A knowledge-based view of strategic alliances

Journal of the Academy of Business and Economics, Jan, 2004 by Yongliang Han

ABSTRACT

This paper presents a knowledge-based view of strategic alliances. Incorporating several approaches including transaction cost economics, property rights theory, and industrial organization economics into the analysis, this paper provides an integrative view of the knowledge-driven alliances, demonstrating that the motives and stability of these alliances are determined by the characteristics of markets, firms, knowledge, and contractual arrangements. Specifically, our main arguments include. (1) knowledge-driven strategic alliances are jointly motivated by the strategic value of alliance partner's knowledge to the focal firm and partner's appropriability of the focal firm's own knowledge," (2) if transfer of existing knowledge between partners is the primary concern, then the stability of alliances is determined by the leakage potential of knowledge and the strength of contractual protective mechanisms, and (3) if the property rights of knowledge generated during the alliances are the central issue, then the stability of alliances is a joint function of relative redeployability of the new knowledge between the partners and the regime of property rights regarding the new knowledge. We also discuss the relative transaction costs involved in each situation when analyzing the different types of knowledge-driven alliances.

1. INTRODUCTION

For many firms, strategic alliances have been an important interorganizational form to gain competitive advantage in their current industries, or to explore fresh opportunities in new areas (Hagedoorn, 1993; Pisano, 1990; Powell, Koput and Smith-Doerr, 1996). Previous research has basically concentrated on two issues: the motives for strategic alliances and factors leading to stability or instability of alliances.

From the transaction cost economists' perspective, strategic alliances as one of the hybrid forms, provide an alternative governance mode when transactions have to be conducted between markets and hierarchies (Teece, 1986; Williamson, 1991). Firms are involved in strategic alliances usually because they own interdependent or complementary resources. These resources may involve a high level of uncertainty and are not easily accessible in competitive markets. Therefore, the firm that is eager to obtain these critical resources has two options other than a pure market transaction: internalization (through internal development or acquisition) and intermediate forms such as strategic alliances. If internalization is denied because it is technologically infeasible or economically unreasonable, then intermediate forms become the only viable option. Compared with market transactions, strategic alliances provide the firm with timely access to critical resources and a better control of opportunism. Moreover, strategic alliances enjoy more flexibility and stronger incentive than internalized transactions (Williamson 1985, 1991).

Strategic alliances can serve a number of other functions such as spreading risk, increasing market power, preempting complementary resources, accessing new markets, and gaining organizational learning (Hagedoorn, 1993; Mitchell and Singh, 1992). Among the various functions, knowledge acquisition, transfer, and generation have been regarded as a primary motive for strategic alliances in certain industries, especially in high-tech industries. Teece (1992) argued that in contemporary competitive landscape, the global dispersion of industrial competence has stimulated cooperation between firms. Similarly, Powell et al. (1996) studied the interorganizational collaboration in the U.S. biotechnology industry and discovered that when the knowledge base of an industry is both complex and expanding and the sources of expertise are widely dispersed, the locus of innovation will be found in networks of learning, rather than in individual firms. In the knowledge-intensive industries, the prominent purpose of strategic alliances may no longer be saving on transaction costs. Instead, firms may try to generate entrepreneurial rents through pooling existing knowledge or creating new knowledge. Moreover, due to the unique characteristics of knowledge, firms may use knowledge acquired from their partners to fulfill other "strategic" purposes which go beyond the scope of current strategic alliances. In Figure 1, we classify strategic alliances into three types according to firms' perceived strategic value of the knowledge combined, acquired, and generated in the cooperation.

Type I is the typical learning alliance because both alliance partners regard the knowledge to be infused into the cooperation by the other firm as of high strategic value. In Type II and Type IV, the alliance partners are motivated by different reasons. One firm intends to take advantage of the knowledge brought into by its partner, while the other is attracted to the alliance for other reasons, such as obtaining complementary assets or accessing a new market, etc. Type III includes all the other alliances in which knowledge is not a driving force for either party to join an alliance. It is basically the Type I that is the focus of this article.