You are on page 1of 23

Journal of Management

http://jom.sagepub.com/ Resource and Risk Management in the Strategic Alliance Making Process
T. K. Das and Bing-Sheng Teng Journal of Management 1998 24: 21 DOI: 10.1177/014920639802400103 The online version of this article can be found at: http://jom.sagepub.com/content/24/1/21

Published by:
http://www.sagepublications.com

On behalf of:

Southern Management Association

Additional services and information for Journal of Management can be found at: Email Alerts: http://jom.sagepub.com/cgi/alerts Subscriptions: http://jom.sagepub.com/subscriptions Reprints: http://www.sagepub.com/journalsReprints.nav Permissions: http://www.sagepub.com/journalsPermissions.nav Citations: http://jom.sagepub.com/content/24/1/21.refs.html

>> Version of Record - Feb 1, 1998 What is This?

Downloaded from jom.sagepub.com by guest on January 28, 2013

Journal of Management 1998, Vol. 24, No. I, 21-42

Resource and Risk Management M the Strategic Alliance Making Process
T. K. Das Bing-Sheng Teng
City University of New York, Baruch College Resource-based and risk-based views of strategic alliances have not been adequately reflected in the literature. This paper identifies four types of critical resources that the partners bring to an alliance: financial, technological, physical, and managerial resource. It also suggests two basic types of risk in strategic alliances: relational risk and performance risk. The alliance making process is examined in terms of the interactive effects of resource and risk on the orientations and objectives of the prospective alliance partners. Managerial implications are discussed and future research directions indicated in the form of propositions for empirical testing.

Strategic alliances have emerged in recent years as a popular strategy in an environment in which fast access to up-to-date technology and emerging markets is more critical than ever (Deeds & Hill, 1996; Mitchell & Singh, 1996; Yoshino & Rangan, 1995). Such an environment has been called "hypercompetitive," and appears to be the direction in which business is moving (D'Aveni, 1994). Generally speaking, strategic alliances are considered a form of cooperative arrangement between organizations. Even so, there is some ambivalence when it comes to precisely classifying what types of cooperative arrangements can be termed strategic alliances. Researchers who are in favor of a more inclusive approach maintain that virtually all kinds of interfirm arrangements should be called strategic alliances (Borys & Jemison, 1989; Forrest, 1992; Lei & Slocum, 1991; Murray & Mahon, 1993; Stafford, 1994). In this approach, under the rubric of strategic alliance, there are various kinds of arrangements: joint ventures, equity investment, licensing, joint R & D arrangement, technology swap, buyer-supplier relationship, and others. On the other hand, some researchers have adopted a more restricted view, and have sought to make a distinction between strategic alliances and other cooperative arrangements (Devlin & Bleackley, 1988; Yoshino & Rangan, 1995). To them, strategic alliances refer only to those deals in which the parent firms are
Direct all correspondence to: T.K. Das, Department of Management, School of Business, Baruch College, City University of New York, 17 Lexington Avenue, New York, NY 10010; Fax: 212-802-6873, e-mail: <tk das @baruch.cuny.edu

Copyright © 1998 by JAI Press Inc. 0149-2063
21

Downloaded from jom.sagepub.com by guest on January 28, 2013

1985). i. e. We believe that it is not central for the purpose of this paper to differentiate between narrowly defined strategic alliances and other types of interfirm cooperative arrangements. Prahalad and Hamel (1990) demonstrated how the focus on core competence was instrumental in GTE and NEC shifting their strategic positions.. and resource-based view of the firm (Eisenhardt & Schoonhoven. these two dimensions capture the critical concerns of prospective alliance partners. 1992).g. 1996).K. 1991). equity investment. 1993).22 T. Conner. 1998 Downloaded from jom. We will adopt the broader view of strategic alliances. The purpose of this paper is to examine the orientations and objectives of the partners in the strategic alliance making process predicated upon two key dimensions-resource and risk. Thus. and managerial. long-term interdependence. these two dimensions are integrated and the orientations and objectives of the alliance partners are identified under different conditions. it seems that only a few selected kinds of cooperative arrangements would qualify as strategic alliances. The significance of integrating the two dimensions is that many key issues of strategic alliances. DAS AND BING-SHENG TENG tied to each other in a substantive manner. It has been argued that it is the firm-specific resources which directly lead to a firm's competitive advantage (Barney. in which we differentiate between relational risk and performance risk of strategic alliances.sagepub. Thus. firms would attempt to obtain maximum returns from the resources they commit to the alliances. 1995. a Firm's resources are "those (tangible or intangible) assets which are tied semipermanently to the firm. 1991).com by guest on January 28. Resource-Based View of Strategic Alliances There is no dearth of theoretical frameworks dealing with strategic alliances. 1993). strategic behavior model (Hagedoorn. which includes all the cooperative arrangements that are mentioned above. which consists of the four key types of resource: financial. technological. 1995). while the risk dimension portrays what the firm may fear most. some theorists suggest that the resource-based view may constitute a new theory of the firm (e. 1984). 24. p. joint R & D. Popular theories that have been applied to strategic alliances include transaction cost economics (Williamson. The paper is divided into three parts. in this narrower conception. rather than on the basis of its products (Wemerfelt. VOL. and structural arrangements (Osborn & Baughn. and would include joint ventures. According to Wemerfelt (1984. opportunistic behavior and interfirm trust (Gulati. shared control. can be better understood through this integrated framework. while paying close attention to the risks they are exposed to (Ring & Van de Ven." JOURNAL OF MANAGEMENT.e. NO. We first introduce the resource dimension. exchange theory (Gulati. Thus. 1996a). game theory (Parkhe. 2013 . 1.g. physical. The resource dimension addresses what the firm contributes to the alliance. and joint marketing.. The resource-based approach examines competition based on the resources possessed by the firm. Naturally. We follow with a discussion on a risk-based view of an alliance. 1990). In the last section. and continued contributions by the parents.. We also discuss the managerial implications of the integrated framework and develop research propositions for empirical testing in the final section. Zaheer & Venkatraman. 1991). dialectical model (Das & Teng. resource diversity (Parkhe. 172). 1995).

