Inter-Firm Collaboration: Configuration and Dynamics

Abstract

Cooperative strategies, both domestic and foreign, have become an important component of the strategic repertoire of firms. Various forms of interfirm alliances are redefining and transforming the very nature of competition. Considering their importance, a solid understanding of their fundamental dynamics is necessary. Different forms of alliances exist: from those that emerge because partners have some preexisting advantages such as geographic proximity or shared history to those that arise because third parties such as governments have created the enabling environment. Looking at the context and operational dynamics of various alliance configurations may help our understanding of how to manage them. This paper presents four configurations or clusters of alliances based on their origins and link the context to operational dynamics. The policy and research implications of the paper are also presented.

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Inter-firm collaboration: Configurations and dynamics
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Competitiveness Review: An International Business Journal
Inter-firm collaboration: configuration and dynamics
Henry Adobor
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CR Vol. 16, No. 2, 2006
122
INTER-FIRM COLLABORATION:
CONFIGURATIONS AND DYNAMICS
by Henry Adobor
EXECUTIVE SUMMARY
Cooperative strategies, both domestic and foreign,
have become an important component of the strategic
repertoire of firms. Various forms of interfirm alliances
are redefining and transforming the very nature of
competition. Considering their importance, a solid
understanding of their fundamental dynamics is
necessary. Different forms of alliances exist: from
those that emerge because partners have some
preexisting advantages such as geographic proximity
or shared history to those that arise because third
parties such as governments have created the enabling
environment. Looking at the context and operational
dynamics of various alliance configurations may help
our understanding of how to manage them. This paper
presents four configurations or clusters of alliances
based on their origins and link the context to
operational dynamics. The policy and research
implications of the paper are also presented.
Key words: Cooperative strategies, configurations,
context, operational dynamics
INTRODUCTION
The past decade has witnessed an explosive
growth of cooperative strategies in the form of both
domestic and foreign corporate interfirm alliances.
Alliances are nontrivial cooperative relationships
between independent firms. Dunning (1995) observes
that alliances have ushered in a new trajectory of
market capitalism. Considering their importance, a
solid understanding of their inherent dynamics is
necessary and research effort in that direction has been
ongoing for some time now (see for example Buckley
& Casson, 1988; Inkpen & Currall, 1997, Andal-
Ancion & Yip, 2005). This paper builds on the research
by showing that some of the operational dynamics
associated with alliances may be partly origin-specific.
In the sections that follow, I identify four
configurations or clusters of cooperative strategies
based on their origin. These are: (1) spontaneous
alliances (2) firm-initiated alliances (3) orchestrated
alliances, and (4) “imposed” alliances. I suggest that
the some of the prime dynamics that drive cooperative
relationships are partly origin-specific, that these
dynamics differ depending on the origins of the
relationship. Some conjectural propositions that can
serve as a starting point for additional future research
are offered. A discussion of the research and practice
implications of the article concludes the paper. Table 1
presents a summary of the main issues discussed. It
lists four configurations with their hypothesized
dominant governance form, ownership structure, and
possible theoretical anchors. Pertinent examples of
each form are given.
Similar use of classification exits in
organizational research. Organizational researchers
have used conceptual typologies and empirically-
derived taxonomies to develop knowledge about
organizations (see e.g. Miles & Snow, 1978;
Mintzberg, 1979). Typologies are a form of conceptual
classification and taxonomies are classification derived
mainly from empirical data (Miller, 1996). Like
typology research, configuration research also uses a
similar approach of determining central themes and
their interrelationships and how these, in turn, give rise
to alignments of elements (Miller, 1996). The present
effort is more consistent with the later.
BACKGROUND
Strategic alliances, both domestic and foreign,
have become a pervasive phenomenon in recent years.
Indeed, the very nature of transnationalization may be
changing as a result of the extensive use of corporate
interfirm alliances (Ohmae, 1985, Cowhey & Aronson,
1993). Corporate interfirm alliances may be defined as
collaboration between independent firms over a given
economic space and time for the attainment of
mutually defined goals (Glaister & Buckley, 1992).
Alliances have becomes engines of corporate growth in
both domestic and global markets. Alliances can range
from arm length buying and selling relations to fully
integrated joint ventures that are either shared-equity or
non-equity. Some notable alliances are the joint
ventures, Dow Corning (Dow Chemical and Corning
Glass), NUMMI (General Motors and Toyota) and
Fuji-Xerox (Xerox and Fuji). Alliances are cooperative
strategies that arise for different reasons. Alliances are
used to gain access to needed resources, as an
opportunity to learn new skills or to capture economies
of scale all directed to improving a firm's competitive
position. A burgeoning amount of research using a
diverse array of theories has emerged in response to the
need for a greater understanding of the dynamics of
interfirm alliances (Buckley & Casson, 1988; Geringer
& Hebert, 1989; Parkhe, 1993; Yoshino & Rangan,
1995). This research has sought to explain issues as
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123
TABLE 1
Linking Alliance Origins to Context Operational Dynamics
Origin of
Alliance Dominant
Governance
Form
Dominant
Ownership
Structure
Examples Dominant
Theoretical
Anchor
“Forced”
Cooperation
Contracts
Shared-Equity
Arrangements e.g.
Joint Ventures
McDonald Douglas in
China (Haldick, 1988)
Transaction
Cost theory
(Williamson,
1985) Game theory
(Axelrod, 1984).
