpose of this article, I will use the phrase, ‘strategic alliances’ as an umbrella term because of its comprehensiveness and widespread use. Strategic alliances have increased in number and importance in today’s global business environment. As a result, many researchers and managers have shown an increasing interest in these kinds of organisational arrangements for attaining and sustaining strategic competitiveness for the firm. There are a number of studies that have examined these popular interfirm partnerships in a variety forms and industries at both national and A fresh look at strategic alliances: research issues and future directions 5 international levels. Although interfirm collaboration is not new in business, the unique features of today’s strategic business alliances include their utilisation in large scales and scopes and for an enduring period of time as a strategic tool to gain or sustain competitive advantages for companies. Traditionally, companies have mostly operated only in a competitive mode as sole players. They have tried to gain a competitive edge over their rivals by developing or innovating products or services. Stiff competition among firms in many industries has been a driving force to utilise a variety of strategies based on self-reliance (e.g., mergers, acquisitions, differentiation and cost leadership) and to aim at gaining a competitive superiority over rivals through internalisation of business activities. However, changing national and global market conditions, consumer demands and lack of resource capabilities have forced firms to reevaluate their strategic choices and to engage not only in conventional, but also in new alternatives. Of various strategies, forming strategic
alliances with complementary firms (e.g., suppliers, marketers) in the value chain and even with rivals in the industry has gained popularity during the last two decades. This reflects a major managerial mind-set. Despite their popularity in theory and practice, strategic alliances involve a number of issues, which include their epistemology concerning confusion in their terminology and taxonomy, theoretical misconceptions or unsettled theoretical arguments about them and key success factors. After discussing the epistemology and taxonomy of strategic alliances, I will elaborate each of those important dimensions and research issues to clarify these ubiquitous collaborative ventures and, hopefully, to stimulate a further research interest in the development, governance and performances of strategic alliances.
2 Epistemology and taxonomy of strategic alliances A close look at the extant literature on strategic alliances presents some epistemological issues concerning terminology and taxonomy of such partnerships. Strategic alliances are called by various names such as joint ventures, collaborative ventures, interfirm partnerships and networks in both professional publications and scholarly writings. They are also defined in the following manners. For example, Gulati (1998) defined a strategic alliance as a group of firms entering into voluntary arrangements that involve exchange, sharing, or codevelopment of products, technologies, or services. Furthermore, Culpan (2002, p.37) noted two distinctive properties of a strategic alliance: long-term commitment by partners and contribution to strategic performance of partnering firm(s) to distinguish it from other types of business arrangements (i.e., market transactions). Similarly, Hitt et al. (2005, p.271) defined a strategic alliance as ‘a cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage’. One of the main disagreements, however, has probably been the treatment of joint ventures in the context of interfirm partnerships, if not the definitions of joint ventures, the way in which they are categorised presents some misconception as I will elaborate below. In other words, in their disagreement of defining alliances and joint ventures, some authors seem to focus on the extent which firms cooperate, coordinate, share ownership, information and knowledge. The epistemological question is ‘how do we know what we know about joint ventures or strategic alliances?’ Probably because of their historical developments and frequent uses and the creation of a new independent 6 R. Culpan firm out of two (at least) parent firms, traditionally joint ventures have been considered as a different category from other strategic alliances. A joint venture typically refers to a creation of a new business entity by two or more parent firms through investing equities and assigning members to the board of directors of this new firm. On the other hand, strategic alliances are considered by some as only non-equity types of arrangements between firms (e.g., joint R&D, production, or marketing). Hitt et al. (2005, p.271), for example, defined a strategic alliance as ‘a cooperative strategy in which firms combine some their resources and capabilities to create a competitive advantage’. They claimed that there are three major types of strategic alliances – joint ventures, equity strategic alliance and non-equity alliance. They defined a joint venture as ‘two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage’ [Hitt et al., (2005), p.271)]. Furthermore, Hitt and his colleagues (2005) asserted that ‘typically, partners in a joint venture own equal percentages and contribute equally to its operations (p.271). Continuously, they delineated an equity strategic alliance as a partnership in which two or more firms owned different percentage of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. In these definitions, a joint venture and an equity strategic alliance overlap or, at least, in some ways, it is difficult to tell the difference between these two kinds of partnerships. The authors imply that joint ventures are a special kind of alliance in which partners have typically equal equity positions, but most often partners may hold unequal percentages of equity with a variety of combinations (e.g., 40–60 or 30–70). Moreover, Hitt et al. (2005) portrayed a non-equity strategic alliance as a collaboration in which two or more firms develop a