Kogut. Hennart. Blodgett (1991). and so on. 1988. are identified as a premise for successful alliances (Parkhe. and government suasion. marketing. Several studies have examined various types of resource that a firm might deliver to an alliance (Blodgett. 1998 Downloaded from jom. Though there are some studies examining the effects of resources in strategic alliances (Blodgett. the resource-based view informs us that various types of firm-specific resource would have different kinds of effects on the alliance making process. Badaracco (1991). On the one hand. 1991. Grant.g. while intangible resources may include technology. Hence. 1988. yet which are critical for improving its competitive position. 1993. for example. Existing studies have not systematically examined the effects of each major type of resource in strategic alliances. 1991). skilled personnel. On the other hand. existing studies on strategic alliances lack a theoretical focus on the question of resources. p. Hennart. capital. this paper identifies four basic types of resource that the partners bring to an alliance. 28). they are mostly from other theoretical perspectives (e. Hidden agendas tend to come into play with greater intensity regarding intangible resources than for tangible resources. In the field of strategic alliances. If a firm's core competence is built on its unique resources. 1993. for instance.RESOURCE AND RISK MANAGEMENT 23 Thus. a resource-based view is yet to be fully developed. and reputation (Hofer & Schendel. Chi (1994) suggested technology. 1. Pisano & Teece. human.. strategic alliances are about accessing resources that a particular firm does not already possess. 2013 . In the resource-based view. 1991. Stafford. In essence. observed that embedded knowledge of the firm. Lyles & Reger. 1989). 1988. local knowledge and marketing skill. transaction cost economics and the bargaining model). and management competence as three distincJOURNAL OF MANAGEMENT. 1988). 1994. Parkhe. Therefore. then a strategic alliance as a way of pooling the core competencies of various partners should be critically related to the type of resource contributed by each partner. a firm-specific resource.com by guest on January 28. Tangible resources may include physical assets and financial assets. 1994). strategic alliances have become an attractive alternative to mergers and acquisitions as a means to acquire resources. 1995). a particular firm may attempt to learn the skills or to steal the resources possessed by another firm through forming an alliance (Hamel. VOL. 1992. or "a 'fit' between partners" (Forrest. and proposes a more comprehensive and integrated resource-based view of strategic alliances. precisely because alliances usually are faster and cheaper ways for accessing resources (Lei. 1995).sagepub. Indeed. 1991). Indeed. 1978. examined three types of resource contributed by the partners of an international joint venture: technology. Reciprocal strengths and complementary resources. technology. 1993). however. Lyles & Reger. a key motive for entering alliances is to combine the resources of the partners (Devlin & Bleackley. machinery. Thus. NO. the concept of "resource" is multidimensional and it can be differentiated into several key types of resources (Barney. Firm-specific resources include brand names. one hidden agenda for entering a strategic alliance could be to gain access to firmspecific resources otherwise unavailable to a company. 24. and are the source of abovenormal returns. drives the firms into strategic alliances. 1991. managerial expertise. Chi. these firm-specific assets are costly to copy.