Orchestrated or
Convenor-
Facilitated
Cooperation
Interdependence,
Institutional
Trust and control
Network forms
SEMATECH, Texas; The
Software Engineering
Institute, Pittsburgh; The
National Center for
Manufacturing Science,
Ann Arbor [US Govt. Act
of 1984] (Breyer, Shelter &
Browning, 1995; Similor,
1992) Airbus [European
Governments] (Tucker,
1991). MITI [Japan].
(Gerlach, 1992)
Network Theory
(Ibarra, Husted)
Institutional theory
(DiMaggio &
Powell, 1983)
Individual Firm
Initiated
Cooperation
Relational
considerations
(control or trust
depending on
actors)
Equity, Non-
Equity, Arms
length relations
NUMMI(GM and Toyota
Motors); FujiXerox (Fuji
and Xerox); Dow Corning
(Dow Chemical & Corning
Glass).
Relational
Theory(Anderson
& Narus, 1990;
Dyer & Singh,
1988)
Spontaneous or
Naturally
occurring
Cooperation
High Trust
Shared norms
Institutional
control
Network Forms.
non-equity forms
Arms length
relations; informal
cooperation
Various forms of interfirm
linkages in Silicon Valley
(Saxenian, 1994); in The
Third Italy (Piore & Sabel,
1984)
Economic
geography (Sabel,
1991), Theories of
macrocultures
(Abrahamson &
Fonbrum, 1994).
diverse as partner selection issues, the role of trust and
how to measure performance.
The existing literature has classified alliances
primarily on the basis of their governance structures
(see Yoshino & Rangan, 1995, for a useful
classification). Two primary categories are popular,
equity and non-equity alliances. Equity alliances
involve relationships in which both partners have a
joint common stake that is often expressed by joint
investments (Hennart, 1991). Non-equity alliances on
the other hand are relationships in which there may not
be joint investments and this form has been used as a
proxy for trust (Gulati, 1995). Alliances have also been
classified in terms of geographic and political scope,
namely domestic and international alliances. Domestic
alliances take place between firms from the same
country. For example, IBM, Apple and Motorola, all
major United States firms, have a strategic alliance
(Bertrand, 1992). To the contrary, cross-border or
international alliances involve relations between firms
from different countries. Alliances between Motorola
and the Israeli firm VocalTec (Bulkeley, 1995) and the
alliance between Northwest Airlines and the Dutch
carrier KLM (Tully, 1996) are examples of cross-
border alliances. National borders delineate the legal,
political and social environments within which
organizations operate (Shan & Hamilton, 1991).
Classifying alliances into these and other
categories may be useful because they can allow us to
focus on some of the prime dynamics that drive
behavior and outcomes in inter-organizational
relationships. Although classifications of alliances can
be useful, existing classifications may have unduly
focused on formal cooperative forms. Formal
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CR Vol. 16, No. 2, 2006
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cooperative is cooperation that occurs because of the
presence of an explicit agreement between the partners.
But there are other forms of cooperation that fall
outside this ambit. A classification based on origins
may allow us to cast a wider net to include other forms
or sources of cooperative strategies. Such a
classification may also allow us to determine if there
are any underlying themes related to the specific
groups. More importantly, we can begin to determine
whether there are performance implications for the
identified groups. I argue that classifying corporate
interfirm alliances according to their origin is an
additional, and useful, way of understanding the nature
and dynamics of alliance types and the dynamics
underlying each. These and similar issues are discussed
next, but first a definition.
The Webster Collegiate Dictionary defines the
term "origin" as the point at which something begin,
rises or from which it derives. An origin is also the
point at which something begins its course or
existence. Using this definition, an origin of
cooperative strategy may be defined as the composite
of precipitating factors or enabling conditions that
gives rise to any form of interfirm strategic alliance.
Firms themselves may have strategic motivations for
using cooperative strategies. In some cases, however,
firms may not always succeed in acting on this unless
some opportunity presents itself. For example, may
Western firms have long been interested in developing
alliances with Chinese firms. This, however, could not
happen until 1979 when China changed its trading
policy and passed legislation authorizing the formation
of joint ventures with Western firms (Jaslow, 1983).
Four general configurations or clusters are presented:
spontaneous, firm initiated, convenor facilitated, and
“forced.”
SPONTANEOUS OR NATURALLY
OCCURRING ALLIANCE CONFIGURATION
Context and Dynamics
The first configuration discussed is a cluster
of alliances that emerge simultaneously or naturally.
By spontaneous emergence, we mean that there are
pre-existing conditions that make it both imperative
and more likely that individual actors will collaborate.
In some sense, preexisting conditions transform the
strategic motivations of individual actors to a group
phenomenon. Examples of this sort of collaboration
have been identified in Silicon Valley (Saxenian, 1994)
and in the region of Modena also called the Third Italy
(Piore & Sabel, 1994). Several forms of informal
cooperation characterize this type of configuration.
Cooperation is informal when there is no explicit
agreement governing the relationship. In game
theoretic terms, such cooperation is tacit (Axelrod,
1984). Ouchi's (1990) description of clan governance,
where coordination occurs through the Durkheimian
concept of organic solidarity may be most expressive
of this form of informal cooperation. Although quite
common, our understandings of informal forms of
cooperative relations are less understood (Smith,
Carroll & Ashford, 1995).
