Journal of Management 1998 Das 21 42

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DOI: 10.1177/014920639802400103

1998 24: 21Journal of ManagementT. K. Das and Bing-Sheng Teng

Resource and Risk Management in the Strategic Alliance Making Process

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Journal of Management1998, Vol. 24, No. I, 21-42

R e s o u r c e a n d R i s k M a n a g e m e n t M t h eS t r a t e g i c A l l i a n c e M a k i n g P r o c e s s

T. K. DasBing-Sheng Ten gCity U niversity of New York, Baruch CollegeRes o u r ce - b a s ed a n d r i s k -b a s ed v i ew s o f s tr a t eg ic a l l ia n ces h a veno t been adeq ua te l y re f l ec t ed in t he l i tera ture . Th i s pa pe r i den t i fi es f o urt ypes o f cr i t ica l resources t ha t t he par tne rs br ing to an a l l iance: f i nan -c ia l, t echno log ica l , phys i ca l , a nd ma nag er ia l resource . I t a l so sugges t s

two b as i c t ypes o f r isk i n s tra t eg i c a l l i ances : re la t iona l r isk and per for -ma nce r isk. The a l l iance m aking proce ss i s exa m ined in terms o f t hein t erac t i ve e f f ec t s o f resource and r i sk on the or i en ta t ions and ob jec-t i ves o f t he prospec t i ve a l l i ance par tners . Manager ia l imp l i ca t ions ared i s cu s s ed a n d f u t u r e r e s ea rch d i r ec ti o n s i n d ica t ed i n t h e f o r m o f p r o p o -s i t ions f o r em pi r i ca l t es t ing .

St r a te g i c a l li a n c e s h a v e e m e rg e d i n r e c e n t y e a r s a s a p o p u l a r s t r a t eg y i n a ne n v i r o n m e n t i n w h i c h f a s t a c ce s s t o u p - t o -d a t e t e c h n o l o g y a n d e m e r g i n g m a r k e t si s more c r i t i ca l t han eve r (Deeds & Hi l l , 1996 ; Mi t che l l & Singh , 1996 ; Yosh ino& R a n g a n , 1 99 5) . S u c h a n e n v i r o n m e n t h a s b e e n c a l l e d " h y p e r c o m p e t i t iv e , " a n da p p e a r s t o b e th e d i r e c t io n in w h i c h b u s in e s s is m o v i n g (D 'A v e n i , 1 99 4). G e n e r -a l l y s p e a k i n g , s t r a t e g i c a l l i a n c e s a r e c o n s i d e re d a fo rm o f c o o p e ra t i v e a r r a n g e -m e n t b e t w e e n o r g a ni z at io n s . E v e n s o, t h e re i s s o m e a m b i v a l e n c e w h e n i t c o m e s t op re c i s e l y c l a s s i fy i n g w h a t t y p e s o f c o o p e ra t i v e a r r a n g e m e n t s c a n b e t e rm e d s t r at e-g i c a ll ia n c e s . R e s e a rc h e r s w h o a r e i n f a v o r o f a m o re i n c l u s i v e a p p ro a c h m a i n t a i ntha t v i r tua l ly a l l k inds o f i n t e r f i rm a r rangemen t s shou ld be ca l l ed s t ra t eg i c a l l i -a n c e s (B o ry s & J e mi s o n , 1 9 8 9 ; Fo r r e s t , 1 9 9 2 ; L e i & S l o c u m, 1 9 9 1 ; M u r ra y &M aho n , 1993 ; S t a f fo rd , 1994) . In th i s app roach , under t he rub r i c o f s t ra t eg ic a l li -a n c e , t h e r e a r e v a r i o u s k i n d s o f a r r a n g e m e n t s : j o i n t v e n t u re s , e q u i t y i n v e s t me n t ,l i c e n s in g , j o i n t R & D a r r a n g e m e n t , te c h n o l o g y s w a p , b u y e r - s u p p l i e r r e l a ti o n s h i p ,a n d o t h e r s . O n t h e o t h e r h a n d , s o me r e s e a r c h e r s h a v e a d o p t e d a mo re r e s t r i c t e dv i e w , a n d h a v e s o u g h t to m a k e a d i s t in c t i o n b e t w e e n s t r a te g i c a l li a n c e s a n d o t h e rc o o p e ra t i v e a r r a n g e me n t s (D e v l i n & B l e a c k l e y , 1 9 8 8 ; Y o s h i n o & R a n g a n , 1 9 95 ).T o t h e m , s t r at e g ic a l l i a n ce s r e f e r o n l y t o t h o s e d e a l s i n w h i c h t h e p a r e n t f i rms a r eDirect all correspondence to: T.K. Das, Department of Management, School of Business, Baruch College, CityUniversity of New York, 17 Lexington Avenue, New York , NY 10010; Fax: 212-802-6873, e-mail:


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2 2 T . K . D A S A N D B I N G - S H E N G T E N G

t i ed to each o the r in a subs tan t ive m anner , i . e. , long- te rm in te rde pende nce , sha redcon t ro l , and con t inued con t r ibu t ions by the pa ren ts . Thus , in th i s na r rowerconcep t ion , i t seems tha t on ly a few se lec ted k inds o f coopera t ive a r rangemen tsw ou ld qua l i fy a s s t ra teg ic a l l iances , and w ou ld inc lude jo in t ven tu res , equ i tyinves tm en t , jo in t R & D, and jo in t m arke t ing . W e be l ieve tha t i t i s no t cen t ra l fo rthe pu rpose o f th i s pape r to d i f fe ren t ia te be tw een na r ro wly de f in ed s t ra teg ic a l li -ances and o the r types o f in te r f i rm coopera t ive a r rangemen ts . We wi l l adop t theb roader v iew o f s t ra teg ic a l l i ances , wh ich inc ludes a l l the coopera t ive a r range-m e n t s t h a t a r e m e n t io n e d a b o v e .Th e purpose o f th is pape r i s to exam ine the o r ien ta t ions and ob jec t ives o f thepa r tne rs in the s t ra teg ic a l l iance m ak in g p rocess p red ica ted upon two k ey d im en-s io n s - r e s o u r c e a n d r i s k . Th e r e s o u r c e d im e n s io n a d d r e s s e s w h a t t h e f i r mcon t r ibu tes to the a l l i ance , wh i le the r i sk d imens ion por t rays wha t the f i rm mayf e a r m o s t . N a tu r a l l y , f i r m s w o u ld a t t e m p t t o o b t a in m a x im u m r e tu r n s f r o m th eresources they commit to the a l l i ances , wh i le pay ing c lose a t t en t ion to the r i sksth e y a r e e x p o s e d t o ( R in g & V a n d e V e n , 1 9 9 2 ) . Th u s , t h e s e tw o d im e n s io n scap tu re the c r i t i ca l conc e rns o f p rospec t ive a l l i ance pa r tners . The s ign i f icance o fin teg ra t ing the two d im ens ion s i s tha t m any key i s sues o f s t ra teg ic a l li ances , e .g .,oppor tun is t i c behav io r and in te r f i rm t rus t (Gu la t i, 1995 ; Za hee r & Venk a t raman ,1995) , resource d ivers i ty (Parkhe , 1991) , and s t ruc tura l a r rangements (Osborn &Bau ghn , 1990), ca n be be t te r unders tood th rough th is in teg ra ted f rame wo rk .Th e pape r i s d iv ided in to th ree par ts . W e f i r s t in t roduce the re source d im en-s ion , wh ich cons i s t s o f the fou r key types o f re source : f inanc ia l , t echno log ica l ,p h y s i c a l, a n d m a n a g e r ia l . We f o l lo w w i th a d i s c u ss io n o n a r i s k - b as e d v i e w o f a na l li a n c e, i n w h ic h w e d i f fe r e n ti a te b e tw e e n r e l a t io n a l r is k a n d p e r f o r m a n c e r i s k o fs t ra teg ic a l l iances . In the l a s t sec t ion , these two d im ens ions a re in teg ra ted an d theor ien ta tions and ob jec t ives o f the a l l i ance pa rtne rs a re iden t i f i ed under d i f fe ren tcond i t ions . We a l so d i scuss the manager ia l imp l ica t ions o f the in teg ra ted f rame-w ork and dev e lop re sea rch p ropos i t ions fo r em pi r ica l te s t ing in the f ina l sec t ion .

R e s o u r c e - B a s e d V i e w o f S tr a t eg i c A l l i a n c e sTh ere i s no dea r th o f theo re t ica l f ram ew orks dea l ing w i th s t ra teg ic a l li ances .Pop u la r theo r ie s tha t have been app l ied to s t ra teg ic a l l i ances inc lude t ransac tioncos t econ om ics (W i l l iam son , 1985) , gam e theory (Pa rkhe , 1993) , exch ange theory(Gula t i, 1995), s t r ateg ic beha v io r mo de l (Ha gedoorn , 1993), d ia lec t ica l m ode l(Das & Teng , 1996a) , and re source -based v iew o f the f i rm (Eisenhard t &Schoonhoven , 1996) . The re source -based approach examines compe t i t ion basedon the re sources possessed by the f i rm, ra the r than on the bas i s o f i t s p roduc ts

(W em erfe l t , 1984). I t has been a rgued tha t i t i s the fi rm-spec i f ic re sources w h ichd i rec t ly l ead to a f i rm ' s compe t i t ive advan tage (Barney , 1991) . Praha lad andH a m e l ( 1 99 0 ) d e m o n s t r a t e d h o w th e f o cu s o n c o r e c o m p e te n c e w a s i n s t r u m e n ta lin GTE and NEC sh i f t ing the i r s t ra teg ic pos i t ions . Thus , some theor i s t s sugges ttha t the re source -based v iew may cons t i tu te a new theory o f the f i rm (e .g . ,Co nner , 1991). A cco rd ing to W em erfe l t (1984 , p . 172), a F i rm ' s re sources a re" those ( t ang ib le o r in tang ib le ) a sset s w h ich a re t i ed semip e rm anen t ly to the f i rm."J O U R N A L O F M A N A G E M E N T , V O L . 2 4 , N O . 1 , 1 99 8

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R E S O U R C E A N D R I SK M A N A G E M E N T 2 3

