Academic journal article Entrepreneurship: Theory and Practice

The Effectiveness of Alliances and Acquisitions: The Role of Resource Combination Activities

Academic journal article Entrepreneurship: Theory and Practice

The Effectiveness of Alliances and Acquisitions: The Role of Resource Combination Activities

Article excerpt

Resource complementarity increases the potential value of alliances and acquisitions, but the extent to which the value potential of an alliance or an acquisition becomes realized depends on the ability of the firm to discover and conduct productive resource combinations. Using a sample of 319 small firms, we separate domestic from international alliances and acquisitions and show that alliances and acquisitions bring limited benefits to firms unless deliberate effort is devoted to resource combination. These findings help resolve conflicts in the resource-based literature concerning the benefits of alliances and acquisitions.

Introduction

In 1992, Apple Computer and IBM teamed up in a strategic alliance called Taligent with the purpose of developing a new joint operating system. The potential synergies between the computer giants seemed obvious, yet the alliance never prospered and was dissolved a few years later. Similarly, Daimler-Benz and Chrysler Corp. decided to join forces in 1998, pointing to the substantial synergies between the two companies, but the stocks of the joint DaimlerChrysler company traded well below the level at the time of the merger and Chrysler was eventually sold to Cerberus at a fraction of the price it was bought for. Examples of alliances and acquisitions that fail to deliver on the intended synergies are mounting, yet they are vigorously pursued by companies around the globe (Denrell, Fang, & Winter, 2003). Meta-analysis of the acquisition literature supports that overall, acquisitions do not have any positive performance implications (King, Dalton, Daily, & Covin, 2004).

A possible reason for the failure of alliances and acquisitions to deliver positive performance benefits is that the price a firm pays for accessing a set of resources reflects the value of the future cash flow from these resources (Barney, 1986). However, such an explanation assumes that specific alliances/acquisitions provide synergies with expected benefits that are the same across firms, yet firms often differ in their ability to achieve synergistic benefits--firms differ in their resource portfolios and their ability to bundle resources within a portfolio (Sirmon, Hitt, & Ireland, 2007). The resource portfolio establishes the upper bound of the firm's value creation potential (Makadok, 2003). The value creating potential of the resource portfolio increases when the resources acquired are complementary to the existing ones--the joint use of existing and acquired resources can yield a higher total value than the use of each set of resources independently (Chi, 1994; see also Harrison, Hitt, Hoskisson, & Ireland, 1991; Larsson & Finkelstein, 1999; Madhok & Tallman, 1998). However, it appears that achieving synergies is not simply a matter of adding complementary resources. (1) That is, there is a difference between the potential value of resources and their realized value (Madhok & Tallman), where potential value relates to resource acquisition and realized value of the resources involves resource combination activities and exploitation (Denrell et al., 2003; Penrose, 1959; Zahra & George, 2002). Resource combination activities constitute a broad construct including the acquisition, development, accumulation, and usage of resources (Eisenhardt & Martin, 2000; Zahra, Sapienza, & Davidsson, 2006). The greater the capability for conducting such activities, the better firms will be at discovering and exploiting the value of alliances and acquisitions. Therefore, a sole focus on the value creation potential of complementary resources gives an incomplete understanding of the performance implications of acquisitions and alliances.

In this study, we investigate 319 small firms and the moderating role of resource combination activities on the effectiveness of alliances and/or acquisitions. In doing so, we make the following contributions to the literature. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.