Divergent and convergent effects of business group affiliation on firm performance in international strategic alliances

Abstract

Business groups (BGs), a prevalent organizational form in many economies are exhibiting evolutionary fitness and are no longer considered an organizational anomaly. We extend the traditional debate around strategic choice and performance paradigm by assessing differential performance effects of BG affiliation in international strategic alliance (ISA) formation choices(alliance scope, alliance governance structure, and alliance orientation). This study integrates the resource-based view and institutional perspective to explore the initial divergence in performance of a BG affiliated firm (BGAF) and non-BG affiliated firm (NBGAF) leading towards convergence later when partner complementarity and institutional evolution shifts from lower to the higher end of the spectrum. Contrasting the effect of different ISA choices on firm’s performance the hypotheses were developed and tested on a panel dataset of 1816 ISAs formed by 224 BGAFs and 242 NBGAFs over a span of 19 years. Findings suggest that the influence of BG affiliation on firm’s performance is more pronounced when alliance scope is broader, alliance governance structure is contractual and alliance orientation is exploratory and that this divergence in performance between BGAFs and NBGAFs weakens as the alliance partner’s complementarity increases and institutions evolve in the economy.