T h u s , t h e s e f i rm-s p e c i f i c a s s et s a r e c o s t l y to c o p y , a n d a r e t h e s o u rc e o f a b o v e -n o rm a l re t u rn s. F i rm -s p e c i f i c r e s o u rc e s i n c l u d e b r a n d n a m e s , t e c h n o l o g y , s k i l le dp e r s o n n e l , ma c h i n e ry , c a p it a l, a n d s o o n . T a n g i b l e r e s o u rc e s m a y i n c l u d e p h y s i c a la s s e t s a n d f i n a n c i a l a s s e t s , w h i l e i n t a n g i b l e r e s o u rc e s ma y i n c l u d e t e c h n o l o g y ,h u ma n , ma n a g e r i a l e x p e r t i s e , a n d r e p u t a t i o n (H o fe r & Sc h e n d e l , 1 9 7 8 ; G ra n t ,1995) .In t he f i e ld o f s t ra t eg i c a ll i ances , howe ver , a re source -base d v i ew i s ye t t o befu l ly d e v e l o p e d . T h o u g h th e r e a r e s o m e s t u d i e s e x a m i n i n g th e e f f e c ts o f r e s o u rc e sin s t ra t eg i c a l l i ances (B lodge t t , 1991 ; Hennar t , 1988 ; Ly les & Reger , 1993 ;Pa rkhe , 1991) , t hey a re mos t ly f rom o the r t heo re t i ca l pe rspec t ives (e .g . , t r ansac -t i o n c o s t e c o n o mi c s a n d t h e b a rg a i n i n g mo d e l ) . T h e re fo re , e x i s t i n g s t u d i e s o ns t ra t eg i c a l l i ances l ack a t heo re t i ca l focus on the ques t ion o f re sources . In t her e s o u rc e -b a s e d v i e w , t h e c o n c e p t o f " r e s o u rc e " i s m u l t i d i me n s i o n a l a n d i t c a n b ed i f fe ren t i a t ed in to seve ra l key typ es o f re sourc es (Barn ey , 1995) . E x i s t i ng s tud iesh a v e n o t s y s t e ma t i c a l l y e x a mi n e d t h e e f f e c t s o f e a c h ma j o r t y p e o f r e s o u rc e i ns t ra t e g ic a l l ia n c e s . I n d e e d , t h e r e s o u rc e -b a s e d v i e w i n fo rms u s t h a t v a r i o u s t y p e so f f i rm-s p e c i f i c r e s o u rc e w o u l d h a v e d i f f e r e n t k i n d s o f e f f e c t s o n t h e a l l i a n c em a k i n g p ro c e s s . I f a f i rm ' s c o re c o m p e t e n c e i s b u i l t o n i ts u n i q u e r e s o u rc e s , t h e na s t r a te g i c a l li a n c e a s a w a y o f p o o l i n g t h e c o re c o m p e t e n c i e s o f v a r i o u s p a r t n e rss h o u l d b e c r i t i c a l l y r e l a t e d t o t h e t y p e o f r e s o u rc e c o n t r i b u t e d b y e a c h p a r t n e r .H e n c e , t h i s p a p e r i d e n t i f ie s f o u r b a s i c t y p e s o f r e s o u rc e t h a t t h e p a r t n e rs b r i n g t oa n a l l i a n c e , a n d p ro p o s e s a mo re c o mp re h e n s i v e a n d i n t e g ra t e d r e s o u rc e -b a s e dv iew o f s t ra t eg i c a l l iances .In e ssence , s t ra t eg i c a l l i ances a re abou t access ing re sources t ha t a pa r t i cu l a rf i rm d o e s n o t a l r e a d y p o s s e s s , y e t w h i c h a r e c r i ti c a l f o r i mp ro v i n g it s c o m p e t i t i v ep o s i ti o n . B a d a r a c c o ( 1 9 9 1 ), f o r e x a m p l e , o b s e r v e d th a t e m b e d d e d k n o w l e d g e o fthe f i rm, a f i rm -spec i f i c re source , d r ives t he f i rm s in to s t ra t eg i c a l li ances . O n theo n e h a n d , a k e y mo t i v e fo r e n t e r i n g a l l i a n c e s i s t o c o mb i n e t h e r e s o u rc e s o f t h epa r tne rs (D ev l in & B leack ley , 1988 ; P i san o & Te ece , 1989). Indeed , s t ra teg i c a ll i-a n c e s h a v e b e c o me a n a t t r a c t i v e a l t e rn a t i v e t o me rg e r s a n d a c q u i s i t i o n s a s ame a n s t o a c q u i r e r e s o u rc e s , p r e c i s e l y b e c a u s e a l l i a n c e s u s u a l l y a r e f a s t e r a n dc h e a p e r w a y s fo r a c c e s s i n g r e s o u rc e s (L e i , 1 9 9 3 ) . R e c i p ro c a l s t r e n g t h s a n dc o m p l e m e n t a r y r e s o u rc e s , o r " a ' f i t' b e t w e e n p a r t n e r s " (Fo r re s t, 1 9 9 2, p . 2 8) , a rei d e n t i f ie d a s a p r e m i s e fo r s u c c e s s fu l a ll ia n c e s (Pa rk h e , 1 9 9 1) . O n t h e o t h e r h a n d ,a p a r t ic u l a r f i rm m a y a t t e mp t t o l e a rn t h e s k i ll s o r to s te a l th e r e s o u rc e s p o s s e s s e db y a n o t h e r f irm t h ro u g h fo rm i n g an a l li a n c e (H a me l , 1 9 91 ; K o g u t , 1 98 8). T h u s ,o n e h i d d e n a g e n d a fo r e n t e r i n g a s t ra t eg i c a l l ia n c e c o u l d b e t o g a i n a c c e s s t o f i rm -s p e c i f i c r e s o u rc e s o t h e rw i s e u n a v a i l a b l e t o a c o mp a n y . H i d d e n a g e n d a s t e n d t oc o m e i n t o p l a y w i t h g r e a t e r i n t e n s it y r e g a rd i n g i n t a n g i b le r e s o u rc e s t h a n fo r t a n g i-b l e re sources .Se v e ra l s t u d i e s h a v e e x a mi n e d v a r i o u s t y p e s o f r e s o u rc e t h a t a f i rm mi g h tde l ive r to an a l l i ance (B lod ge t t , 1991 ; Ch i , 1994 ; Hen nar t , 1988 ; Ly les & R eger ,1993 ; S t a f fo rd , 1994) . B lodg e t t (1991) , fo r i n s t ance , exam ined th ree types o fr e s o u rc e c o n t r i b u t e d b y t h e p a r t n e r s o f a n i n t e rn a t i o n a l j o i n t v e n t u re : t e c h n o l o g y ,l o c a l k n o w l e d g e a n d ma rk e t i n g s k i l l , a n d g o v e rn me n t s u a s i o n . C h i ( 1 9 9 4 )s u g g e s t e d te c h n o l o g y , m a r k e t i n g , a n d m a n a g e m e n t c o m p e t e n c e a s t h r e e d i st in c -

J O U R N A L O F M A N A G E M E N T , V O L . 24 , N O . 1 , 1 99 8



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t i v e r e s o u rc e s i n a l l i a n c e s . I n a d d i t i o n , L y l e s a n d R e g e r (1 9 9 3 ) a d o p t e d a j o i n tv e n t u r e ' s p e r s p e c ti v e , a n d i d e n ti f ie d t h e f o l l o w i n g t y p e s o f r e s o u r c e p o s s e s s e d b yt h e v e n t u re t h a t a r e i n d e p e n d e n t o f t h o s e o f t h e p a r e n t f i rms : R & D , f i n a n c ia l ,func t iona l expe r t i se , i ndep en den t fac i li t ie s , and ph ys i ca l l oca t ion . F ina l ly ,H e n n a r t ( 1 9 8 8 ) i d e n t i f ie d t h e fo l l o w i n g i n p u t s i n t o a j o i n t v e n t u re : r a w m a t e r ia la n d c o m p o n e n t s , k n o w l e d g e , d i s tr i b u t io n , a n d l o a n c a p i ta l .B a s e d o n a n a n a l y s is o f t h e v a r io u s t y p e s o f r e s o u rc e m e n t i o n e d in t h e l it er a -t u re , w e s u b m i t th a t t h o s e t y p e s o f f i rm-s p e c i f i c r e s o u rc e s w h i c h a r e s i g n i fi c a n t i ns t ra t eg i c a l l i ances can be c l a ss i f i ed in to fou r bas i c ca t egor i e s : f i nanc ia l , t echno-l o g ic a l , p h y s i c a l, a n d m a n a g e r i a l r e s o u rc e . F i n a n c i a l r e s o u rc e r e f e r s t o t h e a v a i l-a b i li ty o f c a p it a l. T e c h n o l o g i c a l r e s o u rc e m e a n s t h e " s e c r e t k n o w -h o w o r s u p e r i o rR & D ca pab i l i t y , " such as pa t en t s (Ch i , 1994 , 271) . Phys i ca l re sou rce covers rawma t e r i a l s , p ro d u c t i o n c a p a c it y , a n d d i s t ri b u t io n c h a n n e l s p ro v i d e d b y t h e f i rm(G ra n t , 1 9 9 5 ) . F i n a l l y , w e b ro a d l y d e f i n e ma n a g e r i a l r e s o u rc e a s u p p e r - l e v e lp e o p l e a n d t h e s k i l l s n e c e s s a ry fo r e f f e c t i v e l y ru n n i n g a b u s i n e s s o rg a n i z a t i o n .K n o w -h o w i n fu n c t i o n a l a r e a s s u c h a s o p e ra t i o n s a n d ma rk e t i n g t h e r e b y f a l l i nth i s ca t egory .C l e a r l y , a f i rm ' s c o m p e t i t i v e a d v a n t a g e w o u l d n e e d t o b e b u il t o n a n o rg a n i cc o m b i n a t i o n o f v a r i o u s t y p e s o f r e s o u rc e i t p o s s e s s e s (C h i , 1 9 94 ). A r e l i a n c es o le l y o n a n y s i n gl e t y p e o f r e s o u r c e m a y w e l l w o r k i n th e s h o r t t e rm , b u t w o u l db e u n l ik e l y t o g e n e r a te s u s ta i n ab l e c o m p e t i ti v e a d v a n ta g e i n t o d a y ' s e n v i r o n m e n to f i n t e n s if i e d c o m p e t i t i o n (B a rn e y , 1 9 91 ) . Fo r e x a m p l e , R e e d a n d D e F i l li p p i(1 9 9 0 ) a rg u e d t h a t p h y s i c a l a s s e ts a l o n e d o n o t h e l p a f i rm i n b u i l d i n g s u s t a i n a b lec o m p e t i t i v e a d v a n t a g e . I t is , th e r e fo re , o n l y n a t u ra l t h a t w e s e e s o m a n y f i rmsr e a c h i n g o u t t o o t h e r f ir m s w h o h o l d r e so u r c e s c o m p l e m e n t a r y to t h e i r o w n .A c c o rd i n g t o H a r r i s o n e t a l . ( 1 9 9 1 ) , o f t e n t i me s v a l u a b l e s y n e rg y i s c r e a t e d b yc o m b i n i n g d i f fe r e n t (o r c o m p l e m e n t a r y ) ra t h er t h a n s i m i la r ( o r s u p p l e m e n t a r y )r e s o u rc e s . T h e a l li a n c e ma k i n g p ro c e s s c a n t h u s b e v i e w e d i n p a r t a s a p ro c e s s o fs e e k i n g c o m p l e m e n t a ry r e s o u rc e s . I n t h is s e n s e , th e t y p e s o f r e s o u rc e t h a t f irmsc o n t r i b u t e c o n s t i t u t e a k e y d i me n s i o n i n u n d e r s t a n d i n g t h e i r o r i e n t a t i o n s a n do b j e c t i v e s i n p ro s p e c t i v e a l l i a n c e s . Fo r e x a mp l e , t h o s e w h o c o n t r i b u t e f i n a n c i a lr e s o u r c e w o u l d b e m o r e c o n c e r n e d w i t h r e tu r n o n t h e i r in v e s t m e n t , w h i le t h o s ew h o p ro v i d e t e c h n o l o g i c a l r e s o u rc e s u c h a s p a t e n ts , a r e l ik e l y t o w o r ry a b o u ts e c u r i n g t h a t te c h n o l o g y . T h e s e a n d o t h e r d i f f e re n c e s w i ll b e d i s c u s s e d i n d e t a i ll a te r i n t h e p a p e r i n c o n j u n c t i o n w i t h t h e ri s k d i me n s i o n .