contractual relationship to share some of their unique resources and capabilities to create competitive advantage. Similarly, Barney and Hesterly (2006) characterised a strategic alliance as two or more independent organisations cooperating in the development, manufacture, or sale of products or services. Similar to Hitt et al. (2005), they also classified strategic alliances into three broad categories: non-equity alliances, equity alliances and joint ventures. However, they defined them differently. Their definition of non-equity alliance includes such cooperative relationships managed through the use of various forms of contracts like licensing, supply and distribution agreements. According to them, in an equity alliance, cooperating firms hold equities in the alliance partner; for example, Renault owns 44% of equity in Nissan. Another example would be that some large pharmaceutical firms like Pfizer and Merck own equity positions in several start-up biotechnology companies. Finally, in joint ventures, partnering firms form an independent firm in which they make equity investments. The problem with this typology is that joint ventures are treated as if they are not equity alliances. Some researchers (Glaister, 2004; Hennart, 1988) even classified joint ventures as ‘equity joint ventures’ to distinguish them from other forms of joint ventures (generic inter-firm alliances or collaborative ventures). However, the very definition of joint ventures given above implies equity alliances since parent firms invest some equity in the creation of a new independent entity. Interfirm cooperation has also been referred to as coalitions (Porter and Fuller, 1986), cooperative arrangements (Contractor and Lorange, 1988), cooperative ventures (Tallman and Shenkar, 1994), (international) collaborative ventures (Mowery, 1988), inter-firm cooperation (Dyer, 1997; Lui et al., 2006; Singh and Mitchell, 2005), inter-firm partnership (Hagedoorn, 2006) and strategic alliances (Culpan, 1993; Doz, 1996; Hamel, 1991; Inkpen, 1998; Kale et al., 2000; Parkhe, 1993). In this article, for the sake of A fresh look at strategic alliances: research issues and future directions 7 adoption of a conventional terminology, the generic term of ‘strategic alliance’ preferred, referring to the collaboration of multiple firms (at least two) involving their long-term commitment of resources to relationships that would serve the strategic goals of partners. Such an alliance is not based on arms’ length market transactions or internalisation of such resources as capital, technology and other assets. Because of the confusion in the extant literature on strategic alliances, it is necessary to have a more appropriate taxonomy that would be based on equity commitment of partners in an alliance. This would yield a general category consisting of equity alliances and non-equity alliances. Equity alliances, in turn, can be broken down into two categories as joint ventures and block equity ownership (Culpan 2002, 2008). See Figure 1. I believe that adopting this taxonomy would be more a reasonable typology and help eliminate the confusion between equity alliances and joint ventures. Figure 1 A simple taxonomy of strategic alliances (see online version for colours) Equity Alliances Strategic Alliances Nonequity Alliances Joint Ventures Block Equity Ownership
To enhance the simple taxonomy of strategic alliances in Figure 1, however, I would further categorise them in two principal dimensions: the number of firms participating in collaborative relationships and the type of resource commitments of the parties to the strategic alliance. From the standpoint of the number of participants, strategic alliances can be distinguished as dyadic relationships where only two parties are involved or as multiple relationships involving three or more. And from the standpoint of resource commitment, firms can allocate either some equity or no equity at all, but they still apportion some of their resources to the alliance and share some of their capabilities with their partners. Based on these two dimensions, various types of strategic alliances can be classified into these four major categories as presented in Figure 2. Each one is briefly discussed below with its research corollaries. Joint ventures (sometimes also called as ‘equity joint ventures’) represent ubiquitous
the forms of strategic alliances. As a result, they have been subject to numerous studies (Beamish, 1988; Geringer and Herbert, 1989; Killing, 1983; Madhok, 1995; Parkhe, 1993). Both national and international joint ventures (IJV) are examined from various perspectives (e.g., partner selection, conflict and trust issues, governance, performance and stability and cultural differences between partners). 8 R. Culpan Figure 2 Strategic alliances between/among partners (see online version for colours)
Dyadic Relationships Multiple Relationships Equity Non-equity Commitments Commitments Joint ventures with two partners Equity block ownership Licensing Franchising Supplier Agreements Outsourcing R&D partnership Marketing partnership Joint ventures with multiple partnership Networks Community of firms