A spontaneous form of inter-firm
collaboration may emerge as result of the presence of a
number of enabling conditions, but the primary catalyst
is the presence of convergent expectations among
actors. Political theorists have described what they
refer to as “spontaneous regimes” and we can borrow
that concept to explain the nature of spontaneous
alliances. The term spontaneous orders are traced to
Frederick Hayek (1973). Spontaneous orders are
defined as the "product of the action of many men but
not the result of human design" (Hayek, 1973; cited in
Young, 1982). As Young notes, spontaneous orders do
not often require explicit consent on the part of subjects
or prospective subjects. This form of cooperative forms
is similar to what Astley (1984) calls voluntaristic or
organic cooperation.
A number of factors may promote the
emergence of this sort of cooperation. First, geographic
boundedness may aid the emergence of naturally
occurring cooperation. Geographic boundedeness
increases the frequency of social interaction, including
trust building (Saxenian, 1994). This may be so
because boundedness makes the salience of an actor's
reputation effects greater. Thus a partner who behaves
opportunistically in the relationship is more likely to
suffer the consequences. It is more likely that partners
will intersect more frequently when they are in close
proximity. Frequent interaction can help trust building
since there is a greater chance that attachment between
people will be made when they interact frequently.
Proximity may also be related to the willingness of
people to be indebted to each other (Homans, 1950).
Lorenz (1988) found in his study of subcontracting in
the French constructing industry that firms cited
geographic proximity as one factor that made it
possible to develop the contacts that are important for
the building of trust.
Second, common perception of threats or a
realization of shared interests can lead to the rise of
spontaneous cooperation. In some cases, it may take a
third party to help foster the perception of a collective
threat or opportunity. Sabel (1993) presents an
interesting account of cooperation in the textile
manufacturing industry in Pennsylvania. His research
demonstrates how the common perception of shared
expectations can lead to the rise of cooperation. He
suggests that it is possible for actors who may hitherto
have had an adversarial relationship to come to form a
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CR Vol. 16, No. 2, 2006
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new collective identity that emphasizes cooperation
through a re-interpretation of their collective past.
Sabel's (1993) account includes a particular shocking
example of this sort of identify formulation and the re-
interpreting of the past in the light of cooperation. He
mentions the case of the Ilongot of Northern Luzon in
the Philippines, where grudges lead to fratricide that
unchecked may threaten the very survival of the tribe.
When things get out of hand, a new identify formation
is initiated by a re-interpreting of the past in the light of
what binds people together rather than the feuds that
separate them. Wine production in France may be
another example of a case where a common perception
of shared threats may lead to a certain amount of
spontaneous cooperation. There exists some collective
policing of French wine by manufacturers and this
involves a sort of naturally occurring cooperation. The
“Appelation Controlle” is a designation that signals
that the quality of wine from a specific winery has met
rigorous quality standards. Perhaps the realization that
people talk first of "French wine" before talking of
individual wineries and producers makes it imperative
that wine makers are willing to cooperate.
Finally, shared social norms may be an
explanation for the emergence of cooperation. Here the
idea is that there is some pre-existing social structure in
societies in which firms are embedded. Explanations of
cooperation in Japan (Dore, 1980), in North Central
Italy (Piore & Sabel, 1980) and Silicon Valley
(Saxenian, 1994) by economic geographers all hint at
shared norms as a factor in the emergence of
spontaneous cooperation. Again proximity may have
fostered the development of shared values. Abraham &
Fombrun (1994) discuss the idea that widely shared
organizational-related beliefs across organizations may
also engender naturally occurring cooperation. This is
what the authors call macro cultures. According to
Abraham & Fombrun (1992), macrocultures may give
rise to similar orientations because top managers pay
attention to the same strategic issues. They may also
recognize the same challenges to their industry and
because they more readily see their common interests,
they may have a greater capacity to engage in
collective strategies to counter events. Spender (1989),
in particular, sheds additional light on how beliefs that
occur in individual organizations become widely
shared norms across firms. He calls such beliefs,
language, rituals and customs that emerge as "recipes."
Shared recipes may lead to collective identity
formation.
Cooperation that emerges spontaneously is
more likely to be in the form of informal, non-equity
alliances, although overtime, even informal relations
can give way to formal, rule-based cooperation
(Powell, 1990; Gulati, 1995). Alliances that derive
from naturally occurring cooperation should have high,
institutional-based trust (Rousseau, Sitkin, Burt &
Camerer, 1998). This should be so because
institutional factors such as shared collective norms can
act as a catalyst that promotes risk taking and trust
behavior (Ring & Van de Ven, 1992; Zucker, 1986).
Trust should also be sustained here because of the
presence of social control. Firms who engage in
opportunism are likely to face ostracism by their peers
and risk the loss of repeat business (Ben Porath, 1980).
Hagen & Choe (1998) also suggest that the presence of
institutional controls in Japan partly explain the
existence of some level of trust among Japanese
partners. The same institutional factors that promote the
formation of spontaneous collaboration should also
ensure the development of network structures among
the actors. Network structures will normally have
certain qualities to produce high trust for at least twp
reasons (Husted, 1989). First there is likely to be
personal relations between people. This is known as
informal ties in network theory (Lincoln, 1992). The
network of relationships built on informal ties have
been called expressive networks (Ibarra, 1993), and are
distinguished from formal networks built of formal
ties. Expressive networks are often characterized by
higher levels of closeness and trust than networks built
on formal ties, perhaps because people choose who
they want to be friends with (Krackhardt, 1992). Such
friendships often facilitate communication (Lincoln &
Miller, 1979). To the contrary, network structures built
on formal ties are less useful because they may actually
impose a burden on the actors (Lipson, 1991).