and loan capital. The alliance making process can thus be viewed in part as a process of seeking complementary resources. NO. March & Shapira. 1. many researchers identified risk control and risk reduction in R & D as a key rationale for R & D-related alliances (Gulati. and identified the following types of resource possessed by the venture that are independent of those of the parent firms: R & D.K. functional expertise. For example. Risk sharing or risk controlling have been proposed in other studies (e. are likely to worry about securing that technology. For instance.sagepub.. For example. a firm's competitive advantage would need to be built on an organic combination of various types of resource it possesses (Chi. we submit that those types of firm-specific resources which are significant in strategic alliances can be classified into four basic categories: financial. 1995). Physical resource covers raw materials. Lyles and Reger (1993) adopted a joint venture's perspective. only natural that we see so many firms reaching out to other firms who hold resources complementary to their own. According to Thompson (1967). DAS AND BING-SHENG TENG tive resources in alliances. 1998 Downloaded from jom. Osborn & JOURNAL OF MANAGEMENT. distribution. These and other differences will be discussed in detail later in the paper in conjunction with the risk dimension. the types of resource that firms contribute constitute a key dimension in understanding their orientations and objectives in prospective alliances. According to Harrison et al. In this sense." such as patents (Chi. Based on an analysis of the various types of resource mentioned in the literature. financial. Financial resource refers to the availability of capital. and distribution channels provided by the firm (Grant. 1994. but would be unlikely to generate sustainable competitive advantage in today's environment of intensified competition (Barney. 1991). independent facilities. and managerial resource. A reliance solely on any single type of resource may well work in the short term. 271). therefore. Know-how in functional areas such as operations and marketing thereby fall in this category. since strategic decision making is inevitably concerned with assessing odds for successful performance (Baird & Thomas. It is. and physical location. Clearly. 1985. the control of uncertainties and risks in one's environment forms the essence of management. Hennart (1988) identified the following inputs into a joint venture: raw material and components. oftentimes valuable synergy is created by combining different (or complementary) rather than similar (or supplementary) resources. Kogut. VOL. In addition. 1987). physical.g. Finally. technological. Risk-Based View of Strategic Alliances Risk is a significant factor in strategic management.com by guest on January 28. we broadly define managerial resource as upper-level people and the skills necessary for effectively running a business organization. knowledge. 24. 2013 . while those who provide technological resource such as patents. those who contribute financial resource would be more concerned with return on their investment. 1995. Finally.24 T. production capacity. 1988) as important justifications for joining strategic alliances. (1991). Reed and DeFillippi (1990) argued that physical assets alone do not help a firm in building sustainable competitive advantage. Technological resource means the "secret know-how or superior R & D capability. 1994).

and suggest there are two distinctive and equally important types of risk in a strategic alliance: relational risk and performance risk. p." i. 1983. While performance risk is prevalent in any kind of strategic choice. VOL. Traditionally. Brouthers & Wilkinson. they are not so in actuality. 1985) is a typical source of relational risk. While in certain cases performance risk may contribute to relational risk. in R & D alliances. However. risk considerations are yet to receive adequate attention in the literature (Littler & Leverick. We prefer a slightly modified terminology. 1. just because there happens to be a common factor. Since these two sources represent different realms. Opportunistic behavior of the partners (Williamson. Miller & Leiblein. 1992. Relational risk is concerned with cooperative relationships.com by guest on January 28. In this light. On the other hand. Nueno & Oosterveld. Teece.. 1998 Downloaded from jom. 1990.e. they offer us two independent types of risk. However. According to Miller (1992. such as R & D activities.e. 1992). 1990). Whatever damage is caused by suboptimal cooperation is attributable to relational risk.. Thus. or the probability that the partner does not comply with the spirit of cooperation. that contributes to both types of risk. 311). NO. Based on March and Shapira's (1987) finding that managers generally associate risk with negative outcomes. and the latter from firm-environment interaction. If we view a strategic alliance as a strategic choice for achieving certain objectives. in other cases a high level of performance risk may create a sense of crisis and mitigate relational risk. 1996). 1995. Thus. relational risk and performance risk differ in terms of their sources: the first arising from firm-firm interaction. the independence of the two risks is not disproved. the sources of risk.sagepub. Others have referred to risk reduction in investments as a stimulus for strategic alliances (Hagedoorn. i. the difference between a strategic alliance and all other strategic choices can be underscored by differentiating relational risk and performance risk. even though cooperation between the partners is satisfactory. both relational risk and performance risk tend to be high (Osbom & Baughn. adopting these from our earlier work (Das & Teng. 92) have suggested that in the alliance structuring process the partners are faced with two sets of risk: those "regarding future states of nature" and those regarding cooperation. For example. 1996b). 24. In the process of strategic alliance making. 1995). the concept "risk" often refers to factors "either external or internal to the firm that impact on the risk experienced by the firm. Some JOURNAL OF MANAGEMENT. although there may be situations in which the two types of risk seem to be related or dependent. risk considerations are obviously crucial (Brouthers. relational risk is present only in cooperative strategies. crucial as they are. 2013 . the level of one type of risk would not significantly correlate with that of the other. performance risk refers to the probability that intended strategic goals of an alliance may not be achieved. p.RESOURCE AND RISK MANAGEMENT 25 Baughn. in this paper we consider risk as unanticipated negative variation. and whatever losses are caused by firm incompetencies and market uncertainties are ascribable to performance risk. 1988). or strategic alliances in our case. Ring and Van de Ven (1994. 1993). risk has been defined as either unanticipated variation or negative variation only (Miller. the way we define relational risk and performance risk excludes systematic interactive contamination between them.