Equity-block ownerships are mostly studied by finance researchers (Allen and Philips, 2002) while probably the least studied as a form of alliance by management researchers. When one firm buys a substantial amount of equity in another one, an organic relationship is thereby formed between the equity acquiring firm and the target firm, which generally leads to further collaboration between them. Automobile manufacturing firms often used these kinds of interfirm linkages. Two examples illustrate the point. Although Ford is weighing a sale of part or all of its 33.4% controlling interest in Mazda, it plans to retain a sufficient stake in Mazda to guarantee that critical collaborative ties between the two companies continue. Similarly, after Renault’s acquisition of 44% of Nissan, the collaboration between these two companies has increased. Another category of interfirm partnerships involves non-equity alliances referring to collaboration without any equity participation in the partnership. They include a range of contractual arrangements (such dyadic relationships as licensing, franchising, supplier agreements, outsourcing) and multiple arrangements such as network relationships. Of these various forms, while licensing and franchising present traditional forms, outsourcing and network relationships have attracted a lot of attention in the last two decades. In particular, network relationships are worth a special mention because of the augmenting publications on them (Bae and Gargiulo, 2004; Lavie, 2008). Network alliances represent a kind of cooperative arrangement in which multiple firms agree to share their resources for a common interest. Often, the members of a network share information and knowledge with each other to improve or innovate products or services. Although generally networks are studied separately from strategic alliances (Gulati, 1998), the critical question is whether networks can be considered as a form of strategic alliances. I think network structures reflect collaborative relationships among multiple firms whereby member firms try to augment their innovativeness and competitive advantage. Dyer and Hatch (2006) noted the ability of network relationships to create advantage by emphasising the relation-specific capabilities. A fresh look at strategic alliances: research issues and future directions 9 Finally, community of firms as a non-equity alliance presents a new breed of
interfirm partnership that has not yet been covered adequately (Dehlander and Magusson, 2005; Miles et. al., 2005). The article by Snow and his colleagues (Snow et al., 2008 and also in this issue of the journal) is one of the pioneering studies on the subject explicating this new phenomenon by providing a conceptual framework and a practical example. There is a need for testing their model and further studies are needed to examine a community of firms. Overall, as I demonstrated above, the extant literature on strategic alliances presents confusion and complexity in its definitions and taxonomy, which are likely to reflect on its theoretical foundations as well. Thus, a brief review of theoretical underpinnings of strategic alliances is appropriate in the further understanding of the issues concerned.
3 Theoretical underpinnings To understand why strategic alliances occur or are preferred as a modality in business transactions, it is necessary to distinguish between two main choices of firms in business dealings with other parties. These choices are markets (arm’s-length deals) or hierarchies (ownership or internalisation) (Williamson, 1975). Market transactions refer to a firm’s free choice of trading partners based on the evaluations of costs and benefits of its partner each time. Accordingly, the firm chooses its business counterparts without any long-time commitments and restrictions. On the other hand, hierarchies mean organisational structures established to control production and distribution activities in-house, rather than dealing with other parties to reduce the risk and uncertainties involved in business transactions. Between these two opposing business modalities, strategic alliances are viewed as quasi-hierarchies (internalisation) or hybrid arrangements (Contractor and Lorange, 1988; Contractor, 1990; Culpan, 2002; Borys and Jemison, 1989). See Figure 3. Figure 3 Strategic alliances as hybrids (see online version for colours) Markets (Arms-length deals) Strategic Alliances Quasi-hierarchies (Hybrids) Hierarchies (Internalization)
As presented in Table 1, theoretical foundations of strategic alliances vary in the literature. Major theoretical explanations can be summarised as follow. ‘Transaction cost economies’ (TCE) refers to consideration of transaction costs (TCs) involved in economic exchanges and minimisation of such costs. A TC can be defined as a cost incurred in making an economic exchange. A number of TCs include search and information costs, bargaining costs, contract costs and policing and enforcing costs. According to Williamson (1981), the determinants of TCs are frequency, specificity, uncertainty, limited rationality and opportunistic behaviour. Then, in evaluation of a potential transaction, it is important to consider TCs that might prove significant. 10 R. Culpan Drawing from this TCE, strategic alliances, joint ventures in particular, (Hennart, 1988) are considered as arrangements to minimise such TCs for firms by working with partners whom they know well and trust. ‘Internalisation theory’ is a variant of TCE specifically concerned with MNE’s market entry strategies (Buckley and Casson 1976, 1985; Rugman, 1986) where firms wish to control the market uncertainty and risks by owning new venture (subsidiary). Essentially, in entering foreign markets, the MNE tries to minimise uncertainty and risks by internalising production and distribution through equity ownership. However, under the circumstances where a full ownership option is not available or is too costly, MNE prefers quasi-internalisation (joint venture) as the most efficient modal. ‘Industrial organisation perspective’ emphasises the dominant influence of the industrial conditions on the firm’s strategic behaviour while seeking competitive advantage over its rivals. In terms of international strategy, Porter and Fuller (1986) posited that a firm forms coalitions as a means of performing one or more activities in combination with another firm instead of running them alone. Coalitions between firms become useful in gaining the scale and learning while reducing risks, which in turn