Second, the multiplexity of ties in settings
characterized by naturally occurring cooperation
should be dense. Multiplexity refers to ties between
individual actors, including links to third parties. Such
dense ties should aid the formation of cohesive groups
that are more efficient at generating normative,
symbolic or cultural structures that affect behavior
(Granovetter, 1985; Ouchi, 1981). Since the actors are
likely to be in close proximity, one should see greater
emotional intensity, intimacy and reciprocity in
behavior. Granovetter (1985) characterizes such
relations as strong. Of course, familiarity can breed
contempt as much as trust. Thus, closeness in naturally
occurring cooperation may expose one to greater
malfeasance as Granovetter (1985) argues. However,
because the penalties of malfeasance are likely to be
great here, the presence of strong social control should
make it less likely that actors will violate trust at will.
In summary, one should see high trust and cooperation
in naturally occurring collaboration. The research and
discussion suggests:
Proposition 1: Alliances associated with spontaneous
forms are more likely to be informal and non-equity
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based than alliances formed formally or those formed
with the assistance of third parties.
INDIVIDUAL FIRM INITIATED ALLIANCE
FORMS
Context and Dynamics
Perhaps the most common types of
cooperative strategy discussed in the literature are
those initiated by two independent firms. An example
is the NUMMI alliance between General Motors and
Toyota Motors. Such relationships have been
explained in terms of strategic choice by individuals
firms. Here, autonomous firms out of their own free
will and strategic motivations form partnerships. Such
alliances range from domestic to international ones.
These happen to be the majority of alliances that have
been both formed and formally studied. This situation
may arise for a number of reasons.
First, firms may initiate alliances because they
see a mutual benefit from the relationship. For
example, a firm may enter relationships to deal with
environmental uncertainty or to get know how (Pisano,
1989). Second, cooperative strategy as a strategic
choice may be used to share the cost of new product
development or as a way of gaining access to both
domestic and international markets (Contractor &
Lorange, 1988). Thirdly, in some cases, alliances may
be nothing more than a way of collectively dealing
with some structural change in the industry (Cowhey &
Aronson, 1993) and finally, firms may be using
alliances to project an image of legitimacy in their
industry.
Alliances initiated for strategic reasons by
individual firms without any third party involvement
(directly or indirectly) are more likely to include a wide
range of organizing forms. Firms may cooperate at
arms length to using joint ventures (Yoshino &
Rangan, 1995).
What distinguishes this form of strategic
cooperation from the others is the fact that relational
issues become very important from the start of the
relationship. In other words, how the alliance evolves
may depend substantially on what happens within the
context of the relationship. Thus, repeated interactions
overtime may lead to the development of relational
trust (Rousseau, Sitkin, Burt & Camerer, 1998) as
opposed to institutional trust. Relational trust arises
from repeated interactions over time between the
partners. Whatever information the partners gather
about each other during the course of the relationship
will be important. For example, where partners see that
their counterpart is reliable, competent and acts in good
faith, rational calculations will give way to affect and
affect based trust. The longer the partners stay together,
the better the chances they have to know each other. At
the same time, trust may not emerge when the partners
determine that their expectations are either unmet or
under met or that one partner is opportunistic or
unreliable.
The organizing form the alliance takes in this
case may depend on several factors. First, the partners
may mutually decide what contractual form they think
will best serve their interests For example; prior
relations may lead to the use of non-equity alliance
forms (Gulati, 1995). Whether it is an integrated joint
venture or an arms length relationship depends on the
mutual choice of the partners. Indeed, one should see a
wide range of organizing forms, from shared equity-
based relationships to arm length ones. Second, the
position of each firm may also determine the choice of
organizing form. If this is a relationship among
unequals, the dominant partner may decide the
organizing form (Tucker, 1991). In general, relational
issues between the partners will determine both the
organizing form and governance mechanism that
emerges in the relationship (Dyer & Singh, 1988). The
research and discussion is the basis for the following
proposition:
Proposition 2: Alliances initiated directly by partners
are more likely to have a variety of organizing forms
than alliances in other configurations.
CONVENOR-FACILITATED COOPERATION
Context and Dynamics
Cooperation can also be facilitated by the
presence of a third party or a convenor. Alliances that
emerge because of third-party help are labeled here
third party-facilitated or orchestrated alliances. In this
case the convenor influences the process in a subtle
way by providing what we may call an "enabling
environment." For example, in the USA, the relaxation
of stringent antitrust regulation is said to have opened
the way for corporate alliances. Bayley, Freeman &
Hybels (1992) credit the Reagan Administration with
the relaxation of antitrust laws and the weakening of
the Federal Trade Commission. The passing of the
National Cooperative Research Act in 1984 has led to
the formation of several research consortia:
SEMATECH in Austin Texas, for the development of
semiconductor technology; the Software Engineering
Institute in Pittsburgh; the National Center for
Manufacturing Science in Ann Arbor among others
(Gibson & Smilor, 1992). The importance of such an
enabling environment is best appreciated when one
realizes that the use of what we see today as
cooperation between firms was partly the reason
Standard Oil of New Jersey was dismembered
(Chandler, 1967). The Canadian government is also
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127
reported to have loosened restrictions on interfirm
relationships, thereby opening the floodgates for
alliances (Magun, 1996). Similar government aided
cooperation can be found in Europe. Both the Air bus
project in Europe and the European Consortium for
Jets that has brought several firms together in a
consortium has been made possible by government
action (Tucker, 1991). The role of Japan's MITI is also
important. Indeed, Hagen & Choe (1998) suggest that
in the case of MITI, firms may actually have been
pressured to cooperate through a combination of both
incentives and threats.