distorting information. DAS AND BING-SHENG TENG may argue that interunit conflict within a firm is also a constituent of relational risk. For example. 1995). 1." as opposed to "cooperative maladaptation" among firms. a satisfactory level of mutual cooperation seems indispensable for any of them (Lei & Slocum. it would not be subject to relational risk. it seems justified to do so. for those who are less able to rely on interfirm trust. 1992).com by guest on January 28. and it is only reasonable to expect economic institutions to act similarly. In many cases. K . That is. given that the best possible cooperation exists between the JOURNAL OF MANAGEMENT. By definition. 24. relational risk is a direct concomitant of participating in strategic alliances. VOL. such hazards of intrafirrn opportunism are not relevant to our discussion here. stealing the partner's skills. detailed contractual clauses and stringent control mechanisms are used as deterrence devices. The notion of "relational risk" reflects this concern of a partner about possible default by other partners. trust refers to the confidence that one will find what is desired from the partner. the firms are supposed to pursue their self-interests even though it might mean hurting both their partners and the joint task (Gulati. because the payoff from cheating could be greater than that from fully complying with the agreement (Parkhe. 1993). as fully expected by the other partners. These kinds of actions reflect opportunistic behavior. NO. different devices can be adopted to cope with relational risk and deter opportunistic behavior. & Schoorman. 51) has called such intrafirm hazards "autonomous maladaptation. 1992). the ability to rely on trust leads one to believe in the goodwill of the partner. Relational Risk A successful strategic alliance depends substantially on effective cooperation between the partners. and thus mitigates relational risk. such as joining in a strategic alliance. clients and personnel are just some examples of guileful selfinterest seeking. rather than what is feared (Deutsch. Apparently. If a firm stays away from alliances. shared equity ownership is used to align the interests of the partners so that the tendency to exploit the joint entity will be curbed. 1995). 2013 . essentially taking risks from engagement.sagepub. However. 1993). Economic theory assumes that decision makers always try to maximize their utility. Shirking. 1991. Thus. As opportunistic behavior is present only in cooperative strategies. On the other hand. the degree of interfirm trust would be negatively related to the perception of relational risk. Moreover. 1998 Downloaded from jom. Parkhe. since the motive for entering into an alliance is to exploit the benefits of cooperation. It seems from the literature that interfirm trust helps reduce the concern about opportunistic behavior (Ring & Van de Ven. Even though various types of strategic alliances may differ in the extent of their reliance on interfirm cooperation (Ring & Van de Ven. Indeed. it would be a serious problem if one partner firm does not commit itself to cooperation. Davis. since we define relational risk as an interfirm phenomenon. Williamson (1996. p. Performance Risk Performance risk is the probability that the strategic objective of an alliance may not be achieved. It has been suggested that trust enables people to be vulnerable to their partners (Mayer. Not to mention if the firm's motive is to secretly capture the resources of the partner.26 T . 1973). Thus.

sagepub. the distinction between performance risk and relational risk characterizes strategic alliances. and (3) JOURNAL OF MANAGEMENT. Das & Teng. since it is risk perception that directly impacts the decision makers' risk behavior (Sitkin & Weingart. Devlin & Bleackley.g. 24. risk-sharing is an important rationale for having an alliance. the risk here refers to performance risk. such as incompetence of partners. strategic alliances allow multiple firms to share the total cost and risk. In this sense. including R & D risk. and corporate risk. Again. Ring and Van de Ven (1992) have suggested three sequential steps--negotiation. 1995). constitute a second dimension for understanding the alliance making process. rather than in absolute terms. Clearly. Parkhe. Though performance risk is not concerned with cooperation. In the following section. international risk. satisfactory cooperation has nothing intrinsic to do with these performance risks. commitments. the risk type of higher degree concerns the partners most (Das & Teng. 1988. while relational risk is created only in alliances. the alliance will be labeled as having high relational risk. The odds of insufficient cooperation is subsumed within the notion of relational risk. The literature reveals various labels for describing various possible types of performance risk. The two are mutually exclusive because we define "high" and "low" in relative terms. Another reason why only one type of risk tends to be comparatively high is that the reduction of one type of risk often results in increased exposure to the other type of risk (Miller. marketing. and production could be inordinately high for a single firm. 1996a). leading many theorists to divide the process into several stages (e. These risks are measured by the perceptions of the partners. 1998 Downloaded from jom. VOL. 2013 . and vice versa. Devlin and Bleackley provided guidelines for successful alliance making in terms of three stages: (1) the decision to form a strategic alliance. and executions--in forging a strategic alliance. The focus is on orientations and objectives of partners in the process of strategic alliance making. in estimating the level of performance risk one already takes adequate cooperation for granted. a strategic alliance can be classified as having either high relational risk or high performance risk. and thus the two types of risk. The point is that performance risk can be shared by forming an alliance. when the partners perceive relational risk as higher than performance risk. 1997a. Clearly. Obviously. even in cases where both risks are quite high. Thus. we integrate the resource dimension with the risk dimension of strategic alliances. 1993). forging strategic alliances often mitigates the degree of performance risk faced by individual firms. (2) the choice of an alliance partner. are the sources of performance risk. a strategic alliance compels partners to accept the fact that their best efforts may not necessarily lead to success. Just as for any other strategic choice. In other words. NO. 1. In terms of our taxonomy.. there must be one type of risk perceived as of higher degree. Strategic Alliance Making Orientations The process of strategic alliance making is known for its complexity and delicate nature.com by guest on January 28. 1992). commercial risk. taken together. While the cost and risk in R & D. Indeed. Factors extraneous to cooperation.RESOURCE AND RISK MANAGEMENT 27 partners.

