Creating and taming discord: How firms manage embedded competition in alliance portfolios to limit alliance termination

Abstract

Research Summary: Firms with resources that make them attractive allies are also desirable partners for competitors so that competition among partners is embedded in alliance portfolios. We develop a framework in which competition within a portfolio creates benefits for a focal firm but threatens partners, increasing the hazard of alliance termination. We then propose four mechanisms for managing the threat of competition to partners reflecting aspects of portfolio configuration: alliance governance, social cohesion, social structure of competition, and partner similarity. We test our framework using a sample of 204 biopharmaceutical firms with alliance portfolios comprising 1,621 alliances between 1990 and 2000. The study addresses the interplay of competition and cooperation in alliance portfolios, and more generally, key aspects of value chain integration strategy. Managerial Summary: Alliance portfolios comprise a focal firm's set of direct partners, some of which compete with each other because of overlapping resources, capabilities, and strategies. The threat of actual or perceived competition from other partners may cause some firms to terminate their alliance with the focal firm. We develop a framework comprising four mechanisms related to alliance portfolios—alliance governance, social cohesion, social structure of competition, and partner similarity—that allows focal firms to attenuate the hazard of termination of their alliances. We find support for our framework in a study of 204 biopharmaceutical firms with alliance portfolios comprising 1,621 alliances between 1990 and 2000. We improve understanding of how firms can manage competition and cooperation within their alliance portfolios.

Centrality Asymmetry and Partner Complementarity as Influences on Alliance Dissolution

“…More generally, our study extends traditional and ongoing discussions on partners' asymmetries in resources and the consequences of the same on the stability and longevity of alliances (e.g. Asgari et al, 2018;Cui, Calantone and Griffith, 2011;Kogut, 1989;Pangarkar and Klein, 2001;Park and Ungson, 1997). We advance research in the domain with a conceptual and empirical identification of the non-monotonic effect of centrality asymmetry on alliance dissolution (e.g.…”

“…The dependent variable alliance dissolution is a binary variable that takes value 1 when an equity alliance dissolves and 0 when it continues. We denoted a dissolution as having taken place when a joint venture was terminated or when one firm took over its partner's equity shares and converted the joint venture to a wholly owned subsidiary (Asgari et al, 2018;Polidoro, Ahuja and Mitchell, 2011). As the database Overseas Japanese Companies tracked joint ventures on an annual basis over the years, we denoted the disappearance of a joint venture from the source data as a termination (Delios and Beamish, 2001).…”

“…Resource complementarity is a proxy for the mutual dependence of partners, computed as the ratio of non-overlapping industries (four-digit industrial codes) of the partners to the sum of all industries of the partners (Gulati, 1995). Following prior studies and based on the idea that firms in the same industries are competitors (Chen, 1996;Hannan and Freeman, 1977), we created interpartner competition (Asgari et al, 2018;Gimeno, 2004), which is the number of industries (four-digit industrial codes) in which both partners are present but not collaborating in alliances. We used UCINET 6 to compute constraint asymmetry, the absolute difference in the network constraints of partners, and included it as a control variable.…”

“…Partners may terminate an alliance for multiple reasons, including unresolvable disputes, interpartner competition or the emergence of new options that exceed the benefits of the current cooperation (e.g. Asgari et al, 2018;Greve, Mitsuhashi and Baum, 2013;Park and Russo, 1996). Aside from these reasons, asymmetries between partners have been identified as a major reason for alliance dissolution.…”

Discontinuities, competition, and cooperation: Coopetitive dynamics between incumbents and entrants

“…Vice versa, if incumbents succeed over time in developing jointly new complementary assets through horizontal collaboration among themselves, downstream entrants are more likely to backwardly integrate (P6b). These propositions contribute to the handful of studies on the intertemporal dynamics of alliances (Lavie & Rosenkopf, ), alliance terminations (Asgari, Tandon, Singh, & Mitchell, ; Reuer & Zollo, ), and vertical integration decisions concerning “make‐or‐buy” choices (Jacobides, Knudsen, & Augier, ; Leiblein, Reuer, & Dalsace, ). Moreover, our theoretical insights resonate with Hannah and Eisenhardt () because these scholars examine cooperation and competition of entrepreneurial firms in nascent ecosystems (see also Moeen & Agarwal, ), whereas we look at the problem of incumbents facing an ecosystem in which a downstream entrant emerges as a platform leader.…”