The existing evidence suggests that most
orchestrated forms of cooperation tend to involve
multiple partners rather than just dyads of firms. Thus,
one is likely to see network forms as a dominant
organizing structure. For example, both SEMATECH
and the European Consortium for Aviation Jets are
made up of various firms in a network. Of course,
multiparty collaboration can occur without convenor
help. Motorola, IBM and Apple got together on their
own (Bertrand, 1992).
The key issue with orchestrated forms of
collaboration is whether it is possible to get
cooperation from participating firms. Game theorists
have studied the phenomenon of getting cooperation
from multiple participants. There are those who argue
that the prospects of cooperation diminish as the
number of players increase (Oye, 1986). Cooperation
may be difficult in networks for at least two reasons.
First, the chance that some actors will engage in "free
ridding" gets greater. Coleman (1990: 274) expresses
the rationality of free ridding. He writes, "If a number
of person's interests are satisfied by the same outcome,
and if the benefits that each experience from his own
actions that contribute to the outcome is less than the
costs of these actions, he will not contribute if he is
rational. If others contribute, he will experience the
benefits of the outcome without incurring costs. If
others do not contribute, his own costs will outweigh
his benefits." Second, the more the number of firms in
a network, the more difficult it is to monitor defectors
or people who act opportunistically. Finally, the
probability that distributional conflict will arise is
greater when the number of actors increases.
However, a number of countervailing
arguments can be made in support of the idea that
numbers per se should not necessarily reduce
cooperation. To the contrary, some advantages may
accrue to the group as the number of firms increase.
First, it can be argued that a greater number of firms
will be able to spread and reduce the risks associated
with a particular project (Snidal, 1986). Using the
paradigm example of game theory, Pahre (1994)
showed that it is possible to have multilateral
cooperation in an iterated prisoner's dilemma
framework. Second, actors may engage in zealous
activity and thereby reduce any liabilities associated
with an increase in the number of participants.
Coleman (1990) introduces the concept of "zeal" and
demonstrates that certain situations that would
normally lead to free ridding may actually experience
the opposite, zealous activity. People exhibit zealous
activity when they bear more than a proportionate cost
for some collective outcome that depends on the efforts
of a group. Coleman (1990) argues that both free
ridding and an excess of zealous activity can prevail,
simultaneously, in multi-party cooperation if there are
norms and sanctions to enforce it.
One can conceive of at least two cases in
which zealous activity may occur in multi-party
cooperation. First, when the parties perceive that the
relationship to be of critical importance to their
collective survival, zealous activity may occur. In
strategy terms, when the object of cooperation is close
to the strategic core (Harrigan, 1988) of the
participants, they may be prepared to engage in zealous
activity. Second, the presence of widely shared norms
amongst the collaborators may engender zealous
activity. This sort of widely shared norm has been
associated with what Abrahamson & Fombrun (1994)
describe as homogenous macrocultures. In an
orchestrated cooperation, convenors may actively
encourage zealous activity, or at the very least prod
members of the network to cooperate. The emergence
of a champion may also be vital for promoting
cooperation. Champions are known to engage actively
in influence activities and demonstrate leadership
qualities more than non-champions (Howell & Higgins,
1994). CEO Bob Noyce is credited with playing a
championing role in the Texas semiconductor initiative
SEMATECH (Browning, Breyer & Shelter, 1995).
It is likely that most convenor-facilitated form
of collaboration will bring together multiple partners
and so the dominant organizing form should be
network forms. Overtime, the parties in a network may
come to realize their interdependence and every party
will realize where exactly they fit in the network.
Trust may emerge rather quickly in this type
of collaborative form for a number of reasons. First, a
realization of mutual dependency means that actors
will endeavor to cooperate. Norms of behavior and
exchange will also develop after a while and these
norms may serve to bring parties together. Any trust
that emerges is likely to endure because violations will
be easily known by people in the network and that will
have an adverse effect on the reputation of the
offending party. People who willfully violate trust are
likely to face ostracism (Ben-Porath, 1980). Thus both
deterrence-based trust as well as institutional based
trust may be invoked in third party facilitated
cooperation. In general, one should see more cases
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where multiple parties form a cooperative relationship,
as is the case in SEMATECH when cooperation is
orchestrated. Of course, it is still possible to have
dyadic relations in orchestrated alliances. Individual
firms within the network will be free to have dyadic
relations with who ever they choose. In general
through,
Proposition 3: Alliances associated with orchestrated
forms are more likely to be network forms than
alliances associated with other configurations.