There is one element that is consistently significant in all these stages: the orientation of each partner in approaching the prospective alliance.K. For example. The consistency of a partner's orientation across different stages of an alliance underlines its importance. Since each firm is oriented toward maximizing the return on its dedicated resource while minimizing the risk. one partner may be oriented toward controlling the venture. Therefore. Referring to Table 1. 1986). While the strategic behavior school views strategic alliances as a way to obtain competitive advantage and thus enhance performance (Kogut. partners. and the risk dimension indicates its major concern with the alliance. it is a general direction that the partner will be working toward. 2013 . Thus. resource and risk serve as key determinants of the partner's orientation. A partner's orientation in the alliance making process can be examined through the resource and risk dimensions delineated in the earlier sections.. a particular partner would fall into Table 1.sagepub. 1988). a study of orientations and objectives of the partners should help in understanding the complexities of the alliance making process. 1998 Downloaded from jom. since a firm's orientation generally defines its more specific objectives (Das. In addition. StrategicAlliance Making Orientations Alliance Resource Financial Risk Type High Relational Risk High Performance Risk Cell 1 Objective: Shareof Equity Orientation: CONTROL Cell 3 Objective: PatentSafeguards Orientation: SECURITY Cell 5 Objective: Embeddedness Orientation: STABILITY Cell 7 Objective: Key Positions Orientation: AUTHORITY Cell 2 Objective: Exit Provisions Orientation: PROFITABILITY Technological Cell 4 Objective: Licensing Orientation: UTILITY Cell 6 Objective: RecurrentContracts Orientation: FLEXIBILITY Cell 8 Objective: Alliance Managers Orientation: EFFICIENCY Physical Managerial JOURNAL OF MANAGEMENT. and also one's own is becoming increasingly crucial to a firm's success (Hitt et al. 24. Serapio & Cascio. our resource and risk framework offers an alternative account of the motivation for entering into alliances. 1996). DAS AND BING-SHENG TENG the planned management of the alliance. the parmers would set operational objectives based on their orientation in the alliance. 1. The orientation of a partner reflects the general characteristics of the alliance and of the partner itself. The resource dimension denotes the kind of resource the partner is willing to commit.28 T.com by guest on January 28. VOL. while the other partner's orientation could be about securing its technology. Understanding the strategic orientations and intentions of competitors. 1995. as well as in providing us with guidelines for managing that process. NO. A partner's orientation refers to the aspect of the alliance that the partner views as its priority and to which it would devote most of its energy.