provide long-term competitive advantages (e.g., R&D partnership). Furthermore, Harrigan (1985, 1988) argued that different ownership patterns offer varying degrees of strategic flexibility. This means that a joint venture provides more strategic flexibility than a wholly-owned subsidiary when the business enterprise faces high risks and considers withdrawal from it. Extending this logic to non-equity partnerships, one can further argue that a non-equity alliance provides even greater strategic flexibility than a joint venture. ‘Game theoretical perspective’ describes behaviour in strategic situations in which a party’s success in making choices depends on the choices of others. In the context of strategic alliances, the game theoretical approach suggests that firms cooperate because they are supported by an incentive mechanism, which can curtail opportunistic behaviour. Arend and Seale (2005), for example, examined a game situation between partners and offered a model based on an iterated prisoners’ dilemma with an exit option in an alliance. In their study, the proposed solution resulted in a partner receiving its opportunity cost as its expected average pay-off in the alliance. They explained why more sophisticated partnerships strategies than tit-for-tat are likely to be superior in the game they studied. Furthermore, Park and Zhou (2005) introduced a game-theoretic model of alliance formation according to the net gains from an alliance and the prevention of losses that could occur from competitors’ alliance activities. Their model provides a theoretical insight on a paradoxical setting that some firms join an alliance despite little gains, while others avoid or delay it despite potentially strong gains from the alliance. ‘Resource-based view’ contemplates that the possession of bundle of unique, rare, durable and inimitable resources of a firm leads its sustainable competitive advantage; therefore, it is important for the firm to exploit such resources fully and build a resource-base. To acquire and develop such a bundle of resources, in addition to developing their own resources, firms can build strategic alliances with others who have such complementary resources and knowledge. A number of studies utilised these theoretical lenses in analysis of strategic alliances (Park et al., 2004; Mesquita et al., 2008). By using the resource-based view, Park et al. (2004) examined how alliances of e-commerce firms affect firm value in an emerging business sector. Their findings showed that alliances of e-commerce firms in general have a positive effect on firm A fresh look at strategic alliances: research issues and future directions 11 value. They also revealed that marketing alliances generate significantly greater firm value than technology alliances. In addition, Mesquita et al. (2008) compared resource-based and relational perspectives to examine competitive advantages within the context of vertical-learning alliances. They claimed that, while the resource-based view helps explain the performance gains that learning suppliers deploy across average partners, the relational view reveals the additional performance edge that remains exclusive to the learning partnership. Furthermore, they found that partnership exclusive performance (i.e., ‘relational performance’), the true source of learning dyads’ competitive advantage, is a function of suppliers acquiring know-how within the dyad, developing dyad-specific assets and capabilities and structuring buyer-supplier relational governance mechanisms (Mesquita et al., 2008). ‘Knowledge-based view’ emphasises knowledge creation and sharing through strategic alliances. Drawing on social exchange theory, Muthusamy and White (2005) examined the effects of social exchange processes between alliance partners on the extent of learning and knowledge transfer in a strategic alliance. Their empirical examination results revealed that social exchanges such as reciprocal commitment, trust and mutual influence between partners are positively related to learning and knowledge transfer in strategic alliances. In addition, the study of nine international alliances by Hamel (1991) suggested that not all partners are equally adept at learning; that asymmetries in learning alter the relative bargaining powers; that stability and longevity may be inappropriate metrics of partnership success; that partners may have competitive, as well as collaborative aims, vis-à-vis each other; and that process may be more important than structure in determining learning outcomes.
Furthermore, Grant and Baden-Fuller (2004) argued that the primary advantage of alliances over both firms and markets is in accessing rather than acquiring knowledge. Building upon the distinction between the knowledge generation (‘exploration’) and knowledge application (‘exploitation’), they showed that alliances contribute to the efficiency in the application of knowledge: first, by improving the efficiency with which knowledge is integrated into the production of complex goods and services and second, by increasing the efficiency with which knowledge is utilised. These static efficiency advantages of alliances are enhanced where there is uncertainty over future knowledge requirements and where new products offer early-mover advantages. ‘Network organisation theory’, on the other hand, focuses on the relationships among multiple network members and demonstrates how the member firms benefit from exchanges among themselves (Bogatti and Foster, 2003). For example, Koka and Prescott (2008) discussed strategic decision of alliance networks involving trade-offs between two designs choices: prominent and entrepreneurial. They claimed that prominent alliance networks emphasise benefits arising out of multiple access and affiliation to other prominent firms in the network while an entrepreneurial position stresses brokerage and diversity benefits arising out of access to nonredundant and diverse information. Furthermore, they argued that the performance benefits of each type of alliance network are contingent on environmental change and strategy and are thus time dependent. In addition, the findings of Rosenkopf and Padula (2008) suggest an important contingency for the endogeneity (growth from within) perspective: structural homophily (sameness) predicts shortcut formation but not alliance formation within clusters. Furthermore, they demonstrated that the pattern of alliance formation between incumbents and new entrants to the alliance