Despite the popularity of strategic alliances among firms, the public is ambivalent about the industry impact of horizontal alliances. It is not apparent that the benefits of alliances to the firm also accrue to the industry. This paper examined the U.S. steel industry data from 1977 to 1997 to determine the potential impacts of capability horizontal alliances on industry competitive structure. The results are indicative of positive impacts on industry competitiveness (profitability and productivity) and competitive structure (price competition and declining industry concentration). A capability hypothesis is offered that posit that horizontal alliances that enhance partner firms 'capabilities may diffuse critical capabilities or 'best practices' within an industry thereby raising the average level of competitiveness in the industry and inducing competitive pressures that can result in price competition and erode industry concentration.
Strategic alliances are the "relatively enduring inter-firm cooperative arrangements that involve flows and linkages that utilize resources and/or governance structures from autonomous organizations, for the joint accomplishment of individual goals linked to the corporate mission of each sponsoring firm" (Parkhe, 1991: 581). Investors generally view alliance announcements favorably (Das, Sen, and Sengupta, 1998) since alliances enable firms to share resources, manage risk, and create value (Chart et al., 1997). However, consumers are wary of horizontal alliances or cooperative arrangements between competing firms that could result in anti-competitive maneuvers as partner firms seek to manage industry-induced uncertainties (Burgers, Hill, and Kim, 1993). Yet, horizontal alliances also provide proximity to competitor capabilities and expose these capabilities as 'templates' that partners could use in 'learning-by-doing' in developing new capabilities while leveraging current stock of capabilities (Hamel, 1991). Therefore, horizontal alliances that enhance capabilities such as process technologies (Mueiler and Herstatt, 2000) could diffuse best practices or innovation and induce competitive rivalry within an industry. While economic literature is elaborate on the anti-competitive consequences of horizontal alliances, competitive consequences have been confined to scale economies (e.g., Williamson, 1968). The potential to diffuse capabilities and induce industry competition is relatively unexplored, a lack this paper addresses by examining the potential impact of horizontal alliances on industry competitive (pricing and concentration) structure.
Horizontal Alliances and Organizational Capabilities
Capabilities are routines or repeated complex organizational patterns of resource and activity coordination that enables efficient functioning (Nelson and Winters, 1982). Capabilities are embedded in organizational factors such as physical characteristics of production capacity that symbolize the potential economies of scale and scope determined by throughput. "Such economies depend on knowledge, skill, experience, and teamwork-on the organized human capabilities essential to exploit the potential of technological processes" (Chandler, 1990:24). Firms focus on capabilities embedded in intangible or information resources such as, technology, consumer trust, brand image, control of distribution, corporate culture and management skills that have a significant potential for sustaining competitive advantage (Barney, 1991). However, such intangible resource based or 'strategic' capabilities are costly to assemble and maintain (Chi, 1994; Teece and Pisano, 1994). Firms generally lack ancillary capabilities necessary for all activities in the production chain mandating outsourcing of some capabilities. Although such capability outsourcing can be consummated in arms-length market transactions, collaborative modes or hybrid organizational forms such as horizontal strategic alliances often economize on transaction costs (Chi, 1994; Dyer, 1997). …