R i s k - B a s e d V i e w o f S t r a te g i c A l l i a n c e sR i s k i s a s i g n i f i c a n t f a c t o r in s t ra t e g ic m a n a g e m e n t , s i n c e s t r at e g ic d e c i s i o nm a k i n g i s i n ev i ta b l y c o n c e r n e d w i th a s s e ss i n g o d d s f o r s u c c e s s fu l p e r f o r m a n c e( B a i rd & T h o m a s , 1 98 5; M a r c h & S h a p ir a , 1 9 87 ). A c c o r d i n g t o T h o m p s o n(1 9 6 7 ), t h e c o n t ro l o f u n c e r t a i n t ie s a n d r i sk s i n o n e ' s e n v i ro n m e n t fo rm s t h ee s s e n c e o f m a n a g e m e n t . R i s k s h a r i n g o r r is k c o n t r o l li n g h a v e b e e n p r o p o s e d i no t h e r s t u d i e s ( e .g . , K o g u t , 1 9 8 8) a s i m p o r t a n t j u s t i f ic a t i o n s fo r j o i n i n g s t ra t e g ica l li a n ce s . Fo r i n s t a n c e , m a n y r e s e a r c h e r s i d e n t i f i e d r i sk c o n t ro l a n d r i s k r e d u c t i o nin R & D as a key ra t iona le fo r R & D-re l a t ed a l l i ances (Gu la t i , 1995 ; Osborn &




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B a u g h n , 1 9 9 0; T e e c e , 1 9 9 2) . O t h e r s h a v e r e f e r r e d t o r is k r e d u c t i o n i n in v e s t me n t sas a s t im u lus fo r s t ra teg i c a l l iances (H aged oorn , 1993) .In t h e p ro c e s s o f s t r a te g i c a l l ia n c e m a k i n g , r i s k c o n s i d e ra t i o n s a r e o b v i o u s l yc ru c i a l (B ro u t h e r s , B ro u t h e r s & W i l k i n s o n , 1 9 9 5 ; N u e n o & O o s t e rv e l d , 1 9 8 8 ) .H o w e v e r , c ru c i a l a s t h e y a re , r i s k c o n s i d e ra t i o n s a r e y e t t o r e c e i v e a d e q u a t e a t te n -t i on in t he l i t e ra tu re (L i t t l e r & Lever i ck , 1995) . Trad i t i ona l ly , r i sk has beend e f i n e d a s e i t h e r u n a n t i c i p a t e d v a r i a ti o n o r n e g a t i v e v a r i a t io n o n l y (M i ll e r, 1 9 9 2;M i l le r & L e i b l e i n , 1 9 9 6 ). B a s e d o n M a rc h a n d S h a p i r a ' s ( 1 9 8 7 ) f i n d i n g t h a tma n a g e r s g e n e ra l l y a s s o c i a t e r i s k w i t h n e g a t i v e o u t c o me s , i n t h i s p a p e r w ec o n s i d e r ri s k a s u n a n t i c i p a t e d n e g a t i v e v a r ia t io n . R i n g a n d V a n d e V e n (1 9 9 4 , p .9 2 ) h a v e s u g g e s t e d th a t i n t h e a l l ia n c e s t ru c t u r i n g p ro c e s s t h e p a r t n e rs a r e f a c e dw i t h t w o s e ts o f ri sk : t h o s e " r e g a rd i n g fu t u r e s t a te s o f n a t u r e " a n d t h o s e r e g a rd i n gc o o p e ra t i o n .W e p re f e r a s l ig h t l y mo d i f i e d t e rm i n o l o g y , a n d s u g g e s t t h e r e a r e t w o d i s t in c -t i ve and eq ua l ly im por t an t t ype s o f r i sk in a s tra t eg i c a ll i ance : relational risk a n dperformance risk, a d o p t i n g t h e s e f ro m o u r e a r l i e r w o rk (D a s & T e n g , 1 9 9 6 b ) .R e l a t i o n a l r i sk i s c o n c e rn e d w i t h c o o p e ra t i v e r e l a t io n s h i p s , o r t h e p ro b a b i l i ty t h a tt h e p a r t n e r d o e s n o t c o m p l y w i t h t h e s p i r it o f c o o p e ra t i o n . O p p o r t u n i s t ic b e h a v i o ro f t he pa r tne rs (W i l l iam son , 1983 , 1985) i s a t yp ica l sou rce o f re l a t i ona l r i sk . O nt h e o t h e r h a n d , p e r fo rm a n c e r i s k r e f e r s t o t h e p ro b a b i l it y t h a t i n t e n d e d s t r a te g i cg o a ls o f a n a ll ia n c e m a y n o t b e a c h i ev e d , e v e n t h o u g h c o o p e r a t i o n b e t w e e n t h epa r tne rs i s sa t i s fac to ry . Accord ing to Mi l l e r (1992 , p . 311) , t he concep t " r i sk"o f t en re fe rs t o fac to rs "e i the r ex t e rna l o r i n t e rna l t o t he f i rm tha t im pac t on the r i skexp er i en ced by th e f i rm ," i .e . , t he sou rces o f r isk . In t h i s l igh t , re la t i ona l r i sk andp e r fo rm a n c e r i s k d i f f e r in t e rms o f t h e i r s o u rc e s : th e f i r st a r i si n g f ro m f i rm- f i rmi n t e ra c t io n , a n d t h e l a tt e r f r o m f i rm -e n v i ro n m e n t i n te r a c ti o n . S i n c e t h e s e t w os o u rc e s r e p re s e n t d i f f e r e n t r e a l ms , t h e y o f f e r u s t w o i n d e p e n d e n t t y p e s o f r is k .W h a t e v e r d a m a g e i s c a u s e d b y s u b o p t i m a l c o o p e ra t i o n i s a tt r ib u t a b le t o r e la t io n a lr is k , a n d w h a t e v e r l o s s e s a re c a u s e d b y f i r m i n c o m p e t e n c i e s a n d m a r k e t u n c e r-t a in t ie s a re a sc r ibab le t o pe r fo rm anc e r i sk .

T h u s , t h e w a y w e d e f i n e r e l a t i o n a l r i s k a n d p e r fo rma n c e r i s k e x c l u d e ss y s t e ma t i c i n t e r a c ti v e c o n t a m i n a t i o n b e t w e e n t h e m , i .e ., t h e l e v e l o f o n e t y p e o fr i s k w o u l d n o t s i g n i f i c a n tl y c o r re l a te w i t h th a t o f t h e o t h e r . W h i l e i n c e r t a i n c a s e sp e r fo rm a n c e r i s k m a y c o n t r i b u t e to r e l a ti o n a l r is k , i n o t h e r c a s es a h i g h l e v e l o fp e r fo rm a n c e r i s k m a y c r e a t e a s e n s e o f cr i si s a n d mi t i g a t e r e l a ti o n a l ri s k . T h u s ,a l t h o u g h t h e r e ma y b e s i tu a t io n s i n w h i c h t h e t w o t y p e s o f ri s k s e e m t o b e r e l a t e do r d e p e n d e n t , t h e y a r e n o t s o in a c t u a li ty . Fo r e x a m p l e , i n R & D a l li a n ce s , b o t hr e l a t i o n a l r i s k a n d p e r fo rma n c e r i s k t e n d t o b e h i g h (O s b o m & B a u g h n , 1 9 9 0 ) .H o w e v e r , j u s t b e c a u s e t h e re h a p p e n s t o b e a c o m m o n f a c to r , s u c h a s R & D a c ti v-i ti e s, t h a t c o n t r i b u t e s to b o t h t y p e s o f r i sk , t h e i n d e p e n d e n c e o f th e t w o r i s k s i s n o td i s p ro v e d .I f we v i ew a s t ra t eg i c a l l i ance a s a s t ra t eg i c cho ice fo r ach iev ing ce r t a inob jec t ives , t he d i f fe rence be tween a s t ra t eg i c a l l i ance and a l l o the r s t ra t eg i cc h o i c e s c a n b e u n d e r s c o re d b y d i f f e r e n t i a ti n g r e l a ti o n a l r i s k a n d p e r fo rm a n c e r is k .W h i l e p e r fo rm a n c e r i s k i s p r e v a l e n t in a n y k i n d o f s t r at e g ic c h o i c e , r e la t io n a l r is ki s p resen t on ly in coopera t ive s t ra t eg i es , o r s t ra t eg i c a l l i ances i n ou r case . Some

J O U R N A L O F M A N A G E M E N T , V O L . 2 4 , N O . 1, 19 98



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m a y a rg u e t h a t i n t e ru n i t c o n f l ic t w i t h i n a f i rm i s a l s o a c o n s t i t u e n t o f r e l a t io n a lr is k . H o w e v e r , s i n c e w e d e f i n e re l a t io n a l ri s k a s a n i n te r f i rm p h e n o m e n o n , s u c hh a z a rd s o f i n tr a f ir rn o p p o r t u n i s m a r e n o t r e l e v a n t t o o u r d i s c u s s i o n h e re . I n d e e d ,W i l l i a ms o n (1 99 6 , p . 5 1 ) h a s c a l le d s u c h in t r a f i rm h a z a rd s " a u t o n o m o u s m a l a d -a p t a ti o n ," a s o p p o s e d t o " c o o p e r a t i v e m a l a d a p t a t io n " a m o n g f ir m s .Relational Risk

A s u c c e s s fu l s t ra t e g ic a l l i a n c e d e p e n d s s u b s t a n ti a ll y o n e f f e c t i v e c o o p e ra t i o nb e t w e e n t h e p a r t n e r s , s i n c e t h e m o t i v e fo r e n t e r i n g i n t o a n a l l i a n c e is t o e x p l o i t th eb e n e f i t s o f c o o p e ra t i o n . E v e n t h o u g h v a r i o u s t y p e s o f s t r a t e g i c a l l i a n c e s ma yd i f f e r i n th e e x t e n t o f t h e i r r e l i a n c e o n i n t e r f i rm c o o p e ra t i o n (R i n g & V a n d e V e n ,1 9 9 2) , a s a t is f a c to ry l e v e l o f mu t u a l c o o p e ra t i o n s e e m s i n d i s p e n s a b l e fo r a n y o ft h e m (L e i & S l o c u m , 1 9 91 ; Pa rk h e , 1 9 93 ). T h u s , i t w o u l d b e a s e ri o u s p ro b l e m i fo n e p a r t n e r f i rm d o e s n o t c o m m i t it s e lf t o c o o p e r a t io n , a s f u l ly e x p e c t e d b y t h eo t h e r p a r t n e r s . T h e n o t i o n o f " r e l a t i o n a l r i s k " r e f l e c t s t h i s c o n c e rn o f a p a r t n e ra b o u t p o s s i b l e d e f a u l t b y o t h e r p a r t n e r s . E c o n o mi c t h e o ry a s s u me s t h a t d e c i s i o nma k e r s a l w a y s t r y t o ma x i mi z e t h e i r u t i l i t y , a n d i t i s o n l y r e a s o n a b l e t o e x p e c te c o n o mi c i n s t i t u t i o n s t o a c t s i m i l a r l y . T h a t i s , t h e f i rms a r e s u p p o s e d t o p u r s u et h e i r s e lf - in t e r e s ts e v e n t h o u g h i t m i g h t m e a n h u r t i n g b o t h t h e i r p a r tn e r s a n d t h ej o i n t t a s k (G u l a ti , 1 9 95 ). I n m a n y c a s e s , i t s e e ms j u s t i f i e d to d o s o , b e c a u s e t h ep a y o f f f r o m c h e a t i n g c o u l d b e g r e a t e r t h a n t h a t f r o m f u l l y c o m p l y i n g w i t h t h ea g re e m e n t (Pa rk h e , 1 9 93 ) . N o t t o m e n t i o n i f t h e f i rm ' s m o t i v e is to s e c r e t lyc a p t u re t h e r e s o u rc e s o f t h e p a r t n er . S h i rk i n g , d i s to r t i n g i n fo rma t i o n , s t e a li n g t h ep a r t n e r ' s s k i l l s , c l i e n t s a n d p e r s o n n e l a r e j u s t s o me e x a mp l e s o f g u i l e fu l s e l f -i n t e r e s t s e e k in g . T h e s e k i n d s o f a c t i o n s r e f l e c t o p p o r t u n i s t i c b e h a v i o r . A s o p p o r -tun i s t i c behav io r is p rese n t on ly in coop era t ive s t ra t eg i es , re l a t iona l r i sk i s a d i rec tc o n c o m i t a n t o f p a r ti c i p a t in g i n s t r a t eg i c a l li a n ce s . I f a f i rm s t ay s a w a y f ro m a ll i-a n c e s , i t w o u l d n o t b e s u b j e c t to r e l a t io n a l r is k .I t s e e ms f ro m t h e l i t e r a t u r e t h a t i n t e r f i rm t ru s t h e l p s r e d u c e t h e c o n c e rna b o u t o p p o r t u n i s t i c b e h a v i o r (R i n g & V a n d e V e n , 1 9 92 ), a n d t h u s m i t ig a t e s r e la -t i o n a l ri sk . B y d e f i n i t io n , t r u s t r e f e rs t o t h e c o n f i d e n c e t h a t o n e w i l l f i n d w h a t i sd e s i r e d f ro m t h e p a rt n e r , r a th e r t h a n w h a t i s f e a re d (D e u t s c h , 1 9 73 ) . A p p a re n t l y ,t h e a b i l it y t o r e l y o n t r u s t l e a d s o n e t o b e l i e v e i n t h e g o o d w i l l o f t h e p a r t n e r. T h u s ,t h e d e g re e o f i n t e r f i rm t ru s t w o u l d b e n e g a t i v e l y r e la t e d t o t h e p e r c e p t i o n o f r el a -t i o n a l ri sk . I t h a s b e e n s u g g e s t e d t h a t tr u s t e n a b l e s p e o p l e t o b e v u l n e ra b l e t o t h e i rp a r t n e r s (M a y e r , D a v i s , & Sc h o o rma n , 1 9 9 5 ) , e s s e n t i a l l y t a k i n g r i s k s f ro me n g a g e m e n t , s u c h a s j o i n i n g i n a s t r a te g i c a ll ia n c e . O n t h e o t h e r h a n d , f o r t h o s ew h o a r e l e s s a b l e t o r e l y o n i n t e r f i rm t ru s t , d i f f e r e n t d e v i c e s c a n b e a d o p t e d t oc o p e w i t h r e la t i o n a l ri s k a n d d e t e r o p p o r t u n i s t i c b e h a v i o r . Fo r e x a m p l e , d e t a i l e dc o n t r a c t u a l c l a u s e s a n d s t r i n g e n t c o n t ro l me c h a n i s ms a r e u s e d a s d e t e r r e n c ed e v i c e s . M o re o v e r , s h a r e d e q u i t y o w n e r s h i p i s u s e d t o a l i g n t h e i n t e r e s t s o f t h ep a r t n e r s s o t h a t t h e t e n d e n c y t o e x p l o i t th e j o i n t e n t i t y w i l l b e c u rb e d .Performance Risk