network is driven by a combination of 12 R. Culpan endogenous and exogenous mechanisms. The researchers claimed that new entrants attach to more prominent incumbents, but they are more likely to attach with an alliance deal that comprises multiple partners as demonstrated in the mobile communications industry between 1993–2002 where systemic technology encouraged cooperation and where network entry was prevalent. Finally, ‘real options theory’ provides a tool for managers to deal with uncertainty and strategic flexibility. “It has attracted interest because it offers a means of quantitatively evaluating the role of uncertainty in firms’ investment decisions; it changes the ways in which strategists think about particular investments and the ways in which they can deliver value to firms; and it offers the promise of beginning to reconcile strategic and financial analyses in organisations”. [Hoskisson et al., (2008), p.355]
Applying this theory, Tong et al. (2008) argued that an international joint venture’s ownership structure, product-market focus and geographic location are important contingencies affecting the value of embedded growth options. Table 1 Theoretical underpinnings of strategic alliances Theories Descriptions Applications to strategic alliances
TC economics Explains the costs associated with search and information, bargaining and policing and enforcement; the determinants of TCs are frequency, specificity, uncertainty, limited rationality and opportunistic behaviour A collaborative venture minimises TCs between partners Internalisation theory Multinational enterprises (MNEs) make foreign direct investments
(FDI) to internalise their production and distribution activities in foreign markets. Thereby, they would have better control over their assets in uncertain markets Under conditions where FDI are not feasible, MNEs may choose joint ventures as a mode of market entry to foreign countries and utilise these hybrid structures Industrial organisation Perspective Is concerned with competitiveness through a strategic positioning of a firm in a given industry Alliances are formed to gain competitive advantages for partnering firms. Different ownership patterns offer varying degrees of strategic flexibility Game theory (The prisoner’s dilemma) Each player pursuing his own self-interest leads both players to be worse off than had they not pursued their own self-interests Interfirm collaboration provides better rewards than those sought by firms alone Source: Adapted from Culpan (2002, p.31)
A fresh look at strategic alliances: research issues and future directions 13 Table 1 Theoretical underpinnings of strategic alliances (continued) Theories Descriptions Applications to strategic alliances
Resource-based view Sustainable competitive advantages of a firm stem from its possession of a bundle of valuable, rare, durable and imperfectly imitable resources Interfirm partnership can be instrumental for accessing and pooling such strategic resources Knowledgebased view Innovation through knowledge creation leads to a competitive advantage; combinative capabilities are important in
gaining competitive advantage Partnering firms learn through knowledge transfers and may internalise knowledge; each may build expertise in such knowledge transfers Network organisation theory Long-term purposeful arrangements among distinct but related organisations that allow those firms in them to gain or sustain competitive advantage; resource commitment by members in exchanging resources and information and sharing power Firms in a network exchange and share resources and information and benefit mutually from the outcomes of the network relationships Real options theory Drawing from corporate finance, it means the right, but not the obligation, to undertake some investment decisions; typically the option to make or abandon a capital investment IJV offer growth options. IJVs’ ownership structures, product-market focus and geographic locations affect the value of growth options Source: Adapted from Culpan (2002, p.31)
4 Important research topics A review of the current literature on strategic alliances shows that there are numerous conventional and emerging topics to study in the field.
4.1 Conventional research interests The conventional research topics listed below are by no means exhaustive. Not only the issues have been unsolved but also agreement has not been reached on many. Rather, we still need more findings to either confirm or refute the current research outcomes.
4.1.1 Partner selection in strategic alliances Partner selection has been one of the most studied aspects of alliances. In this context, partner qualifications and compatibility have received much attention. In particular, a number of studies (Hitt et al., 2004; Li et al., 2008) addressed the partnership reputation and experience of a potential firm and took them as a proxy to predict the future 14 R. Culpan behaviour of partners. Also, I argue that the type of alliance would make a difference in selecting a partner. For example, it is more important to carefully choose a partner in equity alliances in comparison with non-equity alliances. In these decisions, the resource and capabilities of potential firms have been important considerations. While symmetrical or complementary resources of partners are important in certain cases or industries (e.g., collaboration of airlines or auto manufacturers), asymmetric resources
and capabilities are sought in other cases (e.g., big pharmaceutical firms collaborating with small start-up biotech firms). Firm-specific and industry-specific conditions need to be taken into consideration as well. Shah and Swaminathan (2008) suggested that the critical criteria for assessing alliance partner attractiveness and selection vary depending on the differential levels of process manageability and outcome interpretability inherent in a strategic alliance. Further studies testing this hypothesis and other afore mentioned dimensions on partner selections would contribute to building the body of knowledge on strategic alliances.
