Strategic alliance contracts: dimensions and determinants of contractual complexity

Abstract

In contrast to prior studies examining strategic alliances as discrete governance structures (e.g., alliances vs. M&A, equity vs. non-equity agreements), we investigate their particular contractual features. The analysis examines the dimensionality of the contractual complexity construct and investigates the determinants of firms' adoption of various contractual provisions. We find two underlying dimensions of contractual complexity, based upon the enforcement and coordination functions of different contractual provisions. The evidence reveals that firms' usage of particular contractual provisions is a function of asset specificity as well as whether the alliance's duration is pre-specified or open-ended. The findings also speak to the debate surrounding the roles of prior ties and trust for alliance governance. Firms that have collaborated with each other in the past are not less likely to negotiate enforcement provisions; rather, repeat collaborators are less likely to adopt contractual provisions that are informational in nature and are geared to the coordination of the alliance.

The Two Facets of Collaboration: Cooperation and Coordination in Strategic Alliances

“…As we noted in our description of the structural school of thought on inter-organizational coordination, joint-venture structures can facilitate coordination by providing robust authority structures and enforcement mechanisms, dedicated staff, and opportunities to devise structures and procedures that fit the purpose of the alliance (Gulati & Singh, 1998). Detailed contracts can help address coordination challenges (Mellewigt et al, 2007;Reuer & Arino, 2007) by specifying tasks, roles, and responsibilities (Carson et al, 2006;Mayer & Argyres, 2004); contingency plans and responses (Ring & Van de Ven, 1994), and information-sharing and feedback channels to ensure smooth operation. Forwardlooking firms are likely to weigh those benefits against the higher costs of both JVs and detailed contracts and to select more formal governance when their coordination needs are highest, such as in situations characterized by high task uncertainty and interdependence (Gulati & Singh, 1998;Mesquita & Brush, 2008), incompatibilities stemming from partner diversity (White, 2005), or high costs for coordination failure (Mellewigt et al, 2007).…”

“…18 Though they do not always frame the debate explicitly in coordination terms, some scholars have argued that partner-specific experiences will influence which coordination issues partners anticipate and which coordination mechanisms they use in those partnerships. Some of the mechanism for coordination that partners develop over time can become routines that are implemented informally (Reuer & Arino, 2007), but some will be formalized in contracts that effectively serve as -repositories of knowledge‖ distilling the lessons of past coordination failures Argyres, Bercovitz, & Mayer, 2007). For example, partners' experiences of misunderstandings resulting from poor informal communication in prior alliances may prompt them to formalize information-exchange provisions in their subsequent alliance contracts (Mayer & Argyres, 2004).…”

Knowing Me, Knowing You: Inventor Mobility and the Formation of Technology-oriented Alliances

“…Such informational uncertainty refers to situations in which complete contracts cannot be formulated due to the impossibility of identifying possible future events affecting an exchange that could arise from environmental uncertainties (Weber & Mayer, 2014). The dynamic technological environment and unpredictable nature of R&D activities suggest that not all contingencies can be identified during the alliance formation process (Reuer & Arino, 2007). Finally, alliance formation is subject to substantive interpretive uncertainty, i.e., uncertainty stemming from alliance partners perceiving ambiguous information differently (Weber & Mayer, 2014).…”

Network Capitalism and the Role of Strategy, Contracts and Performance Expectations for Asia-Pacific Innovation Partnerships

“…We develop a conceptual framework that is embedded in economic perspectives of network capitalism (Boisot & Child, 1996;Tung & Worm, 2001), organizational control theory (Ouchi, 1980) and theoretical developments on organizational culture (Cameron & Quinn, 2011) and alliance contracts and contractual complexity (Ariño & Reuer, 2006a;Reuer & Ariño, 2007). Our objective is to add to the academic dialogue about contractual aspects and culture within Asia Pacific innovation alliances.…”

“…In addition to the common set of antecedents, recent research has shown that variation in partnership governance can also be attributed to contractual complexity (e.g. Reuer & Ariño, 2007), a concept distinctively different to both goal incongruence and performance ambiguity.…”