Pe r fo rm a n c e r i s k i s t h e p ro b a b i l it y t h a t t h e s t r a te g i c o b j e c t i v e o f a n a l li a n c em a y n o t b e a c h i e v e d , g i v e n t h a t t h e b e s t p o s s i b l e c o o p e ra t i o n e x i s ts b e t w e e n t h eJ O U R N A L O F M A N A G E M E N T , V O L . 24 , N O . 1 , 1 99 8



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R E S O U R C E A N D R IS K M A N A G E M E N T 27

p a r t n e r s. Fa c t o r s e x t r a n e o u s t o c o o p e ra t i o n , s u c h a s i n c o m p e t e n c e o f p a r tn e r s , a r et h e s o u rc e s o f p e r fo rm a n c e r i sk . J u s t a s f o r a n y o t h e r s t ra t e g ic c h o i c e , a s t r a te g i ca l li a n c e c o m p e l s p a r t n e r s t o a c c e p t t h e f a c t t h a t th e i r b e s t e f fo r t s ma y n o t n e c e s -sa r i l y l ead to success . The l i t e ra tu re revea l s va r ious l abe l s fo r desc r ib ing va r iousp o s s i b l e t y p e s o f p e r fo rma n c e r i s k , i n c l u d i n g R & D r i s k , i n t e rn a t i o n a l r i s k ,c o m m e rc i a l r is k , a n d c o rp o ra t e ri s k . O b v i o u s l y , s a ti s fa c t o ry c o o p e ra t i o n h a s n o t h -i n g i n t r in s i c t o d o w i t h t h e s e p e r fo rm a n c e r i sk s . I n o t h e r w o rd s , i n e s t i m a t i n g th el e v e l o f p e r fo rm a n c e r i s k o n e a l r e a d y t a k e s a d e q u a t e c o o p e ra t i o n fo r g r a n te d . T h eo d d s o f i n s u f f i c i e n t c o o p e ra t i o n is s u b s u m e d w i t h i n t h e n o t i o n o f r e l a ti o n a l ri sk .T h o u g h p e r fo rma n c e r i s k i s n o t c o n c e rn e d w i t h c o o p e ra t i o n , f o rg i n g s t r a t e -g i c a l l i a n c e s o f t e n mi t i g a t e s t h e d e g re e o f p e r fo rma n c e r i s k f a c e d b y i n d i v i d u a lf i rms . I n d e e d , r i s k - s h a r i n g i s a n i m p o r t a n t r a ti o n a l e fo r h a v i n g a n a l li an c e . W h i l et h e c o s t a n d r is k i n R & D , m a rk e t i n g , a n d p ro d u c t i o n c o u l d b e i n o rd i n a t e l y h i g hfo r a s ing le f i rm , s t ra teg i c a l l i ances a l l ow m ul t ip l e f i rms to sha re t he to ta l cos t andr i sk . C lea r ly , t he r i sk he re re fe rs t o pe r fo rmance r i sk . The po in t i s t ha t pe r fo r -m a n c e r i sk c a n b e s h a re d b y fo rm i n g a n a l l ia n c e , w h i l e r e l at io n a l r i sk i s c r e a t e do n l y i n a l li a n ce s . A g a i n , t h e d i s t i n c t i o n b e t w e e n p e r fo rm a n c e r i s k a n d r e la t io n a lr i sk cha rac t e r i zes s t ra t eg i c a l l i ances , and thus the two types o f r i sk , t akent o g e t h e r , c o n s t i t u t e a s e c o n d d i me n s i o n fo r u n d e r s t a n d i n g t h e a l l i a n c e ma k i n gp ro c e s s .In t e rms o f o u r t a x o n o my , a s t r a t e g i c a l l i a n c e c a n b e c l a s s i f i e d a s h a v i n ge i t h e r h i g h r e l a t io n a l r i s k o r h i g h p e r fo rm a n c e r is k . T h e t w o a r e m u t u a l l y e x c lu -s i v e b e c a u s e w e d e f i n e " h i g h " a n d " l o w " i n re l a ti v e t e rms , r a t h e r th a n i n a b s o l u t et e rms . T h e s e r i s k s a r e m e a s u re d b y t h e p e r c e p t i o n s o f t h e p a r t n e rs , s i n c e i t is r i s kp e rc e p t i o n t h a t d i r e c t l y i mp a c t s t h e d e c i s i o n ma k e r s ' r i s k b e h a v i o r (S i t k i n &W e i n g a r t , 1 9 9 5) . T h u s , w h e n t h e p a r t n e r s p e r c e i v e re l a ti o n a l r i s k a s h i g h e r t h a np e r fo rm a n c e r i s k , t h e a l l ia n c e w i l l b e l a b e l e d a s h a v i n g h i g h r e l a ti o n a l ri s k, a n dv i c e v e r s a . In t h is s e n s e , t h e r e mu s t b e o n e t y p e o f r is k p e r c e i v e d a s o f h i g h e rd e g re e , e v e n i n c a s e s w h e re b o t h r i s k s a r e q u i t e h i g h . C l e a r l y , t h e r i s k t y p e o fh i g h e r d e g re e c o n c e rn s t h e p a r t n e r s mo s t (D a s & T e n g , 1 9 9 6 a ) . A n o t h e r r e a s o nw h y o n l y o n e t y p e o f r is k t e n d s to b e c o m p a ra t i v e l y h i g h i s th a t t h e r e d u c t i o n o fo n e t y p e o f r i s k o f t e n r e s u l t s i n i n c r e a s e d e x p o s u re t o t h e o t h e r t y p e o f r i s k(Mil ler , 1992) .In t h e fo l l o w i n g s e c t i o n , w e i n t e g ra t e t h e r e s o u rc e d i m e n s i o n w i t h t h e r i s kd i me n s i o n o f s t r a t e g i c a l l i a n c e s . T h e fo c u s i s o n o r i e n t a t i o n s a n d o b j e c t i v e s o fp a r t n e r s i n t h e p ro c e s s o f s t r a t eg i c a l l ia n c e m a k i n g .

Strategic Al l iance M aking O rientat ionsT h e p ro c e s s o f s t r a t e g i c a l l i a n c e ma k i n g i s k n o w n fo r i t s c o mp l e x i t y a n dd e l i c a t e n a t u r e , l e a d i n g ma n y t h e o r i s t s t o d i v i d e t h e p ro c e s s i n t o s e v e ra l s t a g e s(e .g ., Das & T eng , 1997a ; D ev l in & Bleack ley , 1988 ; Pa rkh e , 1993). R ing andV a n d e V e n ( 1 9 92 ) h a v e s u g g e s t e d t h re e s e q u e n t ia l s t e p s - - n e g o t i a t io n , c o m m i t -me n t s , a n d e x e c u t i o n s - - i n fo rg i n g a s t r a t e g i c a l l i a n c e . D e v l i n a n d B l e a c k l e yp ro v i d e d g u i d e l i n e s fo r s u c c e s s fu l a l li a n c e m a k i n g i n t e rm s o f t h r e e s t a g es : ( 1 ) t h edec i s ion to fo rm a s t ra teg i c a l li ance ; (2 ) t he cho ice o f an a l li ance pa r tne r ; and (3 )

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t h e p l a n n e d m a n a g e m e n t o f t h e a ll ia n c e . T h e r e i s o n e e l e m e n t t h a t i s c o n s i s t e n t l ys i g n i f i c a n t i n a l l t h e s e s t a g e s : t h e o r i e n t a t i o n o f e a c h p a r t n e r i n a p p r o a c h i n g t h ep r o s p e c t i v e a l l i a n c e . A p a r t n e r ' s o r i e n t a t i o n r e f e r s t o t h e a s p ec t o f t h e a l l i a n c et h a t th e p a r t n e r v i ew s a s i t s p r i o r i t y a n d t o w h i c h i t w o u l d d e vo t e m o s t o f i t se n e r g y . F o r e x a m p l e , o n e p a r tn er m a y b e o r i e n t e d to w a r d c o n t r o l l i n g th e v e n t u r e,w h i l e t h e o t h e r p a r t n e r ' s o r i e n t a t i o n c o u l d b e a b o u t s e c u r i n g i t s t e c h n o l o g y .U n d e r s t a n d i n g t h e s t r a t e g i c o r i e n t a t i o n s a n d i n t e n t i o n s o f c o mp e t i t o r s , p a r t n e r s ,a n d a l s o o n e ' s o w n i s b e c o m i n g i n c r e a s i n g l y c r u c i a l t o a f i r m ' s s u c c e s s ( H i t t e ta l ., 1 9 9 5 ; S e r a p i o & C a s c i o , 1 9 9 6 ) . T h e o r i e n t a t i o n o f a p a rt ne r r e f l e c t s t h eg e n e r a l c h a r a c t e r i s t i c s o f t h e a l l i a n c e a n d o f t h e p a r t n e r i t s e l f . Th e r e f o r e , i t i s ag e n e r a l d i r e c t i o n t h a t t h e p a r t n e r w i l l b e w o r k i n g t o w a r d . T h e c o n s i s t e n c y o f ap a r t n e r ' s o r i e n t a t i o n a c r o s s d i f f e r e n t s t a g e s o f a n a l l i a n c e u n d e r l i n e s i t s i mp o r -t a n c e . I n a d d i t i o n , s i n c e a f i r m ' s o r i e n t a t i o n g e n e r a l l y d e f i n e s i t s m o r e s p e c i f i co b j e c t i v e s ( D a s , 1 9 8 6 ) , t h e p a r m e r s w o u l d s e t o p e r a t i o n a l o b j e c t i v e s b a s e d o nt h e ir o r ie n t a t io n i n t h e a l l ia n c e . T h u s , a s t u d y o f o r i e n t a ti o n s a n d o b j e c t i v e s o f t h ep a rtn er s s h o u l d h e l p i n u n d e r s t a n d i n g t h e c o m p l e x i t i e s o f t h e a l l ia n c e m a k i n gp r o c e s s , a s w e l l a s i n p r o v i d in g u s w i t h g u i d e l in e s f o r m a n a g i n g t h a t p r o c e ss .