4.1.2 Governance structures of strategic alliances Governance forms in alliances are another important topic in strategic alliances, which have been the subject of many inquiries. For example, Oxley (1997) found that more hierarchical alliances are chosen when appropriability hazards are severe because technology is difficult to specify or because the scope of activities is wider, so that monitoring is hampered. In addition, Teng and Das (2008) identified the key determinants of governance structure choice in strategic alliances by examining empirically, with a large sample of alliances from various industries, the significant roles of four factors: namely, joint R&D, joint marketing objectives, alliance management experience and international partners. Nevertheless, we need further studies delineating effective governance forms in alliances. For example, it would be interesting to know how equity positions in equity-based alliances as well as non-equity constructs such as control, coordination and trust affect the governance structures of alliances.
4.1.3 Control and trust in strategic alliances When two parties or more come together to form a business alliance, each partner is concerned with how to control the newly-created alliance. Therefore, control has been one of the main interests of alliance researchers. When partners make equity commitments, they tend to exert greater control (Culpan, 2002). There is a need to study control mechanisms and standards in strategic alliances. Geringer and Herbert (1989) studied the extent and focus of control in international joint ventures, while Das and Teng (1999) defined three types of control in strategic alliances as contractual, equity and managerial control. In addition, Madhok (1995) introduced a trust-based approach to multinational firms’ tolerance for joint ventures. Nevertheless, there will be a need for new studies in either testing previous propositions and findings or expanding existing knowledge on control and trust paradoxes in strategic alliances.
4.1.4 Performance and stability of strategic alliances Numerous studies have focused on the measurement of alliance performance. In one of the most cited studies on the subject, Geringer and Herbert (1991) measured the A fresh look at strategic alliances: research issues and future directions 15 performance of international joint ventures. Another group of studies (Beamish and Inkpen, 1995; Inkpen and Beamish, 1997) focus on joint venture stability or instability. The high rate of instability of IJV calls for studying the underlying reasons for the instability. Joint venture instability is defined as a major change in partner relationship status that is unplanned and premature from one or both partners’ perspectives (Inkpen and Beamish, 1997). The instability of IJVs is often associated with shifts in partner bargaining power. Shifts in the balance of bargaining power occur when partners of an IJV acquire sufficient knowledge and skills to eliminate a partner dependency and make the IJV bargain obsolete (Inkpen and Beamish, 1997). For many studies conducted on joint ventures, researchers can apply those joint venture studies with some adjustments to other types of strategic alliances. In other words, a valid question would ask to what extent joint venture research can be applied to other forms of alliances. Toward this end, a recent study by Lunnan and Haugland, (2008) indicated that alliances that are considered strategically important are less likely to be abruptly terminated. The researchers also found that newly established alliances have a higher termination rate than older alliances. Short-term performance is primarily affected by access to complementary and strategically important resources, whereas long-term performance is related to specific investments in human capital combined with the partners’ ability to develop and expand alliance activities over time. Then, the critical
questions that need to be answered are how to establish strategically important alliances, how to foster long-term relationships between partners and how to achieve sustainable performance. Another important research issue is the integration of financial performance (that is mostly studied) of alliances and competitive advantage development of the alliance and/or collaborating firms.
4.2 Emerging topics Beyond the traditional research topics, there are some of emerging topics that also need researchers’ further attention. They can be summarised as follows.
4.2.1 Network alliances Although networks are usually treated separately from strategic alliances, they present salient characteristics of strategic alliances. A number of studies (Bogatti and Foster, 2003; Gulati, 1998; Koza and Lewin, 1999; Ulset, 2008) on networks explored their evolution, motives, memberships and dynamics. Gulati (1998), for example, used a social network perspective in the study of strategic alliances. Instead of considering primarily dyadic exchanges in alliances, he extended prior research to network relationships. He paid less attention to the fact that key precursors, processes and outcomes associated with alliances can be defined and shaped in important ways by the social networks within which most firms are embedded (Gulati, 1998). In addition, in his recent book (which is reviewed in this journal’s book review section), Gulati (2007) defined network resources as resources that accrue to a firm from its ties with external constituents including, – but not limited to, – partners, suppliers and customers and thus exist outside a firm’s boundaries. In the last chapter of his book, Gulati (2007) aptly identified the areas of research on networks in the context of strategic alliances as follows: the interplay between network resources and material resources, a taxonomy of inter-firm relationships, the types of partners connected to firms, the scaling of network resources 16 R. Culpan from individual ties to firm-level ties and network resources within institutional context and in a global web. In addition, for collaboration networks Pisano and Verganti (2008) developed a framework based on two dimensions. One is participation in a network, referring to how open or closed a firm’s network should be and the other is governance form, referring to whether the network is hierarchical or flat. Accordingly, they defined four basic modes of collaboration: ‘innovation mall’ a combination of open and hierarchical network, ‘innovation community’ a combination of open and flat network (which will be explained specifically below as community of firms), ‘elite circle’ a combination of closed and hierarchical networks and ‘consortium’, a combination of closed and flat networks. This is an interesting taxonomy of networks that deserves empirical investigation in order to further understand each type of network category.
