Competitive embeddedness: The impact of competitive relations among a firm's current alliance partners on its new alliance formations

https://doi.org/10.1016/j.ibusrev.2014.07.009Get rights and content

Highlights

  • Competition among a firm's partners prevents its new alliances.

  • Competition across diverse fields (breadth) prevents its new alliances.

  • Intensified competition in certain fields (depth) also prevents its new alliances.

  • Firms’ resources which attract partners lessen the impact of the competition.

Abstract

Over the last decades, alliance portfolio has been an important research area within the management and international business fields. Since engaging in multiple alliances provides many advantages to firms, the extant literature rather highlights the positive side of alliance portfolios. But, at the same time, focal firms of alliance portfolios sometimes suffer from competitive relations among their partners. By applying a competitive embeddedness lens, we examine the influence of competitive relations among partners within an alliance portfolio on the focal firm's alliance formations. Also, we examine the role of the focal firm's resources which moderate the relation between competition among its partners and its alliance formations. We investigated 2539 cases of global technology alliances in the biopharmaceutical industry from 2002 to 2006 through negative binomial regression. Our findings indicate that a holistic approach toward alliance portfolios to prevent competition among partners is significant for sustainable alliance strategies. Moreover, we suggest that firm resources which attract partners also lessen the impact of competition among alliances.

Introduction

As a result of firms’ simultaneous engagements in a number of individual alliances, firms run their own alliance portfolios (Wassmer, 2010). While individual alliance research is focused on accessing valuable resource (Chung et al., 2000, Das and Teng, 2000, Eisenhardt and Schoonhoven, 1996; Lavie, 2006), learning (Inkpen, 2000, Kogut, 1988), and reducing transaction cost and uncertainty (Kogut, 1988, Kogut, 1991) through individual partners, alliance portfolio research puts the focus on the configuration and the management of the whole portfolio. This point of view leads to a holistic approach which takes the whole portfolio into account and stops treating individual alliances as independent transactions (Bamford and Ernst, 2002, Duysters et al., 1999Hoffmann, 2005, Parise and Casher, 2003). Alliance portfolios have firms take advantage of synergies and super-additivity among their partners or confront conflict and sub-additivity among their partners (Parise and Casher, 2003, Vassolo et al., 2004). This implies that monitoring and coordination of focal firms’ partners are significant in alliance portfolio strategy so that focal firms can fully capture the value creation from the synergy in their portfolios and avoid conflict among their partners which undermines such synergy.

Especially, we need to pay more attention to the conflict among a focal firm's partners in an alliance portfolio. In previous literature, it is assumed that alliance portfolios are predominantly beneficial to focal firms. For instance, many researchers suggest that growing alliance portfolios contribute to focal firms’ performance (Ahuja, 2000a, Baum et al., 2000, Deeds and Hill, 1996Gulati, 1999, Shan et al., 1994Stuart, 2000, Stuart et al., 1999). Therefore, focusing on conflict among the focal firm's partners and the consequential deterioration of the focal firms’ performance can allow us deeper insights beyond the past trend of research in alliance portfolios. Besides, the conflict suggests that it is crucial for focal firms to strategically manage and configure their alliance portfolios, not only for better performance, but also for the long term viability of their portfolios.

Conflict among alliance partners can arise from their competitive relations. Even though they are parts of the same alliance portfolio of a focal firm, they might originally be competitors in the same market or industry. In this paper, we study the competitive relations in alliance portfolios in terms of embeddedness. The extant research in embeddedness suggests that inter-firm alliances do not occur in isolation, but rather under the influence of existing inter-firm networks that the firms are involved in (Granovetter, 1985, Gulati, 1995a, Gulati and Gargiulo, 1999). Especially, previous literature discusses mainly how structural and relational embeddedness affect alliance formations. Adding to previous literature, the objective of this study is to conceptualize competitive relations among a focal firm's partners as competitive embeddedness in an alliance portfolio and to examine its influence on the focal firm's subsequent alliance formations. Also, we investigate the moderating role of the focal firms’ resources.

Following these objectives, our paper presents two key findings: First, competitive relations among a focal firm's partners in an alliance portfolio negatively influences the rate of the focal firm's alliance formations. We operationalize competitive relations in an alliance portfolio in terms of breadth and depth and examine empirically that both dimensions of competitive relations negatively influence the focal firm's new alliance formations. Second, valuable resources of the focal firm which attract partners help negating the negative influence of competitive relations. Sometimes, focal firms are not able to transform their alliance portfolios promptly or directly because of essential partners, contract period, etc. We suggest an indirect way of managing competitive relations in an alliance portfolio by utilizing the moderating role of the focal firm's resources, in this study we consider technological resources, on the relationship between competitive relations and new alliance formations.