THIRD PARTY FACILITATED COOPERATION
Context and Dynamics
Inter-firm alliances, traditionally defined, are
generally arrangements entered into freely by actors
and most of the contemporary research on inter-firm
collaboration has focused on alliances as strategic
choices made between two firms. Indeed, definitions of
alliances have emphasized this volitional, independent
action by autonomous actors (see for example
Harrigan, 1988; Buckley and Casson, 1988). However,
the emphasis on strategic choice and free will in
collaboration may somewhat belie the fact that quite a
substantial number of alliances or cooperative
strategies often involve the active participation of
governments as third parties. For example, most
Chinese and East European alliances have some form
of government control in one form or the other (Jaslow,
1983). Government involvement in alliances can range
on a continuum from providing the legislative
framework for the partners to actually coercing a
foreign firm to enter into a collaborative arrangement
with a domestic firm. For example, it is common
knowledge that the Chinese government demands
alliances with local Chinese firms as a price for doing
business in China.
Eastern Europe and China are areas in which
direct government intervention have been most
pronounced. A 1979 China law permitting joint
venturing opened the door for alliances in China for
Western firms. This law provides the legal framework
may provide a unique example because of its socialist
system where the state owns all the means of
production.
Borrowing from political theory, we can call
such a third party a hegemon (Benson, 1975), a
powerful third party who uses its power to influence
the formation of an alliance. In some cases, even the
choice of a partner may be imposed. Whether the
choice of a partner is imposed or not, any instance in
which an interfirm cooperation arises as a result of the
direct or indirect intervention by a third more powerful
actor may be categorized as forced cooperation.
Intervention is direct when there is a specific directive
by a third party to that effect and indirect when there is
some pressure either in the form of a threat or the
creation of an incentive structure that leaves the parties
no choice but to choose the option of allying. Some
versions of hegemonic stability theory in political
science may best explain imposed cooperation (Miner,
1992; Benson, 1975). The threat of sanctions or in
some cases outright denial of access to the local partner
may force some international alliances to occur. Here
consideration of power and control from a third party
who is aligned with one prospective partner
predominates. In the case of some forced alliances
between public agencies, the threat of a loss of support
may be enough to force the relationship.
It has long been suggested that strategic
alliances are often a response to host government
policies (Beamish, 1988). For example, Gray (1985)
reports that imposed alliances are common in some
developing country environments. China, Russia and
developing countries are often mentioned as examples
of countries that tend to require foreign companies to
enter alliances with local firms. Even Japan, an
industrialized country, has also been mentioned as a
country where indirect government policies constrain
foreign firms to enter alliances with host country firms
(Contractor & Lorange, 1988).
Certain types of industries, notable defense
and telecommunications may be particularly
susceptible to this sort of manipulation (Gaister &
Buckley, 1996). Speculation suggests that governments
who impose alliances on foreign firms do so to give
local firms the opportunity to learn from more
established private firms. In the case of industries
determined to be of vital interest, the idea is to retain
some control. One example of a forced alliance is the
McDonald Douglas experience in China. Hladick
(1988) reports that as a price for doing business in
China, McDonald Douglas had to accept the condition
that Chinese scientists and technicians work with
McDonald Douglas on new aircraft design. Speculation
suggests that at the domestic level, the best examples
of imposed alliances may be found among social
agencies.
Alliances that fall in this category are mainly
joint ventures. Exploring the governance form of
"forced" alliances can give clues to the sort of
behaviors that are likely to emerge in the relationship.
Since the relationship can be explained in terms of a
"hegemon" (Benson, 1975) imposing some conditions
on the partners, there is a great probability that equity
forms will be chosen over non-equity forms. From the
perspective of the foreign firm, the intervention of the
host government may be interpreted as a signal that
they are up against a partner who has the tacit support
of a hegemon, so to say. What is interesting about this
form of cooperation is that even though a third party
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can substantially influence the initiation of the
relationship, they may be powerless after all in
controlling the developmental path the relationship
takes. Thus, the sense of power or hegemonic stability
that forced cooperation evokes is very temporary and
the long-term consequences of force open to debate.
While alliances that arise out of this sort of
"imposition" may nevertheless evolve into successful
relationship, it is possible to make some arguments on
a prima facia basis to the effect that partners in such
relationships will tend to use control and legalistic
provisions to protect themselves. Trust, a counterpoint
to detailed contracting and reliance on control
mechanisms, is less likely to emerge under imposed
regimes for a number of reasons.
First, there may be a rather low trust initial
trust where one partner feels that it has been pressured
into the relationship. In the case of international joint
ventures, the foreign firm is most likely the one to be in
this position. McKnight, Cummings & Chervany
(1998) define initial trust as the degree of trust when
the partners first meet. This initial trust may be
translated into an initial trusting intention. Initial
trusting intention relates to the degree to which a
partner is willing to rely on its counterpart, ex-ante. In
the case of forced collaboration, any initial trust that
exists is likely to be fragile rather than robust.
McKnight, Cummings & Chervany (1998) define
fragile initial trust as one that is unstable, quickly
changeable and easily influenced and changes
drastically during a given time frame. Given that, a
partner's expectations are often instrumental in the
development of cognitive-based trust (Deutsch, 1958)
low initial trust may frustrate the development and
resilience of trust over the course of the alliance.
