A knowledge-based view of strategic alliances

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

An obvious problem arises in specifying all the relevant intellectual property rights. While it may be possible to identify specific elements (such as a particular molecule), much of the broader, application-level know-how and R&D capabilities that are generated cannot be clearly defined or adequately described in a contract. The know-how generated from one project may be so inextricably linked with that created in other projects that it may be impossible to agree on who owns what. As a result, the sponsor is unable to attach claims to much of the valuable intellectual property that is created during the R&D project.

The above discussion leads to a classification of stability of knowledge-driven strategic alliances into four types along two dimensions: relative redeployability of the new knowledge between the firms and regime of property rights of the new knowledge, in the case that new knowledge is generated (see Figure 5).

[FIGURE 5 OMITTED]

Type I is the most stable alliance because the regime of property rights of the new knowledge is tight, while the new knowledge is symmetrically redeployable between the firms. Under such circumstances the owner of the intellectual property rights clearly knows to what areas the new knowledge can be applied by its partner; therefore the property rights regarding the new knowledge can be tightly protected by a welldrafted contract. This type involves very limited transaction costs, especially because ex post transaction costs are largely avoided.

In Type II, although the regime of property rights of the new knowledge is loose, the redeployability of the new knowledge is symmetric between the partners. While neither partner can make valid claims for the new knowledge, it can be evenly used by both partners in similar areas and generate similar value. Under such circumstances, the alliance will be stable, while a moderate level of transaction costs may occur because the firms need to monitor their partners' behavior to make sure that balance of bargaining power between them is well maintained.

Type III is a combination of two unfavorable features. While the redeployability of the new knowledge is asymmetric between the partners, the regime of property rights regarding the new knowledge is loose. This type of alliances is unstable and involves high transaction costs, because no one can make valid claims for the property rights of the new knowledge. Moreover, one firm can take more advantage of the new knowledge than the other.

Type IV is also a stable alliance because the tight regime of property rights largely prevents the new knowledge from being unfairly appropriated by one firm. However, because the redeployability of the new knowledge is asymmetric between the partners, the knowledge owner has to negotiate contract terms and set up enforcement mechanisms to ensure that its partner does not apply the new knowledge to unintended areas and create extra value for which the owner has no residual claim. This will entail a moderate level of transaction costs.