Taking risk in joint ventures: whose throw of the dice?

Abstract

The development of key partnerships between innovative small and medium-sized enterprises (SMEs) and larger organizations is a primary strategic consideration. The level of risk involved can often mean that smaller firms are placed in highly vulnerable positions when attempting to develop a product, process or service.• Risk may be related to a wide range of influences including asymmetric resource allocation, the perception and framing of problems and the building of trust and commitment. The smaller organization may also have concerns that a larger partner would absorb their intellectual property.• Key considerations in determining perceived risk appear to be related to the shadow of the future, i.e. the balance of probabilities concerning investment and relative return combined with future expectations regarding any situation and its potential outcomes. The experience and individual agendas of managers and their influence on risk perception within such alliances are examined.• Future research using longitudinal studies to examine risk perception and evaluation in relation to strategic decision making is required.

External Relationships and the Small Business: A Review of Small Business Alliance and Network Research*

“…At the level of the firm, this literature examines both the characteristics of the small business as well as those of the partnering firm. For example, small firms are more likely to form cooperative arrangements than larger firms (Shan 1990), but in relationships between businesses of unequal sizes, the smaller firm is often asked to take on the higher level of risk (Sulej, Stewart, and Keogh 2001). Also, businesses with significant inventions but lacking commercial, technical, and social capital are more likely to seek partners (Ahuja 2000).…”

“…External factors such as environmental conditions of uncertainty (Weaver, Dickson, and Gibson 1997) and market conditions of high competition (Eisenhardt and Schoonhoven 1996) force small companies to look for larger partners. Often though, the larger partners have more power and control and can force smaller businesses to take on more of the risk (Sulej, Stewart, and Keogh 2001). If the partners have too much power and are too bureaucratic, small businesses may be unwilling to form a relationship with them (Rothwell and Dodgson 1991) as they risk losing control of their own business (Gomes-Casseres 1997).…”

The use of strategic tools by small and medium‐sized enterprises: an Australasian study

“…This risk is an important consideration for innovative SMEs as they tend to have limited resources and must be careful to apply them in an effective way in order to maximize their potential gains. Sulej (2001) suggested the use of scenario planning. However, their research suggested that unlike large organizations, few innovative SMEs currently make use of techniques such as scenario planning in any formal way.…”

Co-opetition and Technological Innovation in Small and Medium-Sized Enterprises: A Multilevel Conceptual Model

“…Rothaermel and Deeds (2004) argue that due to their initially weak bargaining position, new technology ventures tend to cede a disproportional amount of control rights to the financier of the R&D alliance. The larger partners have more power and control and can force smaller ones to take on more of the risk (Sulej, Stewart, and Keogh 2001). Also, increased dependency on a dominant partner (overdependency) will limit the flexibility.…”