Second, the parties are likely to resort to
drawing up detailed contracts in which all obligations
are specified in advance. For example, the Chinese
government law allowing for joint ventures with
Western firms has stipulations covering the rights,
responsibilities of the parties. But such detailed
contracts may work against the development of trust
because the actors may be unduly focused on judging
each other (Selznick, 1969). Finally, it may be difficult
for the parties to cooperate and build trust in the
presence of third party control. The evidence suggests
that the presence of formal mechanisms for
intervention in dyadic relations is often
counterproductive. As Taylor (1987: 168) puts it, "The
more the state intervenes, the more necessary it
becomes because positive altruism and voluntary
cooperative behavior atrophy in the presence of the
state and grows in its absence." In a related finding,
Kollock (1994) concludes from an experimental study
that in some situations, the existence of a formal
regulatory system might work against the emergence of
trust or worse yet, it might result in the destruction of
already existing trust in a group.
A particular form of trust, calculus-based trust
may be more prevalent in imposed alliances at least at
the early stages of the relationship. Calculus-based
trust derives from rational computation by actors
(Shapiro, Sheppard, & Cheraskin, 1992). The decision
to trust may depend on the partner's calculation that a
counterpart will perform its part of the bargain. In this
case, the presence of credible information to that effect
is crucial (Barber, 1983). In this type of trust, the
partners will continuously monitor each other and trust
warily without necessarily committing themselves to
good faith behavior.
These insights suggest that partners who sense
that the relationship was "imposed" on them may resort
to governance mechanisms that are more consistent
with rational theories such as game and transaction cost
theory (Axelrod, 1984; Williamson, 1985). The locus
classicus of Williamson's transaction cost theory is that
institutional set-ups should be assessed according to
cost-minimizing and efficiency criteria and game
theory elevates the Hammurabian maxims of "qui pro
quo and tit-for-tat" to the top of the theoretical pyramid
(Friedland, 1990, Axelrod, 1984).
Williamson's assumption that exchange
partners should act as if people cannot be trusted may
be unrealistic, but this sort of thinking is most likely to
be invoked when people think that a third powerful
hand is protecting a potential ally. For example in the
case of forced alliance in say China, a foreign partner
may have the perception that its counterpart has tacit
government support. Under such circumstances, the
partners, especially foreign partners, may use unilateral
strategies to protect themselves. Firms can make use of
specific investments, as well as ensure their counterpart
does the same to provide credible commitments that
will buttress assurances that the partner will not defect
or fail to fulfil its part of the bargain (Williamson,
1985). The investment in non-recoverable assets also
becomes a hostage for performance in the relationship.
In the end, there is the presumption that partners in
imposed relations will opt for shared governance in the
form of equity rather than non-equity alliances. Equity
alliances often involve shared governance (Beamish &
Banks, 1987), are generally representative of the core
views of rational theories such as transaction cost
theory and game theory while the use of non-equity
alliance forms are indicative of trust (Gulati, 1995).
Based partly on the theory, research and a certain
amount of speculation, the following tentative
proposition is advanced. In general:
Proposition 4: Alliances associated with direct
involvement of third parties are more likely to be
equity-based than other alliance forms.
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CONCLUSION
The use of cooperative strategy continues to
define contemporary firm behavior. Considering their
importance, a solid understanding of their dynamics
will be useful to both research and practice. This paper
offered a fundamental classification of alliances to
complement existing classifications. A classification
should accomplish two basic things: it should stimulate
thought and aid the formulation of hypothesis. This
paper offers some propositions. Some important issues
arise and these are now briefly discussed.
Theoretical & Research Issues
Several research questions come out of this
paper. Some pertinent questions worthy of research
attention include some of the following: (1) Are there
any other dimensions on which cooperative strategies
can be clustered? (2) Can the dimensions applied here
be refined? (3) Are there performance implications
associated with the different configurations? (4) Are
there few theories that can be associated with each
configuration type? (5) What are the key operating
characteristics of each alliance type? (6) Are the
criteria for classification the most appropriate? Some
preliminary ideas are presented here.
Organizational research on cooperative forms
continues to borrow from several theoretical domains.
Although this is a positive thing, it may contribute to a
certain amount of fragmentation currently associated
with alliance research (Smith, Carroll & Ashford,
1995). Research on cooperative strategies have applied
such diverse theories such as transaction cost (Park &
Ungson, 1997) inter-organizational theories
(Hagedoorn, 1993) institutional theory (Gerlach, 1992)
trust theory (Gulati, 1995) network theory (Hunan &
Provan, 1997) among others. Can we associate any of
these theories with specific configurations of alliances?
There seems to be some preliminary reasons for
answering the question in the affirmative.
First, spontaneous or naturally occurring
forms may best be explained within institutional theory
(DiMaggio & Powell, 1983) as well as with theories of
macrocultures (Abrahamson & Fombrum) as well as
the work of economic geographers (Sabel, 1991). The
common theme across these theories is that shared
norms and values made possible by a shared history,
proximity, diffusion of some shared values all help
cooperation because they confer some comparative
advantage on those fortunate enough. For example,
Saxenian (1994) has shown that various forms of
interfirm linkages exist in Silicon Valley, in part,
because of the geographic boundedness.
Second, various strategic and relational
theories may explain not only the mergence of
individual strategic alliances but also their performance
dynamics. Strategic theories, including game theory
(Axelrod, 1984; Parkhe, 1993?) may why firms initiate
alliances while relational theories ((Anderson & Narus,
1990; Dyer & Singh, 1988), including trust theory may
explain how relationships unfold overtime. Third,
alliances in the “forced” cooperation cluster may best
be explained within Transaction cost economics (Park
& Ungson, 1997; Williamson, 1991). Game theoretic
reasoning may also explain how partners behave in
situations where the influence of the third party can be
likened to that of a hegemon. Finally, alliances in the
convenor-facilitated cluster may best be explained
within network theory (Breyer, Shelter & Browning,
1995; Human & Provan, 1997) since such clusters are
more likely to have network forms of alliances.
