A knowledge-based view of strategic alliances

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

Novelty of the external knowledge is another consideration before the firms establish knowledge-driven strategic alliances. Usually, more radical rather than more incremental technologies can help firms outpace their competitors, and therefore create substantial entrepreneurial rents. For example, some huge pharmaceutical companies such as Merck have built extensive networks of strategic alliances with new biotechnology firms (NBFs). The underlying reason is that "biotechnology represents a competence-destroying innovation because it builds on a scientific basis (immunology and molecular biology) that differs significantly from the knowledge base (organic chemistry) of the more established pharmaceutical industry" (Powell et al., 1996).

When the purpose of the firms participating in the knowledge-driven strategic alliances is to acquire knowledge from their partners, transferability and redeployability become important variables. Some knowledge can be easily transferred between organizations, if the knowledge is identifiable, separable, and not very complex. For example, the technology of manufacturing household electronic appliance has been frequently transferred in international joint ventures. However, some knowledge is by nature very hard to codify or is embedded in complex systems. Therefore, transfer of this type of knowledge will be difficult or even infeasible. For example, without making major adaptations, the technology invented by Japanese firms (e.g., JIT) to effectively manage supplier-manufacturer relationships would not find its niche in the United States.

Some knowledge is transferable between firms, but its value is constrained in the current alliances. For example, certain product-specific technology can hardly find other uses in the market. But firms often intend to acquire and generate knowledge that can be redeployed beyond the scope of current alliances. For example, in a strategic alliance between Motorola and a Chinese company, the two companies manufactured cellular phones for the local market. During the cooperation the Chinese company learned how to make microchips. This technology could be applied not only to cellular phones, but also to a number of industrial and consumer products. While higher transferability makes knowledge acquisition more efficient, higher redeployability increases the potential value of the knowledge acquired from alliances.

Firm characteristics: If the acquired or newly-generated knowledge is redeployable to other uses, then the relative scope of the firm determines to what extent the redeployable knowledge can realize its potential value. Khanna, Gulati, and Nohria (1998) distinguish between two qualitatively different kinds of benefits available to participants in knowledge-driven strategic alliances: private benefits and common benefits. Private benefits are those that a firm can earn unilaterally by picking up skills from its partner and applying them to its own operations in areas unrelated to the alliance activities. Common benefits are those that accrue to each partner in an alliance from the collective application of the learning that both firms go through as a consequence of being part of the alliance. In many alliances it is the private benefits that the firms seek more actively. If the scope of the firm is broad, then its ratio of private to common benefits will be higher because it has more opportunities to apply what it has learned to its businesses outside of the scope of the alliance than within the scope of the alliance. A firm may have a stronger incentive to join strategic alliances when its relative scope is broad and therefore more private benefits can be generated from the knowledge obtained from alliances.