Strategic Alliance Choice: Usefulness of Proposed Theories

By Wisnieski, Joette; Soni, Ramesh | Journal of Applied Management and Entrepreneurship, July 2004 | Go to article overview

Strategic Alliance Choice: Usefulness of Proposed Theories


Wisnieski, Joette, Soni, Ramesh, Journal of Applied Management and Entrepreneurship


Executive Summary

Three theories-resource dependency theory, transaction cost theory, and strategic choice theory-offer alternative, often conflicting, explanations of why new ventures choose strategic alliances, along with prescriptions for how best to structure the alliance. This paper investigates if the purported motives, as stated by the firm, form the basis for the structure of the alliance. The sample for this research consisted of 189 high-technology new ventures issuing an IPO during 1989-1995 and met the following conditions: independent startup with less than 10 years from incorporation to IPO date, and at least 3 years of sales. The final sample was 189 firms with 394 alliances. A predictive discriminant analysis was used to see if the underlying propositions are valid; that is, if firm's motivation for an alliance can be used for predicting alliance structure. The theories regarding firm motivation to form alliance were reliable predictors of alliance structure.

Introduction

There is little doubt that strategic alliances are changing the way American business operates from big companies to small (Lavie, 2002). Strategic alliances and partnerships have become more and more visible as well as an increasingly important means for companies to rapidly expand capabilities, reach new markets, and develop critical new service offerings (Kaplan & Hurd, 2002; Neill, Pfeiffer, & Young-Ybarra, 2001). And, there has been an explosion of articles, both academic and mainstream, describing these alliances and their motives (Lavie, 2002). For purposes of this paper, we will define strategic alliances as any long-term, formal linkage between organizations that offers actual or potential strategic advantage to both organizations (Jarillo, 1988; Olleros & Macdonald, 1988; Silverman & Baum, 2002). These linkages or governance structures include a wide range of alliance structures have emerged involving both equity structures and non-equity structures (Das & Teng, 2002). Equity arrangements refer to structures that include some form of ownership such as minority investment of one firm in the other or joint ventures. Non-equity arrangements refer to long-term contracts or agreements with no ownership involved such as supply, manufacturing, marketing, and technology exchange and licensing agreements and cooperative R&D. And while the literature has described these linkages and suggested when and how strategic alliances should be used, very little evidence exists as to whether these theories are being applied in practice.

Three competing theories, Resource Dependency, Transaction Cost and Strategic Choice suggest both reasons why firms enter into strategic alliances or their motivations for these alliances and how best to structure the strategic alliance. But, little research has been done focusing on the connection between motivation and structure. All three theories suggest this connection exists, but this has yet to be tested. This paper will further develop the theory in this area. Specifically this paper will focus on whether the motives for the alliance impact the choice of governance structure. Initial public offerings of 189 firms issued between the years 1986 and 1994 were studied to determine the use of strategic alliances by high technology new ventures (firms less than 10 years old). Content analysis was performed on the IPOs for several variables including new venture motivation for the alliance and the governance structure of the alliance. Predictive discriminant analysis was used to determine if indeed these three theories were useful in predicting alliance formation.

Literature Review

Three theories -resource dependency theory, transaction cost theory, and strategic choice theory -offer alternative explanations of why new ventures choose strategic alliances, along with prescriptions for how best to structure the alliance. These three theories, while often cited in the literature, actually offer conflicting advice to practitioners about how best to structure an alliance.

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