A p a r t n e r ' s o r i e n t a t i o n i n t h e a l l i a n c e m a k i n g p r o c e s s c a n b e e x a m i n e dt h r o u g h t h e r e s o u r c e a n d r i s k d i m e n s i o n s d e l i n e a t e d i n t h e e a r l i e r s e c t i o n s . T h er e s o u r c e d i m e n s i o n d e n o t e s t h e k i n d o f r es o u r c e t h e pa rt ne r i s w i l l i n g t o c o m m i t ,a n d t h e r i s k d i m e n s i o n i n d i c a t e s i t s m a j o r c o n c e r n w i t h t h e a l l i a n c e . W h i l e t h es t r a t e g i c b e h a v i o r s c h o o l v i e w s s t r a t e g i c a l l i a n c e s a s a w a y t o o b t a i n c o m p e t i t i v ea d v a n t a g e a n d t h u s e n h a n c e p e r f o r m a n c e ( K o g u t , 1 9 8 8 ) , o u r r e s o u r c e a n d r i skf r a m e w o r k o f f e r s a n a l t e r n a t i v e a c c o u n t o f t h e m o t i v a t i o n f o r e n t e r i n g i n t o a l l i -a n c e s . S i n c e e a c h f i r m i s o r i e n t e d t o w a r d m a x i m i z i n g t h e r e t u r n o n i t s d e d i c a t e dr e s o u r c e w h i l e m i n i m i z i n g t h e ri sk , re s o u r c e a n d r is k s er v e a s k e y d e t e r m i n a n t s o ft h e p a r t n e r ' s o r i e n t a ti o n . R e f e r r i n g t o T a b l e 1 , a p a r t ic u l a r p a rt ne r w o u l d f a l l i n t o

Ta ble 1 . S trateg ic Al l iance M aking OrientationsAlliance R esource

Risk TypeHigh Relational Risk High Performance Risk

Cell 1Financial Ob jec t i v e : S h a r eof E quity

Or i en t a t i on : CONTROLCell 3

Technological Ob jec t i v e : P a t e n tSafeguardsO r i e n t a t i o n : SECURITY

Cell 5Physical Ob jec t i v e : EmbeddednessO r i e n t a t i o n : STABILITY

Cel l 7Managerial Ob jec t i v e : Key Positions

O r i e n t a t i o n : AUTHORITY

Cell 2Objective: Exit ProvisionsOr i en t a t i on : PROFITABILITY

Cell 4Ob jec t i v e : LicensingOr i en t a t i on : UTILITY

Cell 6Ob jec t i v e : RecurrentContractsOr i en t a t i on : FLEXIBILITY

Cell 8Ob jec t i v e : Alliance ManagersOr i en t a t i on : EFFICIENCY

JOURNAL OF MANAGEMENT, VOL. 24, NO. 1, 1998



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o n e o f t h e e i g h t c e l ls , d e p e n d i n g o n t h e m a j o r t y p e o f r e s o u r c e i t c o n tr i b u te s a n dt h e m a j o r r i sk o f t h e d e al . I t s h o u ld b e n o t e d , th o u g h , t h a t o n e f i r m c o u l d p r o v i d em u l t i p l e r e s o u r c e s t o t h e a l l i a n c e . F o r e x a m p l e , l a r g e m u l t i n a t i o n a l c o r p o r a t i o n s( M N C s ) o f t e n p r o v i d e f i n a n c ia l , t e c h n o l o g i c a l, a s w e l l a s s o m e m a n a g e r i a lr e s o u r c e s t o t h e i r l o c a l p a r t n e r s. I n t h a t c a s e , t h e i r o r i e n t a t io n i s l i k e l y t o b e i n f l u -e n c e d m o r e b y t h e t y p e o f r e s o u r c e t h at i s d e e m e d t o b e i m p o r t a n t. I n d e e d , o r i e n -t a ti o n m e a n s a n e m p h a s i s o n a c e r t a i n a s p e c t o f th e d e a l , b u t n o t n e c e s s a r i l yi g n o r i n g o t h e r a s p e c t s. I t is a l s o p o s s i b le t h a t t h e p a r t n e r h a s m o r e t h a n o n e p r i o r -i t y a t a n y o n e t i m e , d u e t o t h e m u l t i p l e r e s o u r c e s i t b r i n g s i n t o a n a l l i a n c e . B y t h es a m e t o k e n , a n a l l ia n c e m a y i n v i t e b o th h i g h r e l a ti o n a l r is k a n d s o m e p e r f o r m a n c er is k , b u t i t is t h e m o r e s e v e r e o n e t h a t h a s t o b e d e a l t w i t h i n t e r m s o f p r i o ri t y .Financial ResourceC a p i ta l m a r k e t s a r e o f t e n i m p e r f e c t i n p r o v id i n g f u n d s t o t h o s e f i r m s w h i c ha r e i n v o l v e d i n n e w b u t r i s k y p r o j e c t s ( H e n n a r t , 1 9 8 8) . O n e r e a s o n i s t h a t a b a n k e rh a s l i m i t e d c o n t r o l o v e r t h e b o r r o w e r ' s a c t i v it y , i f t h e r e i s n o t e n o u g h c o l l a t e ra l .H o w e v e r , o t h e r f i rm s w h i c h a p p r e c ia t e t h e v a l u e o f t h e se r is k y p r o j e c ts m a y n o tb e r e s t r a in e d i n t h e s a m e w a y . C o n s e q u e n t l y , c o ll a b o r a ti v e a r r a n g e m e n t s in w h i c ho n e p a r t n e r p r o v i d e s f i n a n c i a l r e s o u r c e t o a n o t h e r p a r t n e r h a v e b e e n c o m m o n( B o r y s & J e m i s o n , 1 9 8 9; N u e n o & O o s t e r v e l d , 1 9 8 8 ). I n m a n y a ll i a n c e s w i t h R &D c o m p o n e n t s , f i r m s a c t u a l l y i n v e s t a n d t a k e e q u i t y p o s i t i o n s i n o t h e r f i r m s( G u l a t i , 1 9 9 5 ) . T h e l i t e r a t u r e l a b e l s s u c h e q u i t y t r a n s f e r a n d c r e a t i o n a s e q u i t ya l l i a n c e ( P i s a n o & T e e c e , 1 9 8 9) . A c c o r d i n g to H a m e l , D o z , a n d P r a h a l a d ( 1 9 8 9 ) ,a k e y d i f f e r e n c e b e t w e e n W e s t e r n a n d J a p a n e s e f i r m s i n a l li a n c es i s t h a t W e s t e r nc o m p a n i e s o f t e n e n t e r a n a l l i a n c e t o a v o i d i n v e s t m e n t , i . e . , t o s e e k f i n a n c i a lr e s o u r c e f r o m o t h e r s . J a p a n e s e c o m p a n i e s , i n c o n t r a s t , a r e d r i v e n m o r e b y t h ene ed to l ea rn sk i l l s .

Cell 1. C e l l 1 r e p r e s e n t s t h e c o n d i t i o n i n w h i c h a f i r m c o n t r i b u t e s f i n a n c i a lr e s o u r c e , a n d r e l a t i o n a l r i s k o f t h e a l l i a n c e i s h i g h . F r o m t h e i n v e s t i n g f i r m ' sp e r s p e c t i v e , i t p u t s i n t h e m o n e y b u t d o e s n o t t r u s t t h e p a r t n e r . N a t u r a l l y , t h eo r i e n t a t i o n o f t h e p a r t n e r i s o n t h e c o n t r o l o f t h e a l l i a n c e . T h a t i s , t h e i n v e s t i n gp a r t n e r w a n t s t o m a k e s u r e t h a t t h e u s e o f f i n a n c i a l r e s o u r c e is a p p r o p r ia t e . B yd e f i n i t i o n , " c o n t r o l r e f e r s to t h e p r o c e s s b y w h i c h o n e e n t i t y i n f lu e n c e s , t o v a r y i n gd e g r e e , t h e b e h a v i o r a n d o u t p u t o f a n o t h e r e n t i ty " ( G e r i n g e r & H e b e r t, 1 98 9, p .2 3 6 ) . I n a s t r a t e g i c a l l i a n c e , s t r o n g c o n t r o l m e a n s t h a t o n e f i r m c a n o v e r r u l e t h es t r a te g i c d e c i s i o n b y t h e p a r t n e r ( R o o t , 1 9 88 ) .B l e e k e a n d E r n s t ( 1 9 9 5 , p . 9 8 ) h a v e c i t e d t h e c a s e o f o n e p a r t n e r s ta t in g " w ec a n u s e a n a l l i an c e t o r a is e c a p i ta l w i t h o u t g i v in g u p m a n a g e m e n t c o n t ro l ," a n dt h e y h a v e r i g h t l y c r i t i c i z e d s u c h s e l f - d e c e p t i o n . I n d e e d , t o b e l i e v e t h a t t h e i n v e s t -i n g p a r t n e r w o u l d n o t p u r s u e c o n t r o l o v e r t h e v e n t u r e i s w i s h f u l t h in k i n g . H e n n a r t( 1 9 8 8 ) h a s p o i n t e d o u t t h a t i n j o i n t v e n t u r e s t h e i n v e s t i n g p a r t n e r o f t e n r e l ie s o nh i e r a r c h i c a l c o n t r o l a s t h e m e a n s t o r e d u c e r i s k . F o r t h o s e w h o t a k e a n e q u i t yp o s i t i o n i n a n o t h e r f i r m , i t o f t e n m e a n s p u t t i n g t h e i r p e o p l e o n t o t h e o t h e r p a r t -n e r ' s b o a r d o f d i r e c t o r s a s a w a y t o m o n i t o r a n d c o n t r o l i ts a c t i v it y .T h u s , e q u i t y i n v e s t m e n t a n d h i g h r e l a t i o n a l r i s k s t i m u l a t e t h e n e e d f o rc o n t r o l . I r o n i c a l l y , t h e m e a n s f o r c o n t r o l s ti ll l i es i n t h e s h a r e o f e q u i t y o w n e r s h i p .

J O U R N A L O F M A N A G E M E N T , V O L . 24 , N O . I , 1 99 8



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Th e r e f o r e , t h e o b j e c t iv e o f t h e i n v e s t i n g f i rm i s o n a p r o p e r s h a r e o f e q u i t y o w n e r -sh ip . O n the one han d , to exe rc i se ma jo r i ty con t ro l , the inves t ing pa r tne r i s l ike lyto in s is t on a m a jo r i ty equ i ty sha re . Af te r a l l , equ i ty pos i t ion rep resen ts the pow erto in f luen ce the d i rec t ion o f the jo in t en t i ty (Koo t , 1988 ; S ohn , 1994). A te l linge x a m p le i s p r o v id e d b y t h e w a y A m e r i c a n f ir m s f o r m a l li a n c es w i th I n d i a n l o ca lf i rms (Yosh ino & Rangan , 1995) . In the 1970s , when the Ind ian governmen tp roh ib i ted fo re ign f i rms f rom ow ning a m a jo r i ty s take in loca l subs id ia r ie s, U .S .f i r m s l i k e I B M a n d C o c a - C o la e l e c t e d t o l e a v e t h e c o u n t r y r a th e r t h a n l o s econ t ro l . Subsequen t ly , a f te r the governmen t re laxed i t s r e s t r i c t ions in the ea r ly1990s , bo th IBM and Coca-Co la reen te red the marke t , th i s t ime wi th equa l o rm a jo r i ty equ i ty con t ro l in p lace.On the o the r hand , s ince re la t iona l r i sk i s s ign i f ican t and the poss ib i l i ty o foppor tun is t i c behav io r is h igh in C e l l 1 , the inves t ing pa r tne r wou ld l ike to havethe o the r pa r tne r pu t in a ce r ta in amoun t o f inves tmen t a l so . S ign i f ican t equ i tyinves tm en t by bo th pa r tne rs he lps a l ign the i r in te res ts , because then the inves t ingpar tne rs beco m e mutua l hos tages , de te r r ing oppor tun is ti c behav io r (Gu la t i , 1995;W i l l i amson , 1983). In th is sense , an equ i ty sha re i s " subs tan t ia l" w hen i t can se rvebo th a s incen t ive -gene ra to r and hos tage s fo r the pa rtne rs. T here fo re , a l though theinves t ing pa r tne r wi l l seek a ma jo r i ty ownersh ip , i t wi l l a l so in s i s t on a s izab lesha re o f equ i ty own ersh ip by the o th e r par tne r. B ecause the inves t ing pa r tne r hasto s t r ike such a de l ica te ba lance , it i s no w on der tha t the ob jec t ive in th is type o fa l l i ance mak ing s i tua t ion i s on the re la t ive sha re o f equ i ty . Under o the r cond i -t ions , e .g . , when the pa r tne rs con t r ibu te o the r re sources o r when they do no tp e r c e iv e h ig h r e l a ti o n a l ri sk , t h e y w o u ld n o t b e e x p e c t e d t o b e p r e o c c u p i e d w i thequ i ty con t ro l . Ba sed on th is d i scuss ion , w e have the fo l lowin g p ropos t ion :