4.2.2 Community of firms In the notion of Snow et al. (2008 and in this issue of the journal) a community of firms represents a new breed of collaborative venture where a number of firms interact and exchange information and knowledge for a common goal. This is the kind of alliance that needs the attention of researchers to extend the current pioneering studies. As also mentioned above, Pisano and Verganti (2008) considered open membership networks with flat governance structures as innovation community (a variant of community of firms) a network where anybody can pose problems, offer solutions and decide which solutions to use. Invariably, understanding the rationale, dynamics, membership roles, governance forms and performance of these emerging collaborative arrangements is essential.
4.2.3 Strategic alliances in emerging markets With consumer demand for quality products and services in emerging markets augmenting and local firms’ requests for advanced technologies increasing, Western MNEs have started to seek collaboration with local firms to penetrate these new markets and improve their competitive advantages. Given special conditions of emerging markets such as relatively poorer, less educated consumers, inadequate market infrastructures and
the cross-cultural difference between Western and developing countries, there is a need to study which creative collaborative arrangements will help to serve effectively and become successful in these markets. For example, what type of business alliances can be developed to enhance the practices of micro credits for poor consumers in less-developed countries so that more consumers can be reached worldwide? How can firms explore opportunities to develop alliances between firms to build businesses appealing to the people at ‘the bottom of income pyramid’ in less-developed countries as popularised by Prahalad and Hammond (2002).
4.2.4 New theoretical perspectives Despite recent theoretical advances, there are still new ways of examining strategic alliances. The role of information and knowledge in strategic alliances, for example, presents a new challenge for researchers. Although a stream of research has already developed on knowledge management and transfer in joint ventures (Inkpen and Dinur, A fresh look at strategic alliances: research issues and future directions 17 1998; Inkpen and Tsang, 2006; Lyles and Salk, 1996), further studies are needed in probing the organisational processes used by partners for transfer or creation of new knowledge through strategic alliances not only in joint ventures but also in other types of alliances. Further, one of most recent approaches to joint ventures has been real options theory. In their recent study, as mentioned above, Tong et al. (2008) tested real options theory with international joint ventures. In addition, Kumar (2005) examined the value created from acquiring and divesting a joint venture. Consistent with the real options view, he found that joint ventures divested to refocus a parent firm’s product market portfolio were associated with significant value creation. In contrast, joint ventures acquired with the objective of growth and expansion in a target market, while not associated with significant value creation, did not destroy value either. In this vein, we need further inquiries covering other forms of strategic alliances beyond joint ventures. Moreover, the theoretical view of dynamic capabilities of firms has been popular in the strategic management literature in recent years (Eisenhardt and Martin, 2000; Teece and Pisano, 1994; Teece et al., 1997). This view argues that the competitive advantage of firms stems from dynamic capabilities rooted in the performance routines operating inside the firm, embedded in the firm’s processes and conditioned by its history. It offers dynamic capabilities as an emerging paradigm of the modern business firm that draws on multiple disciplines and advances. Since this perspective emphasises the shifting nature of the environment and the key role of strategic management in appropriately adapting, integrating and reconfiguring internal and external organisational skills, resources and functional competences toward changing environment (Teece and Pisano, 1994), this perspective is quite relevant to strategic alliances. To the extent that firms are under the pressures of market environmental transformations and continuous changes in their portfolio of resources and capabilities, they need strategic alliances with other firms to build or develop their dynamic capabilities. Though, there are still few studies applying the notion of dynamic capabilities to strategic alliances, this theory has a great potential in contributing to further research in strategic alliances. Many researchers on strategic alliances have stressed the existence of linear and causal relationships between a dependent (e.g., alliance performance or stability) and a few independent variables (e.g., ownership patterns, control or governance mechanisms, partner symmetries, or asymmetries). However, strategic alliances between firms present a complex set of multidimensional relationships, which entail the utilisation of nonlinear thinking and approaches such as complexity or chaos theory. For example, Thietat and Forgue (1995) argued that organisations can be viewed as nonlinear dynamic systems subject to forces of stability and forces of instability which may push them toward chaos. Their argument could be extended to strategic alliance arrangements. Then, strategic alliances as well most likely to exhibit the qualitative properties of chaotic systems, which include such features as sensitivity to initial conditions, discreteness of change and attraction to specific configurations (Thietat and Forgue, 1995). Research inquiring the existence of these properties and their relationships in the context of strategic alliances
will be enlightening. Similarly, Sullivan and Daniels (2008) posited in their recent article that scholars disagree on international business’ domain and future prescription, yet agree that research will engage topics dealing with dynamic change and hard-to-explain phenomena. As a result, they endorsed a multiparadigmatic perspective that complements international business’ scientific and humanist paradigms with that of chaos theory. 18 R. Culpan Furthermore, they argued that it is helpful to study the non-normal patterns of nonlinear, far-from-equilibrium systems. In a similar fashion, Anderson (1999) claimed that although organisation scientists have studied complex organisations for many years, a developing set of conceptual and computational tools makes possible new approaches to modelling nonlinear interactions within and between organisations. Continuingly, he stressed that complex adaptive system models represent a genuinely new way of simplifying the complex. Embarking his arguments, I would contend that applying complex adaptive system models to strategic alliances leads to new insights in understanding and building systems that can rapidly evolve effective adaptive solutions. This simply means strategic alliances can be examined as complex adaptive systems.
