Academic journal article International Journal of Business

The Effects of Convergence and Divergence Alliance Portfolio on Firm Performance

Academic journal article International Journal of Business

The Effects of Convergence and Divergence Alliance Portfolio on Firm Performance

Article excerpt

ABSTRACT

This study emphasizes the relationship between domain learning in an alliance portfolio--convergence and divergence - and firm performance. Inter-organizational dependency is argued as the moderator for this relationship. This study empirically tests the developed hypotheses on the S&P 500 firms from 2000 to 2007. The results indicate that domain learning is positively associated with firm performance. Further results indicate that the nature of interdependencies between a firm and its partners in an alliance portfolio moderates this relationship, and specifically that a firm will generate better performance when it is less dependent on its partners. The above findings have important implications both for academics and professional alliance portfolio managers.

JEL Classifications: G340, D74

Keywords: convergence/divergence learning mode; firm performance; alliance portfolio; interdependencies

I. INTRODUCTION

More than eighty percent of Fortune 1000 CEOs in 2007-2008 agreed that 26% of their companies' revenues were associated with their alliance portfolios, as reported by Partner Alliances (Kale, Singh, and Bell, 2009). An alliance portfolio is a firm's collection of direct alliances with partners (Hoffmann, 2007; Lavie, 2007; Lavie and Miller, 2008), and such collections increased on average from four to 30 alliances during the 1990s (Lavie, 2007). In trying to determine performance effects, previous studies have focused extensively on the configuration of alliance portfolios. For example, types of alliance learning activities (e.g., Anand and Khanna, 2000; Lin, Yang, and Demirkan, 2007), types of capabilities on managing portfolio (e.g., Sarkar, Aulakh, and Madhok, 2009; Schreiner, Kale, and Corsten, 2009), alliance portfolio configurations (e.g., Andrevski, Brass, and Ferrier, 2014; Wuyts and Dutta, 2012), partners' country of origin (Lavie and Miller, 2008), types of governance mechanisms (e.g., Heimeriks, Duysters, and Vanhaverbeke, 2007; Hoetker and Mellewigt, 2009), types of legitimacy (e.g., Baum, Calabrese, and Silverman, 2000; Stuart, 2000), number of alliances and partners (e.g., Ahuja, 2000), types of networks (e.g., Gulati, 1998; Powell, Koput, and Smith-Doerr, 1996), and types of resources (e.g., Lavie, 2007; Luo and Deng, 2009) from an alliance portfolio have been related to firm outcomes.

This study focuses on how learning in an alliance portfolio contributes to firm performance. Interorganizational learning enables a firm to access new knowledge residing outside the firm's boundaries and collaboratively leverage existing knowledge with partners (e.g., Sukoco, 2015; Yamakawa, Yang, and Lin, 2011). Previous studies approach alliance learning from the function, structure, and other peripheral attributes involved in the alliance (Lavie and Rosenkopf, 2006; Lin et al., 2007), or consider process-based learning inside the alliance (Heimeriks et al., 2007; Schreiner et al., 2009) and how it relates to firm performance. Despite the rapid progress in this research stream, previous studies mostly undermines the fact that a firm may also learn by forming an alliance that is different from its core business.

Prior studies (Mowery, Oxley, and Silverman, 1996; Nakamura, Shaver, and Yeung, 1996) report that converging or diverging resources and capabilities toward partners imply interfirm knowledge transfer inside alliances. However, these studies address the issue mainly from the overlap of technological capabilities of the allied firms. In contrast, this study addresses the question of whether or not configuring an alliance portfolio within-domain leads to better firm performance relative to across-domain configurations. Based on organizational learning theory, this study proposes that domain learning in alliance portfolio consists of divergence and convergence modes (Sukoco, 2015). The divergence learning mode refers to a firm that configures its alliance portfolio further away from its industry domain, thereby facilitating experimentation in capabilities and knowledge in different domains (March, 1991). …

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