the investing partner wants to make sure that the use of financial resource is appropriate. Bleeke and Ernst (1995. One reason is that a banker has limited control over the borrower's activity. large multinational corporations (MNCs) often provide financial. According to Hamel. and relational risk of the alliance is high. are driven more by the need to learn skills. a key difference between Western and Japanese firms in alliances is that Western companies often enter an alliance to avoid investment. orientation means an emphasis on a certain aspect of the deal. Naturally. I. as well as some managerial resources to their local partners. Cell 1. NO.. It is also possible that the partner has more than one priority at any one time. By the same token. it puts in the money but does not trust the partner. the means for control still lies in the share of equity ownership. to varying degree. other firms which appreciate the value of these risky projects may not be restrained in the same way. Japanese companies. That is. Cell 1 represents the condition in which a firm contributes financial resource. Hennart (1988) has pointed out that in joint ventures the investing partner often relies on hierarchical control as the means to reduce risk. 1989. p. Nueno & Oosterveld. though. 1989). to seek financial resource from others. In many alliances with R & D components. but not necessarily ignoring other aspects. p." and they have rightly criticized such self-deception. 236). 1995). 1998 Downloaded from jom. However. Indeed. 2013 . firms actually invest and take equity positions in other firms (Gulati. 1989. 24. if there is not enough collateral. it often means putting their people onto the other partner's board of directors as a way to monitor and control its activity. For those who take an equity position in another firm. "control refers to the process by which one entity influences. to believe that the investing partner would not pursue control over the venture is wishful thinking. their orientation is likely to be influenced more by the type of resource that is deemed to be important. Doz. an alliance may invite both high relational risk and some performance risk. the behavior and output of another entity" (Geringer & Hebert. Indeed. equity investment and high relational risk stimulate the need for control. Financial Resource Capital markets are often imperfect in providing funds to those firms which are involved in new but risky projects (Hennart. 1988). and Prahalad (1989). i. 1988). that one firm could provide multiple resources to the alliance. the orientation of the partner is on the control of the alliance. Thus.sagepub. collaborative arrangements in which one partner provides financial resource to another partner have been common (Borys & Jemison. depending on the major type of resource it contributes and the major risk of the deal. technological. strong control means that one firm can overrule the strategic decision by the partner (Root. By definition. but it is the more severe one that has to be dealt with in terms of priority. 1988). Ironically. in contrast.e. VOL. In that case. The literature labels such equity transfer and creation as equity alliance (Pisano & Teece. 98) have cited the case of one partner stating "we can use an alliance to raise capital without giving up management control. JOURNAL OF MANAGEMENT. In a strategic alliance. From the investing firm's perspective. For example. Consequently. It should be noted.com by guest on January 28. due to the multiple resources it brings into an alliance.RESOURCE AND RISK MANAGEMENT 29 one of the eight cells.

In the 1970s. it is no wonder that the objective in this type of alliance making situation is on the relative share of equity. Williamson. 1995).sagepub. and substantial equity ownership by other parties. can also be illustrated by Japanese-U. therefore. Since high performance risk alerts the partner to the issue of satisfactory return. yet is concerned about high performance risk. 1988. 1985). K . 2013 . we have the following propostion: PI: In alliances with high relational risk. 1. p.com by guest on January 28. both IBM and Coca-Cola reentered the market. Based on this discussion. it will also insist on a sizable share of equity ownership by the other partner. Therefore. profitability becomes the priority in the alliance making process. since relational risk is significant and the possibility of opportunistic behavior is high in Cell 1. alliances related to JOURNAL OF MANAGEMENT. because then the investing partners become mutual hostages. Under other conditions. On the other hand. 245). The investing partner is likely. the investing partner is likely to insist on a majority equity share. e. the investing partner would like to have the other partner put in a certain amount of investment also. the parmer contributes financial resource to the joint entity. the objective of the investing firm is on a proper share of equity ownership.g.S. In this sense. firms like IBM and Coca-Cola elected to leave the country rather than lose control. 1983). Subsequently. equity investment is situation-specific and so is hard to recover in full (Parkhe. Significant equity investment by both partners helps align their interests. to have an orientation that expects the alliance to be profitable enough to justify the performance risk. 1993. 1994). a large diversified firm which provided money to fund a small finn's antibody research demanded the "false security of speculative numbers. Therefore. an equity share is "substantial" when it can serve both as incentive-generator and hostages for the partners.S. the joint strategic cooperation seems to be very risky in terms of business performance. the partners who contribute financial resources will prefer controlling equity ownership for themselves. the orientation of the investing partner is to ensure that it will be a profitable investment. deterring opportunistic behavior (Gulati. 1995. CeU2. to exercise majority control. U. or odds. when the partners contribute other resources or when they do not perceive high relational risk. NO." exactly because there was an uneasiness about the inherent uncertainty of this new business. equity position represents the power to influence the direction of the joint entity (Koot. Sohn.. In many cases. Because the investing partner has to strike such a delicate balance. although the investing partner will seek a majority ownership. 1998 Downloaded from jom. In Cell 2. A telling example is provided by the way American firms form alliances with Indian local firms (Yoshino & Rangan. 24. DAS AND BING-SHENG TENG Therefore. Such preoccupation with profitability. After all. when the Indian government prohibited foreign firms from owning a majority stake in local subsidiaries. they would not be expected to be preoccupied with equity control. In an example provided by Niederkofler (1991. Such nonrecoverable investment increases the burden on the investor. VOL. On the one hand. Williamson. this time with equal or majority equity control in place.30 T . after the government relaxed its restrictions in the early 1990s. Though the partners trust each other.

