"Factors affecting the nature of alliance governance and competitiveness "

Abstract

Coordination needs in alliances; nature of alliance governance and competitiveness of alliances are interdependent dimensions in alliances. Coordination needs are affected by technology transfer and strategic complexity which might result in alterations in the nature and background of the alliance. This research examines the effect of complexity in technological transfer, strategic specifications of the partners and prior experience of the firm in the target country on the nature of alliance governance and alliance competitiveness. Total Interpretive Structural Model (TISM) has been developed to determine the hierarchy amongst these factors. The findings provide important inferences on the factors that affect competitiveness of contractual alliances. Results suggest that nature of alliance – being contractual agreement or a joint venture influences the competitiveness of the alliance. Corresponding author: Sanjay Dhir Email addresses for the corresponding author: sanjaydhir.iitd@gmail.com First submission received: 22nd February 2019 Revised submission received: 9th April 2019 Accepted: 23rd April 2019 Introduction Alliance governance has the options in the form of choice between contractual alliances (CA) and Joint Ventures (JV) that could determine its competitiveness (Harrigan, 1985; Doz and Hamel, 1998). These two forms lead to variations in the administration and form of governance proceedings of the collaboration (Culpan, 2009; Dhir and Mital, 2013a). Alliances help the firm gain access to knowledge and other resources while gaining legitimacy and therefore push the firm towards success (Glaister, 1998; Dhir and Mital, 2013b; Parameswar, Dhir and Ongsakul, 2018). The gravity of making these decisions has led a part of the firm’s management devoting their time to making plans for future partnerships. The choice between the two forms of governance have already been studied by (Gulati and Singh, 1998; Oxley and Sampson, 2004). However, previous research has not followed a structured approach to examine the effect of factors on alliance governance system and its competitiveness. The factors affecting the choice of equity contribution by parent firms in alliance and further its impact on competitiveness. This study explores the effects of different factors in the nature of alliance i.e. contractual agreement or joint venture and on the shaping the competitiveness of the alliance. Journal of Business and Retail Management Research (JBRMR), Volume 13, Special Issue May 2019 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 10 The paper presents the literature review of the factors and build the need to examine these factors for their influence on nature of alliance and alliance competitiveness. Next, we discuss the methodology, data and results. We then conclude with discussion, implications and future work. Governance and competitiveness in alliances Prior research has explored the role of diverse factors on the nature of alliance and alliance competitiveness. Doz and Hamel, 1998 highlighted that equity participation differentiates the different nature of alliance – equity and non-equity. Further, it was observed that the equity participation affects the control exercised by parent firms on their alliance (Pan and Tse, 2000; Colombo, 2003). The control level exercised by parent firms determines the kind of coordination between parent firms building trust and minimizing opportunism (Parkhe, 1993; Hennart, Dong-Jae Kim and Zeng, 1998; Madhok, 2006; Bakker and Knoben, 2014; Parameswar and Dhir, 2018a, 2019). Therefore, JV are preferred nature of alliance in comparison to other contractual agreements. Further, effect of nature of alliance on alliance competitiveness has been scantly explored in literature (Ku, Gurumurthy and Kao, 2007; Chung and Beamish, 2010). Internalization theory proposed by Buckley and Cason, 2016 takes into account coordination cost along with appropriation concerns. It believes that control is necessary to get rid of misappropriation but is subject to the costs affiliated with coordination and competitiveness. The variation and sharing of assets, learning potential and external exchanges would affect coordination and organisational efficiency as described by Rugman and Verbeke, 2003. Coordination from the perspective of knowledge is important because it paves the path for integration of information (Grant and Baden-Fuller, 2004; Shrotriya, Sushil and Dhir, 2017; Parameswar, Dhir and Ongsakul, 2018; Bamel, Dhir and Sushil, 2019). If we look from the viewpoint of resources equity investment provides access to complimentary resources. Resources are desired by firms when forming alliances to gain competitiveness. Alliances are also formed for the creation of product (Pfeffer and Nowak, 1976; Rothaermel and Deeds, 2004), knowledge (Kale, Dyer and Singh, 2002; Dhir, Mital and Srivastava, 2015; Rudy, Miller and Wang, 