Additional research is needed to explain the
outcomes linked to different forms of cooperative
strategies. For example, the discussion suggests that
forced cooperation may be less successful than
naturally occurring cooperation. The discussion of
naturally occurring cooperation suggests that relations
formed by firms in such bounded enclaves will enjoy
greater payoffs from cooperation than firms not so
fortunate. Studies of cooperation in industrial districts
by economic geographers have been ongoing for some
time now. Additional empirical validation of these
claims will be necessary. It will also be useful to do
comparative studies of alliances based on their origins.
Saxenian (1994) provides one exemplar of such
studies. Her work compares Route 128 in
Massachusetts with Silicon Valley.
Spontaneous cooperation may seem preferable
to other forms, but there may be dysfunctional
consequences associated with this form of cooperation
and they are worth studying. For example, some
researchers have suggested that the presence of close
ties between members of a particular group will
prevent trust from developing beyond the confines of
such groups (Fukuyama, 1995; Yamagashi &
Yamagashi, 1989). One implication of this finding is
that trust and cooperation will tend to emerge in
relations between firms that are geographically
bounded, or those that enjoy the good fortune of having
shared conditions that lead to spontaneous cooperation.
At the same time, however, the research suggests that
such actors will be less inclined to cooperate and trust
other firms they consider outsiders (Yamagashi 1988;
Fukuyama, 1995).
One important criterion that researchers can
use to identify alliances in the configurations is the
degree of third party involvement in the formation of
the alliance. There is passive third party involvement in
the case of orchestrated and active third party
involvement in the case of “forced” cooperation.
Spontaneous alliances may be more difficult to identify
because it is possible that such alliances will be
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informal. Geographic boundedness and the degree of
shared norms of collaboration may be one indicator
that such alliances arose primarily because of the
presence of some pre-existing advantages on
collaboration.
Policy Implications
The role of governments in business is well
known. The discussion of imposed or forced
cooperation shows that while some governments may
be anxious to help their local firms by forcing
prospective foreign partners to have alliances with
them, the outcomes of such relationships cannot be
taken for granted. Some of the insight presented here
makes one less sanguine about the usefulness of
coercion. This issue requires immediate research
attention in view of the increasing interest and
influence of national governments in the use of
cooperative strategies by firms.
There is little doubt that governments can play
an important role in the development of interfirm
linkages. Such a role will probably be most productive
if it is facilitative, and indirect, rather than overt and
coercive. The Canadian experience may be one
example other governments can learn from. The
Canadian government has specific programs geared
towards facilitating interfirm cooperation (Magun,
1996). Michael Wilson (1992: 81) one time Canadian
Minister of Industry, Science, Technology and
International Trade identified interfirm collaboration as
a potential source of comparative advantage, noting
that "the cooperative institutional framework is
becoming a key element in a country's infrastructure-
just as vital to its competitiveness as railways,
highways and telecommunication." The Canadian
government also has a Strategic Alliance Center in
Detroit that is supposed to help both American and
Canadian firms that wish to have strategic alliances.
Speculation suggests that governments in
emerging and developing countries in particular may
be under some pressure to bridge the development gap
by "legislating" cooperation between foreign and
domestic partners. Emerging economies may learn a
thing or two from the Canadian example. The fact is
some governments may mean well when they impose
collaboration, but there is hardly any reason to suggest
that this strategy will succeed if all it does it to lead
actors into zero-sum behaviors. If there is any lesson to
be learned from this preliminary discussion, it is that
however well intentioned they may be, forcing foreign
firms to enter into relationships as a precondition for
doing business may be counterproductive. For
example, without trust, inter-partner learning will be
difficult. Yet learning appears as a key reason for
demanding local participation in the first place. The
fact is the very stability of the relationship may be in
question when rational calculations become an integral
part of the relationship. A more viable option such as
the Canadian example of offering indirect and
facilitative support may be worth emulating.
This discussion also points to the types of
situations where alliances may have a greater chance of
yielding a higher payoff. For example, forced
cooperative forms may have a harder time developing
trust. Williamson (1985) suggests that alliances are
more costly in low-trust than high-trust situations. To
the extent that this is true, forced or imposed alliances
for example, may be deemed to be less efficient than
other forms. At the same time however, the occasion
for malfeasance may be greater when people trust each
other deeply. Familiarity, they say, breeds contempt.
Thus in areas where factors conducive to spontaneous
cooperation exist, actors have to be careful not to let
their guards down. Indeed, as Harrigan (1988)
suggests, these may be the sort of situations in which
"good friends become enemies fast."
Alliances are not a lodestar firms will ride to
competitive success. To the contrary, they are tortuous
and difficult to manage and a greater understanding of
the fundamental dynamics will be useful. This paper
provided some preliminary ideas upon which future
studies can build.
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____________________________________________
Henry Adobor (Henry.Adobor@quinnipiac.edu) is
Professor in Department of Management in the School
of Business at Quinnpiac University, 275 Mount
Carmel Avenue, Hamden, CT 06518-1908
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