In this research, we make four contributions to the literature focusing on alliance portfolios and international business. First, through a holistic approach toward alliance portfolios, we conceptualize competitive relations among a focal firm's partners in an alliance portfolio as competitive embeddedness and examine its negative influence on the focal firm's alliance formations. This paper is wary of the positively biased view over growing alliance portfolios in previous literature and empirically supports existing research (Hoffmann, 2005, Parise and Casher, 2003; Vassolo et al., 2004) which highlights the negative influence of conflicts among partners on focal firms. Second, we enrich the research on the influence of embeddedness on alliance formations in two different ways. We suggest another type of embeddedness (i.e. competitive embeddedness) which affects alliance formations in an alliance portfolio in other ways than structural and relational embeddedness. At the same time, the extant research on the relationship between competitive embeddedness and alliance formations is focused on direct rivalry or dyadic networks (Gimeno, 2004, Trapido, 2007). We extend the unit of analysis of competitive embeddedness to multi-actor networks, i.e. alliance portfolios. Third, we exemplify how network relationships affect firm performance in an international context. By analyzing international alliances between US biotechnology firms and multinational pharmaceutical companies, we exemplify previous conceptual literature (Benito and Welch, 1994, Coviello and Munro, 1997; Sharma, 1993) which specifically suggests that existing network relationships might inhibit new market development and verify this suggestion empirically. Fourth, we go beyond the academic point of view and contribute to managerial practices by suggesting how to cope with competitive embeddedness in an alliance portfolio.

The remainder of the paper is organized as follows: First, we develop the theoretical background of why a holistic approach and conflict management are significant for alliance portfolios and how we can understand competitive relations among alliance partners through the lens of competitive embeddedness. We develop hypotheses which link competitive relations, alliance formations and the focal firms’ resources. Second, using negative binomial regression, we then test our hypotheses using data on 2539 global technology alliance cases in the biopharmaceutical industry from 2002 to 2006. Finally, we present our empirical results and conclude with a discussion of implications, limitations, and directions of future research.

Section snippets

A holistic approach and conflict management in alliance portfolios

Alliance portfolio management is an important topic in international business literature. Lichtenthaler and Lichtenthaler (2004) suggest firms to manage complexity in the environment of international multi-alliances. To address the complexity, a number of studies stress the importance of a holistic approach toward alliance portfolios. Duysters et al. (1999) suggest that firms should select alliance partners based on portfolio fit by analyzing their portfolios continuously. Parise and Casher

Data and sample

To test the hypotheses, we compiled alliance portfolios of US biotechnology firms. The collection of the data was performed as follows: First, we collected information on technology alliances formed between US biotechnology firms and multinational pharmaceutical companies from 2002 to 2006 through the Bioscan database. Alliances between biotech and pharmaceutical companies tend to be exploratory, i.e. focused on issues such as drug discovery and development, rather than exploitative, e.g.

Results

Table 2 presents the results from the negative binomial regression, whereas Table 3 presents the results from the zero-inflated negative binomial regression. The two regressions indicate a small difference in significance for some variables, such as Technological resource and Depth × Technological resource. However, the regressions obtain similar results for the direction and the magnitude of coefficients in testing our hypotheses. Therefore, the following analysis of the results is based on

Discussion

This paper contributes to alliance network and international business literature by highlighting the significance of managing competition within alliance portfolios and by empirically verifying suggestions found in previous literature.

First, the presented results empirically verify previous qualitative or case research which suggests the significance of managing the whole alliance portfolio and conflicts within the portfolio (Hoffmann, 2005, Hoffmann, 2007, Lichtenthaler and Lichtenthaler, 2004

Conclusion

Nowadays, the growth of alliance formations is greatly influenced by the process of globalization (Narula & Duysters, 2004). In the meantime, the importance of choosing alliance partners has been significantly increased in terms of international strategic alliance performance (Harrigan, 1988, Killing, 1983, Mohr and Spekman, 1994, Park and Ungson, 1997; Parkhe, 1991). Previous literature suggests that when forming new alliances, firms consider the best fit between their partners and themselves (

Acknowledgements

We wish to thank editor Pervez Ghauri and two anonymous reviewers for their helpful suggestions. We are very grateful to Klaus Marhold for improving the reading quality of this paper.

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