2016; Dhir and Mital, 2018) or capabilities (Colombo, 2003; Rothaermel and Deeds, 2006; Makino et al., 2007). Technical knowledge can be transferred through CA but holding an equity leads to using effort and an effortless flow of knowledge (Makino, Lau and Yeh, 2002; Dhir et al., 2019). JV along with their advantage come with its costs (Balakrishnan and Koza, 1993; Makino and Neupert, 2000). CA should be preferred unless there is an explicit need for coordination, in which case the costs may become redundant (Inkpen and Currall, 2004; Meyer et al., 2009). Literature Review and Identification of Factors Literature on CA has examined the role of multiple factors on the competitiveness of CA. However, in this paper we restrict the study to include 8 factors identified by practitioners (through focus group discussion) considered as important in determining the competitiveness of CA. Industry Type CA is imperative in any type of industry – pharmaceutical, retail, real estate, automobile, space research etc. and play an important role in the efficient functioning of the industry (Dikova and van Witteloostuijn, 2007; Morschett, Schramm-Klein and Swoboda, 2010). From another view, the type of industry in which the alliance is formed will influence the competitiveness of the CA since the dynamics of the industry will determine the role of CA and its importance. A CA in a developed and mature industry may not add much value as compared to a CA in a developing and new industry (Contractor, 1989; Wang and Blomstrom, 1992; Saggi, 2002; Dhir and Sushil, 2017; Bamel, Dhir and Sushil, 2019). The industry type will determine the need for a CA and decisions in the alliance governance thereby influencing competitiveness of CA (Kumar, 1995; Dasgupta, 2000). Strategic Specification Strategic specifications, the second dimension, takes into account all facets of managing and forming the alliance (Reuer and Ariño, 2007). The time frame mentioned in the contract is used as a measure of strategic specifications. An undermined time frame has a high probability of development or variations in the factor market, product or working conditions. Suppose there is an advancement in Journal of Business and Retail Management Research (JBRMR), Volume 13, Special Issue May 2019 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 11 technology, the new machinery is one of a kind, difficult to operate and hence involves risk (Hamilton and Nickerson, 2003) and leads to strategic complexity. Such unpredictable conditions will cause scepticism and strategic reforms will have to be made. Therefore, an open-ended alliance is formed as partners cannot stipulate a time frame for the attainment of organisational objectives (Reus and Rottig, 2009). Hence strategic specifications demonstrate itself through open ended alliances. On the other hand, alliances which have a specified lifetime show lower strategic complexity (Turowski, 2005; Dan and Zondag, 2016; Dhir and Dhir, 2018; Parameswar and Dhir, 2018b). A limited time frame will cause less uncertainty in the factor market, product or participants as any major change won’t take place. Therefore, it is easier to make a contract under such steady conditions. A contract cannot accustom itself to unstable conditions. Therefore, the strategic specification of the CA will influence the competitiveness of the CA. Prior Presence of the Company Prior firm operations in a country influences CA formation. Alliances are a means for parent firms to venture into unchartered territory – exploration, that is new a country/market/products/services (Kogut and Singh, 1988; Madhok, 1997; Dussauge, Garrette and Mitchell, 2004). On the other hand, CA are formed to carry out expansion – exploitation, scaling up/mass production/consolidation. The first scenario shows that the partner has no knowledge about the functioning of the country market/products/services risk to forego the CA. However, in the second scenario, the parent firms have experience functioning in the country/market/products/services (Gulati, Lavie and Singh, 2009). In a way the CA is an important linchpin for the parent firms to operate and the lack of experience enhances the competitiveness of the CA as parent firms will be eager to explore with all that they possess. In the second scenario the parent firms have first-hand experience of doing business in the country/market/product/service and possess functional knowledge. Possessing this knowledge helps lower the need for CA and thereby undermine the competitiveness of the CA. Previous occupancy in the alliance country influence the parent firms’ interest towards the CA and thereby influence its competitiveness. Internal Coordination and Complexity The emergence of complexity can be linked to the complications of managing subparts, organisational customs and standard techniques in the manufacturing of goods (Mesquita and Brush, 2008) influences the functioning of the CA. Gulati and Singh (1998) have come to the conclusion that i