PI: In al l iances wi th high relat ional r isk , the partners who contr ibutef inan cial resources w i l l pre fer control l ing equi ty ow nership fo r them-selves, an d substan t ial equi ty ow nership b y o ther parties .CeU2 . In Ce l l 2 , the pa rmer con t r ibu tes f inanc ia l r e source to the jo in ten t i ty , ye t i s conce rned abou t h igh pe r fo rmance r i sk . Though the pa r tne rs t rus teach o the r , the jo in t s t ra teg ic coopera t ion seem s to be ve ry r i sky in t e rms o f bus i-ness pe r fo rm ance . T here fo re , the o r ien ta t ion o f the inves t ing pa r tne r i s to ensu retha t i t wi l l be a p ro f i tab le inves tm en t . S ince h ig h pe r fo rm ance r i sk a ler t s the pa rt -ne r to the i s sue o f sa t i s fac to ry re tu rn , p ro fi t ab i li ty beco m es the p r io r i ty in the a l li -ance m ak ing p rocess . In m any cases , equ i ty inves tm en t is s i tua t ion -spec i f ic and soi s ha rd to recove r in fu ll (Pa rkhe , 1993 ; Wi l l i am son , 1985). Such non recove rab leinves tmen t inc reases the bu rden on the inves to r . The inves t ing pa r tne r i s l ike ly ,the re fo re , to have an o r ien ta t ion tha t expec ts the a l l i ance to be p ro f i t ab le enou ghto jus t i fy the p e r fo rm ance r i sk .In an example p rov ided by Niede rkof le r (1991 , p . 245) , a l a rge d ive rs i f i edf i r m w h ic h p r o v id e d m o n e y t o f u n d a s m a l l f i n n ' s a n t i b o d y r e s e a r c h d e m a n d e dthe " fa l se secu r i ty o f specu la t ive num bers , " exac t ly because the re w as an uneas i -ness abou t the inhe ren t unce r ta in ty o f th i s new bus iness . S uch p reoccup a t ion wi thp ro f i tab i l ity , o r od ds , can a l so be i l lu s t ra ted by Japanese -U .S . a l l iances re la ted to




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RESOURCE AND RISK MANAGEMENT 31

t h e i n fo rm a t i o n s u p e rh i g h w a y (A rm s t ro n g & H o l y o k e , 1 9 94 ). I n c o n t ra s t t o th e i rme g a -d e a l s i n o t h e r i n d u s t r i e s , t h i s t i me a ro u n d t h e J a p a n e s e h a v e b e e n v e ryc o n s e rv a t i v e . T h e r e a s o n i s t h a t t h e y l a c k t h e n e c e s s a ry k n o w l e d g e a n d e x p e r i -e n c e a b o u t th e p ro s p e c t s o f t h e i n fo rm a t i o n s u p e rh i g h w a y . S i n c e u n c e r t a in t y a n dp e r fo rma n c e r i s k a r e h i g h , t h e y a r e mo re c o n c e rn e d w i t h t h e p ro f i t a b i l i t y o f t h ei n v e s t me n t . C o n s e q u e n t l y , th e J a p a n e s e i n v e s t e d w i t h c a r e fu l d i s c r i mi n a t i o n , a n dt o o k o n l y mi n o r i t y e q u i t y p o s i t i o n s i n t h e s e a l l i a n c e s . S i n c e c o n t ro l i s n o t t h en a m e o f th e g a m e i n t h e C e l l 2 s i tu a t io n , th e y l e t th e A m e r i c a n s t a k e c h a rg e o f it.O n e s p e c i f ic o b j e c t i v e to b e a c h i e v e d in t h e a l li a n c e ma k i n g p ro c e s s , t h o u g h ,i s to i nco rp ora t e ex i t p rov i s ions in t he con t rac t . In o the r wo rds , t he inve s t ing pa r t-n e r s h o u l d a t t e mp t t o m a k e i ts i n v e s t m e n t as r e c o v e ra b l e a s p o s s i b le . E x i t p ro v i -s i o n s s h o u l d s p e c i fy t h a t o n e p a r t n e r h a s t h e o b l i g a t i o n t o s e l l a n d t h e o t h e rp a r t n e r h a s t h e r i g h t t o b u y t h e v e n t u re a c c o rd i n g t o a s p e c i fi c p r i c in g fo rm u l a , i ncase the a l l i ance has t o be t e rmina ted . C lea r ly , such ex i t p rov i s ions a l low thei n v e s t i n g p a r tn e r t o r e d u c e i t s i n v e s t m e n t r is k . B l e e k e a n d E rn s t ( 1 9 9 5 ) h a v ed i s c u s s e d t h e i mp o r t a n c e o f e x i t p ro v i s i o n s i n t h e c a s e o f t h e S i e me n s / A l l i s -C h a l me r s a l l i a n c e , i n w h i c h S i e me n s w a s g i v e n t h e r i g h t t o p u rc h a s e t h e j o i n tv e n t u re l a te r . A c c o rd i n g t o a n A l l is -C h a l m e r s n e g o t i a to r , " i f w e t a l k e d a b o u t t h ej o i n t v e n t u re a g r e e m e n t fo r t h r e e m o n t h s , w e t a l k e d a b o u t t h e e x it c la u s e fo r t w om on ths " (B leek e & Erns t , 1995 , p . 102). In sum , the ob jec t ive o f sa ti s fac to ry ex i tp ro v i s i o n s h e l p s t o i mp ro v e t h e o v e ra l l p ro f i t a b i l i t y p i c t u r e o f t h e i n v e s t me n t ,t h ro u g h a r e l a ti v e ly e a s y s p i n -o f f (Sh a u g h n e s s y , 1 99 5) . T h u s :

P 2 : I n a l l i a n c e s w i t h h i g h p e r f o r m a n c e r i s k , t h e p a r t n e r s w h o c o n t r i b -u t e f i n a n c i a l r e s o u r c e s w i l l d e m a n d e x p l i ci t e x it p r o v i s i o n s i n th econ t rac t .

Technological ResourceT e c h n o l o g y r e f e rs t o t h e e x p e r t i s e p e r t i n e n t t o t h e p ro d u c t , a n d i s a k e yp ro d u c t i v e r e s o u rc e o f a f i rm . I t i s n o t e a s y t o c o p y t h e t e c h n o l o g y b e l o n g i n g t o

o t h e r f i rms , n o t o n l y b e c a u s e i t i s d u l y s a f e g u a rd e d , b u t a l s o b e c a u s e i t is u s u a l l yp ro t e c t e d b y t h e p a t e n t s y s t e m. T h e p a t e n t s y s t e m e n s u re s t h e f i rm ' s e x c l u s i v eu s a g e o f c e r t a i n ty p e s o f te c h n o l o g y fo r a s p e c i f i e d p e r i o d o f t ime . T h u s , t o h a v ea c c e ss t o t e c h n o l o g i ca l r e s o u rc e o w n e d b y o t h e r fi r m s b e c o m e s o n e o f t h e m o s tlog ica l mo t ives fo r en t e r ing in to s t ra t eg i c a l l i ances (Hagedoorn , 1993) . A t t heo t h e r e n d , t h o s e w h o p o s s e s s t e c h n o l o g i c a l r e s o u r c e m a y l a c k o t h e r n e e d e dresources , such as cap i t a l o r d i s t r i bu t ion channe l s , t o exp lo i t t he i r t echno log ica la d v a n t a g e . I n t h e b i o -p h a rm a c e u t i c a l in d u s t ry , fo r e x a m p l e , i t is o f t e n t h e s m a l lb i o t e c h n o l o g y f ir m s w h o o w n t h e p a te n t s b u t n e e d t o r e ly o n l a rg e p h a r m a c e u t i c a lf i rms fo r p ro d u c t i o n a n d ma rk e t i n g c a p a c i ty . T h e p o i n t to b e a r i n m i n d i s th a t a na l l i ance does no t mean a f ree t rans fe r o f t echno logy . Ra the r , i t r e fe rs t o e i t he r ap l a n n e d a c c e s s t o t e c h n o l o g y ( so t h a t j o i n t o b j e c t i v e s c a n b e a c h i e v e d , s u c h a s i nj o i n t v e n t u re s ) , o r t h e s a l e o f t e c h n o l o g y fo r a l im i t e d t e rm ( s u c h a s i n l i c e n si n g ) .Cell 3. W h e n a f i rm p ro v i d e s t e c h n o l o g i c a l r e s o u rc e b u t d o e s n o t t ru s t th eg o o d w i l l o f i ts p a r t n e r , i t w i ll b e c o n c e rn e d w i t h p ro t e c t i n g it s t e c h n o l o g y . T h u s ,t e c h n o l o g y s e c u r i ty b e c o m e s t h e f i rm ' s o r i e n t a t io n i n t h e a l li a n c e ma k i n g p ro c e s s .

JOURNAL OF MANAGEMENT, VOL. 24, NO. 1. 1998



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3 2 T . K . D A S A N D B I N G - SH E N G T E N G

