Social Structure and Alliance Formation Patterns: A Longitudinal Analysis

By Gulati, Ranjay | Administrative Science Quarterly, December 1995 | Go to article overview

Social Structure and Alliance Formation Patterns: A Longitudinal Analysis


Gulati, Ranjay, Administrative Science Quarterly


The last 15 years have witnessed an unprecedented growth worldwide in the number of interfirm strategic alliances - voluntary arrangements involving durable exchange, sharing, or codevelopment of new products and technologies (Harrigan, 1986; Contractor and Lorange, 1988). There have been numerous efforts to document this growth and identify the environmental factors and firm imperatives whose confluence may have led to this dramatic proliferation of strategic alliances. As a result of this proliferation, most firms are now viewed as placed within a network of interorganizational relationships that are crucial to their success and survival.

Common questions examined in prior research on interfirm strategic alliances have been why alliances occur with such frequency and when firms enter them (e.g., Barley, Freeman, and Hybels, 1992; Powell and Brantley, 1992). The answers have varied. Transaction cost economists have argued that alliances are intermediate hybrid forms between the extremes of markets and hierarchy (Williamson, 1985) that occur when transaction costs associated with a specific exchange are too high for an arm's-length market exchange but not high enough to mandate vertical integration (Hennart, 1988). Other scholars have suggested that many firms enter alliances to learn new skills or acquire tacit knowledge (Kogut, 1988a; Doz, Hamel, and Prahalad, 1989; Hamel, 1991; Khanna, Gulati, and Nohria, 1994). Institutional theorists have suggested a bandwagon effect in which firms succumb to isomorphic pressures and mimic other firms that have entered alliances (Venkatraman, Koh, and Loh, 1994). Yet others have pointed out that alliances may result from firms' quests for legitimacy (Sharfman, Gray, and Yan, 1991; Baum and Oliver, 1991, 1992). Lastly, scholars of corporate strategy have suggested that firms enter alliances to improve their strategic position (Porter and Fuller, 1986; Contractor and Lorange, 1988; Kogut, 1988a).

Although researchers have applied significant efforts in understanding when and why firms enter alliances from each of these perspectives, they have left relatively unexplored the question of with whom firms are likely to ally. Transaction cost economics, for example, assumes exchange relations between two partners as a given and then seeks to explain how those relations will be formalized (cf. Pisano, 1989). This omission of factors that may guide tie formation between firms is particularly significant, since "the forces which bring an organization to interact are not the same as those which determine with whom the organization will interact" (Paulson, 1976: 312).

Resource dependence theorists have examined the formation of interorganizational ties such as strategic alliances as a result of underlying resource dependence (Pfeffer and Nowak, 1976). Several studies in the 1960s and 1970s showed that an important reason for ties between human service agencies was their perceived strategic interdependence with each other (for a review, see Oliver, 1990). Although concerns of interdependence provide insights into tie formation between firms, they may not adequately account for alliance formation. This inadequacy is clear from the fact that not all possible opportunities for sharing interdependence across firms actually materialize as alliances. An account of alliance formation that focuses only on interdependence does not examine how firms learn about new alliance opportunities and overcome the fears associated with such partnerships. Implicit in such accounts is the assumption that firms exist in an atomistic system in which information is freely available and equally accessible to all, and opportunities for alliances are exogenously presented.

This study proposes a framework to explain the formation of interorganizational alliances within a rich social context. The social context examined is the cumulation of prior alliances between firms. These prior ties, both direct and indirect, create a social network in which most firms are embedded, and it becomes an important source of information for them about the reliability and capabilities of their current and potential partners.

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