VOL. Since uncertainty and performance risk are high. and took only minority equity positions in these alliances. "if we talked about the joint venture agreement for three months. this time around the Japanese have been very conservative. the partners who contribute financial resources will demand explicit exit provisions in the contract. It is not easy to copy the technology belonging to other firms.RESOURCE AND RISK MANAGEMENT 31 the information superhighway (Armstrong & Holyoke. 1995. such exit provisions allow the investing partner to reduce its investment risk. Thus. it is often the small biotechnology firms who own the patents but need to rely on large pharmaceutical firms for production and marketing capacity. for example. it refers to either a planned access to technology (so that joint objectives can be achieved. they are more concerned with the profitability of the investment. those who possess technological resource may lack other needed resources. 1. we talked about the exit clause for two months" (Bleeke & Ernst. Technological Resource Technology refers to the expertise pertinent to the product. Cell 3.com by guest on January 28. to have access to technological resource owned by other firms becomes one of the most logical motives for entering into strategic alliances (Hagedoorn. Clearly. According to an Allis-Chalmers negotiator. in which Siemens was given the right to purchase the joint venture later. and is a key productive resource of a firm. or the sale of technology for a limited term (such as in licensing). such as capital or distribution channels. in case the alliance has to be terminated. 2013 .sagepub. Thus: P2: In alliances with high performance risk. The patent system ensures the firm's exclusive usage of certain types of technology for a specified period of time. technology security becomes the firm's orientation in the alliance making process. Bleeke and Ernst (1995) have discussed the importance of exit provisions in the case of the Siemens/AllisChalmers alliance. 1993). 102). Consequently. In sum. 1998 Downloaded from jom. such as in joint ventures). not only because it is duly safeguarded. it will be concerned with protecting its technology. Since control is not the name of the game in the Cell 2 situation. to exploit their technological advantage. is to incorporate exit provisions in the contract. Rather. The reason is that they lack the necessary knowledge and experience about the prospects of the information superhighway. 1995). 24. Exit provisions should specify that one partner has the obligation to sell and the other partner has the right to buy the venture according to a specific pricing formula. the objective of satisfactory exit provisions helps to improve the overall profitability picture of the investment. p. the Japanese invested with careful discrimination. but also because it is usually protected by the patent system. NO. The point to bear in mind is that an alliance does not mean a free transfer of technology. Thus. though. At the other end. through a relatively easy spin-off (Shaughnessy. JOURNAL OF MANAGEMENT. the investing partner should attempt to make its investment as recoverable as possible. In the bio-pharmaceutical industry. 1994). One specific objective to be achieved in the alliance making process. they let the Americans take charge of it. When a firm provides technological resource but does not trust the goodwill of its partner. In other words. In contrast to their mega-deals in other industries.

this time with explicit clauses to safeguard its technology. partner in their two-year alliance. market and became a direct competitor. the partners who contribute technological resources will focus on protecting their technologies from unauthorized transfer.sagepub. More specifically. The point is that when relational risk is high. 1989). For instance. 24. the U. it retained its power over the other partner and finally bought out the venture. NO. p. Having learnt a lesson. Therefore. For unpatented know-how. a second scenario is with high performance risk.. 136) have urged firms in such situations to "develop safeguards against unintended. 2013 . 88). it tends to focus on some other aspects of the alliance. or usefulness. VOL. and a Taiwanese firm. an incremental.. since one firm kept the patent. the Taiwanese firm entered the U. such a focus on the protection of technology would be unlikely in other situations. Thus. 1. since informal transfers of patents is not possible. firm later formed another alliance with an Asian partner.S. 1998 Downloaded from jom. In situations like this. As long as the technology shared in the alliance is patented and owned by the firm. a firm could attempt to reduce the transparency of the technology. (1989. Nevertheless. low relational risk). the partners trust each other but are concerned about the riskiness of the venture. p.e. performance-based approach is more prudent than a wholesale agreement (Hamel et al. the orientation of the partner with technology is to enhance the utility. to seek strong patent safeguards should be the objective of the firm. During the period. the firm should allow the partner access only to those patented technologies which the partner cannot freely copy or apply on its own. 1990). K . or is not particularly concerned with losing technology unintentionally (i. technological exposure is best limited to patented technology.S. Hamel et al. and to limit the scope of the agreement. 128) have described an alliance between a U. Hence: P3: In alliances with high relational risk. Cell 4. 58). Hamel (1991) also provides an example regarding a Japanese firm's hidden agenda of secretly capturing its partner's technology. 1991. Yoshino and Rangan (1995. p." One of the safeguards a firm can rely on is the protection of the patent system. even where technological transfers are unavoidable. informal transfer of information. For those who provide technological resource to the alliance. such a scenario is like a nightmare. When a firm contributes its technological resource to an alliance. when a firm does not contribute technological resources.32 T . it is usually hard to protect technology and know-how (Osborn & Baughn. its key resource is not lost. usually through limiting exposure to patented technologies. so that the venture can succeed. existing bargains will tend to become obsolete and the termination of the alliance becomes more probable.com by guest on January 28. the Japanese firm reached a position to be able to ask "Now what are you going to do for us" (Hamel. p. In time.S.S. DAS AND BING-SHENG TENG Due to the nature of cooperation. of its technology. By comparison. After secretly collecting considerable technological information from its U. "critical technology often resides in non-patentable know-how or know-who" (Frayne & Geringer. 1990. Bleeke and Ernst (1995) have described an alliance between two pharmaceutical companies that lasted for ten years. In this case. The term "utility" carries two meanJOURNAL OF MANAGEMENT.