D u e t o t h e n a t u r e o f c o o p e ra t i o n , i t i s u s u a l l y h a rd t o p ro t e c t t e c h n o l o g y a n dk n o w -h o w (O s b o rn & B a u g h n , 1 9 9 0 ) . Y o s h i n o a n d R a n g a n (1 9 9 5 , p . 1 2 8 ) h a v ed e s c r i b e d a n a l l i a n c e b e t w e e n a U . S . a n d a T a i w a n e s e f i rm . A f t e r s e c r e tl y c o ll e c t-i n g c o n s i d e ra b l e t e c h n o l o g i c a l i n fo rm a t i o n f ro m i t s U . S . p a r t n e r i n t h e i r t w o -y e a ra l li a n c e , t h e T a i w a n e s e f i rm e n t e r e d th e U . S . ma rk e t a n d b e c a m e a d ir e c t c o m p e t -i t o r . H a v i n g l e a rn t a l e s s o n , t h e U . S . f i rm l a t e r f o rme d a n o t h e r a l l i a n c e w i t h a nA s i a n p a r t n e r , th i s t i me w i t h e x p l i c it c la u s e s t o s a f e g u a rd i ts t e c h n o l o g y . H a m e l( 1 9 9 1 ) a l s o p r o v i d e s a n e x a m p l e r e g a r d i n g a J a p a n e s e f i r m ' s h i d d e n a g e n d a o fs e c r e t l y c a p t u r i n g i t s p a r t n e r ' s t e c h n o l o g y . I n t i me , t h e J a p a n e s e f i rm r e a c h e d ap o s i t i o n t o b e a b l e to a s k " N o w w h a t a r e y o u g o i n g t o d o fo r u s " (H a m e l , 1 99 1, p .88 ) . In s i t ua t ions l i ke th i s , ex i s t i ng ba rga ins w i l l t end to beco m e obso le t e and thet e r m i n a t io n o f t h e a l li a nc e b e c o m e s m o r e p r o b a b le . F o r t h o s e w h o p r o v i d e t e c h -no lo g ica l re source to t he a l l iance , suc h a scena r io is l ike a n igh tm are . Ha m el e t al.( 1 9 8 9 , p . 1 36 ) h a v e u rg e d f i rm s i n s u c h s i tu a t io n s t o " d e v e l o p s a f e g u a rd s a g a i n s tu n i n t e n d e d , i n fo rm a l tr a n s f e r o f in fo rm a t i o n . "O n e o f t h e s a f e g u a rd s a f i rm c a n r e l y o n i s t h e p ro t e c t i o n o f t h e p a t e n ts y s t e m, s i n c e i n fo rma l t r a n s f e r s o f p a t e n t s i s n o t p o s s i b l e . T h u s , t o s e e k s t ro n gp a t e n t s a f e g u a rd s s h o u l d b e t h e o b j e c t i v e o f t h e f i rm . M o re s p e c i f ic a l ly , th e f i rms h o u l d a l l o w t h e p a r t n e r a c c e s s o n l y t o t h o s e p a t e n t e d t e c h n o l o g i e s w h i c h t h ep a r t n e r c a n n o t f r e e ly c o p y o r a p p l y o n i ts o w n . A s l o n g a s th e t e c h n o l o g y s h a re di n t h e a l l i a n c e i s p a t e n t e d a n d o w n e d b y t h e f i rm , i t s k e y r e s o u rc e i s n o t l o s t .B l e e k e a n d E rn s t ( 1 9 9 5 ) h a v e d e s c r i b e d a n a l l i a n c e b e t w e e n t w o p h a rma c e u t i c a lc o mp a n i e s t h a t l a s t e d fo r t e n y e a r s . D u r i n g t h e p e r i o d , s i n c e o n e f i rm k e p t t h ep a t e n t , i t r e t a i n e d i t s p o w e r o v e r t h e o t h e r p a r t n e r a n d f i n a l l y b o u g h t o u t t h ev e n t u re . T h e p o i n t i s th a t w h e n r e l a ti o n a l r is k i s h i g h , t e c h n o l o g i c a l e x p o s u re i sb e s t l i m i t e d t o p a t e n t e d t e c h n o l o g y . N e v e r t h e l e s s , " c r i t i c a l t e c h n o l o g y o f t e nr e s id e s i n n o n - p a te n t a b le k n o w - h o w o r k n o w - w h o " ( F r a y n e & G e r i n ge r , 1 99 0, p .5 8 ). F o r u n p a t e n t e d k n o w - h o w , a f i r m c o u l d a t te m p t t o r e d u c e t h e t r a n sp a r e n c y o ft h e t e c h n o l o g y , a n d t o l im i t t h e s c o p e o f t h e a g re e m e n t ; e v e n w h e re t e c h n o l o g i c a lt r a n s f e r s a r e u n a v o i d a b l e , a n i n c r e me n t a l , p e r fo rma n c e -b a s e d a p p ro a c h i s mo rep ru d e n t th a n a w h o l e s a l e a g re e m e n t (H a m e l e t a l. , 1 9 8 9) . B y c o m p a r i s o n , s u c h afo c u s o n t h e p ro t e c t i o n o f t e c h n o l o g y w o u l d b e u n l i k e l y i n o t h e r s i t u a t i o n s . Fo ri n s t an c e , w h e n a f i rm d o e s n o t c o n t r i b u t e t e c h n o l o g i c a l re s o u rc e s , o r i s n o t p a r ti c -u l a r l y c o n c e rn e d w i t h l o s i n g t e c h n o l o g y u n i n t e n t i o n a l l y ( i. e. , l o w r e l at io n a l r i s k) ,i t t e n d s t o fo c u s o n s o m e o t h e r a s p e c t s o f t h e a l li a n ce . H e n c e :

P3: In a l l iances with h igh relat ional r isk , the partners who contr ibutetechno log ica l resources w i l l focu s on pro tec t ing the i r t echno log ies f romunau thorized transfer , usual ly through l imit ing exposure to pa ten tedt ech n o lo g i e s .

C e l l 4. W h e n a f i rm c o n t r ib u t e s i ts t e c h n o l o g i c a l re s o u rc e t o a n a l li a n ce , as e c o n d s c e n a r i o i s w i t h h i g h p e r fo rm a n c e r i sk . I n t h is c a s e , t h e p a r t n e r s t r u st e a c ho t h e r b u t a r e c o n c e rn e d a b o u t t h e r i s k i n e s s o f t h e v e n t u re . T h e re fo re , t h e o r ie n t a -t i o n o f t h e p a r t n e r w i t h t e c h n o l o g y i s t o e n h a n c e t h e u t il it y , o r u s e fu l n e s s , o f i tst e c h n o l o g y , s o th a t t h e v e n t u re c a n s u c c e e d . T h e t e rm " u t i li t y " c a r r ie s t w o m e a n -J O U R N A L O F M A N A G E M E N T , V O L . 24 , N O . 1 , 1 99 8



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R E S O U R C E A N D R IS K M A N A G E M E N T 3 3

ings . F i rs t , i t r e fe r s to the use fu lness o f the t echno logy i t se l f. S ince techn o logy i sw ha t the pa r tne r con t r ibu tes , the f i r st th ing i t can do to con t ro l h igh pe r fo rm ancer i sk is to improv e i ts t echno log ica l u se fu lness . Fo r man y em erg ing techno log ies ,se t t ing h igh des ign s tandards i s c ruc ia l fo r the fu tu re o f the t echno logy (Le i &Slocum, 1991) . In indus t r ie s re la ted to the in fo rma t ion supe rh ighway , manyA m e r i c a n f i rm s r e a c h o u t t o m a jo r Ja p a n e s e f i r m s i n o r d e r t o s u r r o u n d t h e m s e lv e s"wi th an a l l i ance o f peop le who a re wor ld -c la ss s tanda rd se t te r s" (Armst rong &Holyoke , 1994 , p . 28 ) . In the second sense , t echno log ica l u t i l i ty re fe r s to theuse fu lness o f the t echn o logy to the fLrm, i .e . , the eco nom ic re tu rns f ro m the tech -n o lo g y . H e n c e , t h e f i r m h a s t o i n c r e a s e t h e o u tp u t f r o m th e t e c h n o lo g y b y m a k in gi t access ib le to m ore pa r tne rs . T he f i rm can t ry to e i the r reap inc reased bene f i tsf rom the tec hno logy , o r be t te r con t ro l the pe r fo rm ance r i sk th rough a po r t fo l io o fpa r tne rsh ips . N e tscape , fo r exam ple , has been busy fo rg ing a l l iances , in wh ich i tl i c e n s e s i t s N a v ig a to r s o f tw a r e f o r I n t e r n e t t o c o m p a n ie s s u c h a s A T& T a n dA m e r i c a O n l in e ( Le w i s , 1 99 6). S in c e t h e c o m p e t i t io n w i th M ic r o s o f t ' s E x p lo r e ri s in tense , l i cens ing to mul t ip le pa r tne rs ho lds the key to b r ing ing p rom pt f inan -cial results .S ince the o r ien ta t ion o f the f i rm i s toward imp rov ing the "u t i l ity" o f i ts t ech -no logy , the spec i f ic ob jec t ive o f the f i rm shou ld be to l i cense the t echno logy to a sm any pa r tne rs a s poss ib le . Indeed , empi r ica l s tud ies sho w tha t l i cens ing is p re fe r -a b l e w h e n t h e p e r f o r m a n c e r i s k is h ig h , s i n c e o n ly t h e n c a n t h e f i rm a v o id h e a v yinvo lvem en t (Con t rac to r , 1984). E x tens ive l i cens ing seem s to be an op t ion whic hsa ti s fie s bo th the ra t iona les w e m en t ioned . F i r s t, l i cens ing to ma ny pa r tne rs a l lowsthe f i rm to reach an ea r ly s tanda rd iza t ion o f des ign (Le i & S locum , 1991). I t he lpsc o n t r o l th e p a c e o f i n d u s tr y e v o lu ti o n . Th e d ig i ta l v id e o d i s k (D V D ) w a r b e tw e e ntw o c a m p s , To s h ib a /T im e Wa r n e r a n d So n y /Ph i l i p s , h a s m o s t l y b e e n a b o u tse t ting an indus t ry s tanda rd fo r D V D (Ho lyoke & A rmst rong , 1995) . Wh a t l ed toTosh iba /Time Warner ' s ea r ly success i s the i r open , f l ex ib le l i cens ing approach ,wh ich a t t r ac ted o the r e lec t ron ics comp an ies to com e on boa rd . Sony and Ph i l ip s,in con tra s t , sca red awa y H ol ly w oo d cus tom ers because o f the i r rig id i ty in l i cens -ing p rac t ice . S econd , ex tens ive l i cens ing means co l lec t ing cons ide rab le roya l ti e sra the r qu ick ly . Th e f i rm i s ab le to cap i ta l ize on i ts t ech no log ica l innova t ion fa s t(Le i & Slocum, 1991) , e spec ia l ly when the re i s s t i l l a lo t o f pe r fo rmance r i sk .Also , l i cens ing con t ro l s h igh pe r fo rm ance r i sk , because the f i rm avo ids pu t t ing a l li ts t ech no log ica l eggs in one a l l i ance baske t. Ind eed , econom is t s have rea l izedtha t l i cens ing and f ranch is ing rep resen t a long- run m arke t so lu t ion to r i sk d ive rs i -f i ca t ion p rob lem s (M ar t in , 1988). W e m ay thus have :

P 4 : I n a l l ia n c e s w i t h h i g h p e r f o r m a n c e r is k , th e p a r t n e r s w h o c o n t r ib -u te t e chno log ica l r e sou rces w i l l p re fe r to l ic ense the te chno logy tom u l t i p l e p a r t n e r s .

Physical ResourcePhy s ica l re source re fe r s to raw mate r ia l s , compon en ts , and d i s t r ibu t ion chan-ne l s p rov ided by a f i rm. Though phys ica l r e source a lone i s no t l ike ly to p rov idesus ta inab le com pe t i t ive advan tage (R eed & DeF i l lipp i , 1990) , phys ica l a s set s a re




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34 T.K. DAS AND BING-SHENG TENG

a n i n d i s p e n s a b l e p a r t o f a v a l u e c h a i n . I n m o s t o p e ra t i o n s , v a lu e i s a d d e d t o r a wma t e r i a l s a n d c o mp o n e n t s , a s w e l l a s t h ro u g h t h e d i s t r i b u t i o n p ro c e s s (R o o t ,1 98 8) . H o w e v e r , r a w ma t e r i a l s a n d d i s t ri b u t i o n c h a n n e l s a r e n o t a l w a y s a v a i l a b lea t a d e s i r e d p r i c e, d u e t o i n e f f i c i e n c i e s i n t h e ma rk e t . T h e re fo re , s e c u r i n g p h y s i c a lr e s o u rc e c o n s t i tu t e s o n e m a j o r m o t i v e fo r e n t e r i n g i n t o a s t r a te g i c a l l ia n c e (C h i ,1 99 4). E x a m p l e s o f s u c h a l li a n c e s in c l u d e j o i n t v e n t u re s b e t w e e n a l u m i n u m fi rmsa n d f i rms w h i c h p ro v i d e b a u x i t e (H e n n a r t , 1 9 8 8) , l o n g - t e rm c o n t ra c t s b e t w e e ncoa l supp l i e rs and e l ec t r i c u t i l i t i e s ( Joskow, 1985) , and con t rac tua l ne tworksc o n s i s t i n g o f ma n u fa c t u r e r s a n d t h e i r d e a l e r s (Sk i n n e r , D o n n e l l y , & Iv a n c e v i c h ,1 9 87 ). F o r a p a r t i c u la r f i rm , t h e a l li a n c e c o u l d b e v e r t ic a l ly fo rw a rd o r b a c k w a rd ,d e p e n d i n g o n t h e d i r e c t i o n o f e x p a n s i o n (H e n n a r t , 1 98 8) .