5 Future directions Given the current state of research on strategic alliances, the next question is which direction new research endeavours should take. Let me offer my thoughts on future directions of new research activities. Interdisciplinary studies on strategic alliances would provide a broader perspective in understanding and managing such ventures. For example, network organisations in particular can be further studied in context of social networks and institutional theory. Although there are some studies of this nature, we need to explore further the nature and dynamics of strategic alliances by benefiting from sociological theories on group dynamics and networks. Likewise, trust between partners can be further studied from sociological and psychological perspectives. More than a decade ago, Parkhe (1993) identified ‘messy’ research on IJV by defining methodological predispositions and theory developments. He claimed that theory is struggling to catch up with practice. He further argued by stating that ‘observable outcomes are merely the end products of invisible processes and the two are quintessentially connected. Until theories of processes evolve substantially beyond their current stage and effectively merge with theories of outcomes, development of an overarching IJV theory may remain stalled’ [Parkhe, 1993, p.268]. Since then, I wonder how much progress we have made in solving such messy research and developing theories merging outcomes with those invisible processes. One thing is certain that there are only limited attempts to use a multidisciplinary perspective, drawing from economics, sociology and cognitive science, to study alliances (Notebroom, 1999). Notebroom (1999) integrated a range of theoretical constructs, including resource-based theory (also referred to as capabilities or competencies), social exchange theory, TC economics, innovation, learning, trust and opportunism to present ideas related to the ‘analysis, diagnosis and (re)design’ of alliances. Similarly, in advancing new theories, an integration of TC theory, internalisation theory, resource-based and knowledge-based views would be useful. In addition, as I stated above, the dynamic capabilities theory of firms would enhance our understanding of not only the outcomes, but also the processes in strategic alliances. In addition to those conventional strategic management theories like industrial organisation, TCs and resource-based perspectives, a new theoretical lenses as mentioned above such as dynamic capabilities of competitive advantage and complexity and chaos theories of organisation can be employed in new research endeavours to provide fresh insights into strategic alliance phenomenon and its impact. Although these emerging theories would require more non-linear and complex approaches, mostly qualitative A fresh look at strategic alliances: research issues and future directions 19 rather than traditional quantitative methods, they can offer new or complementary explanations for strategic alliance structures and processes. In addition, a review of extant literature on alliances demonstrates that most of the research focused on joint ventures, with less attention paid to other forms of cooperative
ventures. Drawing on joint venture research, researchers can investigate many dimensions of strategic alliances or, at least, they can identify to what extent joint venture research can be extended to other forms of strategic alliances. In particular, block-equity ownership has been the research interest of finance scholars, but these researchers have not examined them as alliances or have not related them to strategic advantage of partners. Strategic management researchers can fill this void by either conducting sole inquiries or collaborating with finance researchers. Also, the increasing number of non-equity alliances deserves the attention of researchers. Moreover, Khanna (1998) developed the notion that the choice of alliance scope materially affects the character of benefits received by alliance participants and thereby affects the range of issues having to do with the initiation, evolution and termination of the alliance. Based on his distinction between private benefits – those that accrue to subsets of participants in an alliance and common benefits – those that accrue collectively to all participants, it would be worthwhile to compare these two types of benefits in alliances and demonstrate how they are realised in given cases. Furthermore, rapidly emerging business sectors such as bio-pharmacology, clean or green technologies, alternative energies (e.g., wind turbines, solar energy, bio-fuels, bio-cells and stem-cells research) call for alliances of a number of companies to contribute their distinct competencies, knowledge and expertise to develop products and services desperately needed in today’s markets. Future studies on alliance formation need to take into account how dyadic capabilities interact with firm-level factors, as well the advantages and disadvantages of more or less fine-grained measures of organisational capabilities (Rothaermel and Boeker, 2008). Advanced or new business models based on collaboration of firms would pave the way to accomplish such ambitious goals. My ultimate goal in this article is to stimulate further interest in strategic alliance research, to encourage a vigorous debate and to foster innovative thinking in understanding and managing such partnerships. I hope this article accomplishes this challenging goal.
Acknowledgements The author would like to thank Thomas Buttross and Jeff Tsai for their constructive comments on an earlier draft of this article and William J. Graft for his assistance in literature search. 20 R. Culpan
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