Embedded patterns of international alliance formation

Organization Studies, Fall, 1998 by Richard N. Osborn, John Hagedoorn, Johannes G. Denekamp, Geert Duysters, C. Christopher Baughn

International alliances are an increasingly numerous, diverse, and important social and economic mechanism for international interfirm adaptation and cooperation (see reviews by Grandori and Soda 1995 and Hagedoorn 1993a). Prior work provides an array of partially contradictory recommendations on how managers should form international alliances (cf. discussions by Culpan 1993; Mowery 1988; Osborn and Hagedoorn 1997; Ring and Van de Ven 1992 and Williamson 1991, 1996). One common theme across many studies of international alliances is that of embeddedness - the fit among environmental and organizational characteristics (see Auster 1992; Dunning 1993; Williamson 1991). Our review suggested that there was little agreement about whether international alliances were or should be embedded in their sponsors (e.g. Kogut 1988), their industries (e.g. Auster 1992), their nations (e.g. Whitley 1994) or some international social and economic structure (e.g. Osborn and Baughn 1993). There is also considerable confusion regarding how to operationalize embeddedness when international alliances typically involve at least two social, economic and corporate systems (cf. Granovetter 1986).

The purpose of this manuscript is to introduce a more integrative perspective of international alliance formation. It melds key elements from institutional theory, systems contingency theory, transaction cost economics and technological perspectives to examine the issue of embeddedness. An institutional view is introduced to suggest that alliance formation characteristics may conform to a type of industry embeddedness based on collective learning and informed imitation. This notion of embeddedness leads to specific empirical expectations which incorporate the interactive logic of systems contingency theory. This integration yields testable hypotheses concerning very specific types of alliances (two institutionalized subpopulations of alliances). These hypotheses are tested using two quite different large-scale samples. One sample focuses on U.S./Japanese alliance formations, while the other incorporates formations between Western Europe, Japan and the United States.

Literature Review

What is An International Corporate Alliance?

Part of the confusion in the literature stems from the wide variety of names and meanings attached to international cooperations among corporations (cf. Burgers et al. 1993; Culpan 1993; Hagedoorn 1993a; Kogut 1988; Parkhe 1993 and Williamson 1991). Here, an international corporate alliance may be defined as a publicly recognized exchange and/or joint value creation arrangement between two or more firms (sponsors) that are headquartered in separate nations where (a) the area for exchange and/or joint value creation is specified and (b) the arrangement is expected to cover several distinct transaction periods.

While this appears to be a fairly standard definition (e.g. Contractor and Lorange 1988) it differs from many others in three important ways. One, it explicitly separates publicly announced long-term associations from simple spot contracts and short-term projects (cf. Park and Ungson 1997). Two, it includes provisions for both exchange and potential joint value creation (following Toyne's 1989 suggestion to emphasize the exchange as the unit of analysis rather than a sponsor). Three, the specific expectations of one sponsor are not explicitly incorporated into the definition. We presume that the sponsors may or may not want similar strategic benefits from the alliance. In other terms, the definition offered here separates the issues of what an international alliance is and might provide from how, or the degree to which, one or more sponsors might appropriate specific potential benefits from an alliance. Thus, our focus is on alliances as an organizational mode.

An Institutional View of International Alliances

The recent dramatic increase in the number and longevity of international alliances suggests that they may be emerging as, 'orderly, stable, socially integrating patterns out of unstable, loosely organized or narrowly technical activities' (Selznick 1992: 232). The quote, of course, is a definition for institutionalization. Denekamp et al. (1997) provide preliminary evidence that certain forms of international alliances which are believed to be institutionalized are indeed shown to be more stable and appear to influence their immediate environment.

A popular theme in the institutional literature which appears relevant to the study of international alliances is the study of why organizational practices and structures emerge, become generally copied and, over time, become established as institutionalized or taken-for-granted activities (e.g. Baum and Oliver 1991; DiMaggio and Powell 1983; Haveman 1993; Holm 1995; Leblebici et al. 1991; Oliver 1992). Here, the notion of the embeddedness of the entity in its context, which is based on imitation and conformity, is seen as the key to understanding institutionalization (see a review by Baum and Dutton 1996). Institutional processes are typically discussed at the organizational field level within a particular socioeconomic setting (Galaskiewicz and Wasserman 1989). By definition, however, many international alliances cut across existing organizational fields and socioeconomic settings.