CeUS . W h e n r e l a t i o n a l r i s k i s h i g h , t h e fu 'm w h i c h s u p p l i e s p h y s i c a lre sou rce w i l l be o r i en t ed tow ard s t ab i li t y , o r a s t ab l e re l a t i onsh ip wi th the pa r tne r .S i n c e p e r fo rma n c e r i s k i s r e l a t i v e l y l o w , t h e f i rm i s n o t p a r t i c u l a r l y c o n c e rn e dw i t h p o s s i b l e d i s s o l u t i o n o f t h e a l l i a n c e d u e t o p e r fo rma n c e s h o r t f a l l s . I n s : e a d ,o p p o r t u n i s t ic b e h a v i o r a n d c h e a t i n g a r e t h e r e a l t h r e a t t o th e a l li a n ce , g i v e n t h a tt h e r e i s i n s u f f i c ie n t t r u s t b e t w e e n t h e p a r t n er s . T h u s , t o c r e a t e a c o n d i t i o n u n d e rw h i c h h e a l t h y c o l l a b o ra t i o n c a n b e s u s t a i n e d b e c o m e s t h e p r i o r it y fo r th e f i rm . Int h i s o r i e n t a t i o n , a f i rm w o u l d e n d e a v o r t o a d o p t v a r i o u s me c h a n i s ms t o c u rbp o s s i b l e o p p o r t u n i s t i c b e h a v i o r.T h e o v e ra l l o b j e c t iv e s h o u l d b e t o e mb e d t h e p a r t n e rs d e e p l y in a n a l li a n c eso tha t t hey a re l e ss l ike ly to beh ave op por tu n i s t i ca l ly (Provan , 1993). Th ere a res e v e ra l a p p ro a c h e s t o a c h i e v i n g t h a t g o a l. F i r s t, t h e l e v e l o f e m b e d d e d n e s s ise n h a n c e d b y e x t e n d i n g t h e d u r a t i o n o f t h e a l l i a n c e ( P r o v a n & G a s s e n h e i m e r ,1994) . T he ra t iona le i s t ha t exp ec te d fu tu re in t e rac t ion has t he so -ca l l ed " sha dowo f t h e fu t u r e " e f f e c t, s o t h a t th e p a r t n e r s w o u l d t e n d t o b e m o re r e s p o n s i b l e (H e i d e& M i n e r , 1 9 9 2) . T h e re fo re , w h e n t h e c o n t r a c t e d d u ra t i o n o f a c o o p e ra t i v e r e l a ti o ni n c re a s e s , t h e p a r t n e r s w o u l d b e mo re w i l l i n g t o r e s o l v e t h e i r c o n f l i c t s (R i n g &V a n d e V e n , 1 9 9 4) . A c c o rd i n g t o J o s k o w (1 9 8 5 ), t h e p a r tn e r s t e n d t o s ig n l o n g -t e rm a g re e me n t s i f " r e l a t i o n a l i n v e s t me n t " i s h i g h . C l e a r l y , w i t h s i mu l t a n e o u sp re s e n c e o f h i g h r e l a t i o n a l i n v e s t me n t a n d r e l a t i o n a l r i s k , l o n g - t e rm c o n t r a c t sp ro v i d e a c e r ta i n d e g re e o f n e e d e d a s s u ran c e .T h e s e c o n d a p p ro a c h i s t o fo rma l i z e t h e r e l a t i o n s h i p a s mu c h a s t h e y c a n .Fo r i n s ta n c e , D y e r (1 9 9 5 ) r e c o u n t s th e t r a n s fo rm a t i o n f ro m a rm s - l e n g t h r e l at io n -s h i p t o s u p p l i e r p a r t n e r s h i p s b e t w e e n C h ry s l e r a n d i t s s u p p l i e r s o f c o mp o n e n t s .Su p p l i e r p a r t n e r s h i p s a r e s u p p o s e d n o t o n l y t o l a s t l o n g e r , b u t a l s o h a v e t i g h t e ri n t e g ra t i o n . I n a s t u d y o f n e t w o rk s , Sk i n n e r e t a l . ( 1 9 8 7 ) fo u n d t h a t t h e mo refo rm a l i z e d n e t w o rk s , e . g ., c o rp o ra t e n e t w o rk s , e x e rc i s e d b e t te r c o n t ro l t h a n l e s sf o r m a l i z e d n e t w o r k s .

N e v e r t h e l e s s , s o me t i me s l o n g - t e rm c o n t r a c ts a n d fo rm a l c o n t r a c tu a l p a r t n e r -sh ips a re no t su f f i c i en t o r feas ib le . A cco rd in g to Hen nar t (1988) , i n a supp l i e r -b u y e r c o n t r a c t o v e r a l o n g t i m e s p a n , i t is d i f f i c u l t t o p ro t e c t e a c h p a r t n e r b y s p e c -i f y in g a ll p o s s i b le c o n t i n g e n c i e s . H o w e v e r , a c o n t r a c t w h i c h r e m a i n s i n c o m p l e t ee x p o s e s t h e p a r t ie s t o o p p o r t u n i s t i c b e h a v i o r i n r e n e g o t i a t io n . S i m i la r l y , i n am a n u fa c t u r e r -d i s t r i b u t o r r e l a ti o n s h i p , a lo n g - t e rm c o n t r a c t m a y b re a k d o w n d u et o c h a n g e s i n t h e e n v i ro n me n t . I n t h e s e c a s e s , a n e q u i t y a l l i a n c e , o r a n a l l i a n c eJOURNAL OF MANAGEMENT, VOL. 24, NO. 1, 1998



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R E S O U R C E A N D R I SK M A N A G E M E N T 35

w h i c h r e q u i r e s e q u i t y i n v e s t m e n t f r o m b o t h p a r t n e r s , i s a b e t t e r c h o i c e . E q u i t yi n v e s t m e n t i n c r e a s e s t h e e m b e d d e d n e s s o f t h e p a r t n e r s , a s t h e y a r e n o w h e l dh o s t a g e b y e a c h o t h e r ( W i l l i a m s o n , 1 9 8 3 ) . W i t h e q u i t y o w n e r s h i p , t h e p a r t n e r sa re d e e p l y e m b e d d e d i n t h e j o i n t e n t i ty b e c a u s e i t b e c o m e s d i f fi c u lt to w i t h d r a wf r o m t h e d e a l . M o r e o v e r , s h a r e d e q u i t y o w n e r s h i p a l i g n s t h e in t e r e s ts o f t h e p a r t -n e r s , a n d o p p o r t u n i s t i c b e h a v i o r b e c o m e s l e s s l i k e l y e v e n w i t h o u t d e t a i l e dc o n t r a c t s s p e c i f y i n g a ll c o n t i n g e n c i e s ( P a r k h e , 1 9 9 3 ).O n e e x a m p l e i s t h e a l l i a n c e b e t w e e n T h o r n - E M I , a B r i t i s h e n t e r t a i n m e n tc o m p a n y , a n d L . M . E r ic k s s on , a S w e d i s h t e le c o m m u n i c a t io n s c o m p a n y ( L ew i s ,1 9 92 ). S i n c e t h e B r i ti s h t e l e c o m m u n i c a t i o n m a r k e t w a s r e g u l a te d u n t i l t h e m i d -1 9 8 0 s , a f o r e i g n f i r m c o u l d e n t e r t h e m a r k e t o n l y t h r o u g h a n a l l i a n c e w i t h a B r it -i s h c o m p a n y . T h u s , T h o r n w a s c o n c e r n e d t h a t E r i c k s s o n m i g h t e v e n t u a l l y e n t e rt h e m a r k e t b y i t s e l f , i f t h e m a r k e t w e r e t o b e d e r e g u l a t e d . I n t h i s c a s e , T h o r np r o v i d e d m a r k e t i n g c h a n n e l s a n d t h e r e l a t i o n a l r i s k w a s h i g h . T o p r e v e n t t h ep o t e n t i a l f u t u r e s c e n a r i o o f a n E r i c k s s o n e n t r y u n d e r d e r e g u l a t i o n , T h o r n i n s i s t e do n h a v i n g a 5 1 - 4 9 j o i n t v e n t u r e , a s w e l l a s v e t o p o w e r o n a l l m a j o r d e c i s i o n s .T h a n k s t o t h i s a l l i a n c e c o n f i g u r a t i o n , T h o r n w a s a b l e t o c o n t i n u e w i t h t h i s v a l u -a b l e a l l i a n c e , e v e n a f t e r t h e B r i t i s h t e l e c o m m u n i c a t i o n m a r k e t w a s t h r o w n w i d eo p e n t o f o r e i g n f i n n s . C l e a rl y , d e e p e m b e d d e d n e s s i n .h e f o r m o f a n e q u i ty a ll i-a n c e h e l p e d T h o r n s e c u r e t h e r e l a t i o n s h i p . T h u s :

P5: In a l l iances w i th h igh re la t iona l r isk, t he par tne rs wh o con t r ibu tephys i ca l resources w i l l s t r i ve t o embed the par tners deep ly i n t he a l l i -ance , u sua l l y t h rough a longe r a l l i ance dura t ion , t i gh t er in t egra t ion ,a n d s h a r ed eq u i ty o w n er s h i p .Cell 6 . T h e f i r m w h i c h p r o v i d e s p h y s i c a l r e s o u r c e w i ll b e o r i e n t e d t o w a r df l ex ib i l i t y , i f pe r f o r mance r i sk , r a the r t han r e l a t i ona l r i sk , i s h igh in a s t r a t eg i ca l l ia n c e ( S u n o o , 1 9 9 5 ). I n t h i s c a s e , o n e i s n o t s u r e o f t h e p r o s p e c t s o f t h e c o o p e r -a t iv e a r r a n g e m e n t , d u e t o t h e u n c e r t a i n t i e s i n th e m a r k e t . F o r e x a m p l e , a d i s t ri b u -

t o r w h i c h p r o v i d e s m a r k e t i n g c h a n n e l s t o a m a n u f a c t u r e r c o u l d b e c o n c e r n e da b o u t t h e p r o s p e c t o f t h e p r o d u c t . A f i r m w h i c h s u p p l i e s a u t o p a r t s t o t h e B i gT h r e e a u t o m a k e r s m a y e x p e c t t h e i n d u s t r y t o s u f f e r a d o w n t u r n i n a f e w y e a r s ,a n d s t a r t t o w o r r y a b o u t i t s r e l a t i o n a l i n v e s t m e n t , d e s p i t e i t s a g r e e m e n t s w i t ht h e m . T h e r e f o r e , t o e n a b l e t h e f i r m t o c o p e w i t h p o s s i b l e s e t b a c k s , i t n e e d s t o b ef l ex i b l e a n d r e s p o n s i v e t o m a r k e t c h a n g e s . I n d e e d , i t h a s b e e n r e p o r t e d th a t m o s ts u c c e s s f u l a l l i a n c e s s h i f t d r a m a t i c a l l y d u r i n g t h e f i r s t f e w y e a r s o f t h e a l l i a n c e( S h e r m a n , 1 9 9 2 ) . I n c o n t r a s t t o e m b e d d e d n e s s , f l e x i b i l i t y m e a n s b e i n g i n a p o s i -t i o n w h i c h a f fo r d s e a s y w i t h d r a w a l . I n o t h e r w o r d s , t h e f i r m s h o u l d n o t r o u t i n e l yl e t i t s p h y s i c a l r e s o u r c e b e d e d i c a t e d s p e c i f i c a l l y t o t h e a l l i a n c e . L o r a n g e a n dP r o b s t ( 1 9 8 7 ) h a v e , t h e r e f o r e , s u g g e s t e d t h a t j o i n t v e n t u r e s o p e r a t i n g a s s e lf - o rg a -n i z i n g s y s t e m s t h a t e n h a n c e t h e l e v e l o f f le x i b i li t y a re m o r e s u c c e s s f u l .T o a c h i e v e p h y s i c a l r e s o u r c e f l e x i b i l i t y , t h e o b j e c t i v e o f t h e f i r m s h o u l d b eo n r e c u r re n t c o n t ra c t s, w h i c h w o u l d i n v o l v e r e p e a t e d a g r e e m e n t s c o n t i n g e n t u p o np r i o r p e r f o r m a n c e ( R i n g & V a n d e V e n , 1 9 92 ). T h e a d v a n t a g e o f re c u r r e n tc o n t r a c t s i s th a t t h e f i r m i s a b l e to d i s

Journal of Management 1998 Das 21 42

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