for example. 1995). Sony and Philips. Since the orientation of the firm is toward improving the "utility" of its technology. 1988). economists have realized that licensing and franchising represent a long-run market solution to risk diversification problems (Martin.RESOURCE AND RISK MANAGEMENT 33 ings. Since the competition with Microsoft's Explorer is intense. Netscape. because the firm avoids putting all its technological eggs in one alliance basket. NO. 1998 Downloaded from jom. licensing to many partners allows the firm to reach an early standardization of design (Lei & Slocum.com by guest on January 28. Indeed. Since technology is what the partner contributes. Extensive licensing seems to be an option which satisfies both the rationales we mentioned. scared away Hollywood customers because of their rigidity in licensing practice. or better control the performance risk through a portfolio of partnerships. p. 28). The firm is able to capitalize on its technological innovation fast (Lei & Slocum. which attracted other electronics companies to come on board. in contrast. the first thing it can do to control high performance risk is to improve its technological usefulness. First. 24. since only then can the firm avoid heavy involvement (Contractor. 1996). Though physical resource alone is not likely to provide sustainable competitive advantage (Reed & DeFillippi. Also. Second. setting high design standards is crucial for the future of the technology (Lei & Slocum. the partners who contribute technological resources will prefer to license the technology to multiple partners. physical assets are JOURNAL OF MANAGEMENT. It helps control the pace of industry evolution. 1. What led to Toshiba/Time Warner's early success is their open. i.. especially when there is still a lot of performance risk. First. In the second sense. We may thus have: P4: In alliances with high performance risk. 1991). Hence. has been busy forging alliances. Physical Resource Physical resource refers to raw materials. the economic returns from the technology. many American firms reach out to major Japanese firms in order to surround themselves "with an alliance of people who are world-class standard setters" (Armstrong & Holyoke.sagepub. and distribution channels provided by a firm. The digital videodisk (DVD) war between two camps. it refers to the usefulness of the technology itself. 1991). licensing to multiple partners holds the key to bringing prompt financial results. extensive licensing means collecting considerable royalties rather quickly.e. technological utility refers to the usefulness of the technology to the fLrm. empirical studies show that licensing is preferable when the performance risk is high. 1984). Indeed. flexible licensing approach. The firm can try to either reap increased benefits from the technology. VOL. 1994. Toshiba/Time Warner and Sony/Philips. 1990). For many emerging technologies. In industries related to the information superhighway. licensing controls high performance risk. 2013 . the specific objective of the firm should be to license the technology to as many partners as possible. components. in which it licenses its Navigator software for Internet to companies such as AT&T and America Online (Lewis. the firm has to increase the output from the technology by making it accessible to more partners. has mostly been about setting an industry standard for DVD (Holyoke & Armstrong. 1991).

Ins:ead. sometimes long-term contracts and formal contractual partnerships are not sufficient or feasible. long-term contracts provide a certain degree of needed assurance. and contractual networks consisting of manufacturers and their dealers (Skinner. the partners would be more willing to resolve their conflicts (Ring & Van de Ven. 1993). but also have tighter integration. DAS AND BING-SHENG TENG an indispensable part of a value chain. Donnelly. the partners tend to sign longterm agreements if "relational investment" is high. when the contracted duration of a cooperative relation increases. Nevertheless. However. corporate networks. The second approach is to formalize the relationship as much as they can. with simultaneous presence of high relational investment and relational risk.. the level of embeddedness is enhanced by extending the duration of the alliance (Provan & Gassenheimer. long-term contracts between coal suppliers and electric utilities (Joskow. For a particular firm. the fu'm which supplies physical resource will be oriented toward stability. In most operations. VOL. CeUS. given that there is insufficient trust between the partners. The overall objective should be to embed the partners deeply in an alliance so that they are less likely to behave opportunistically (Provan. However. or an alliance JOURNAL OF MANAGEMENT. it is difficult to protect each partner by specifying all possible contingencies. raw materials and distribution channels are not always available at a desired price. 1994).sagepub. 1994). For instance. Similarly. In these cases. First. a long-term contract may break down due to changes in the environment. e. an equity alliance. & Ivancevich. According to Joskow (1985). to create a condition under which healthy collaboration can be sustained becomes the priority for the firm. The rationale is that expected future interaction has the so-called "shadow of the future" effect. In this orientation. 1988). or a stable relationship with the partner. 1988). There are several approaches to achieving that goal.K. the alliance could be vertically forward or backward. so that the partners would tend to be more responsible (Heide & Miner. 24. in a supplierbuyer contract over a long time span. opportunistic behavior and cheating are the real threat to the alliance. Skinner et al. the firm is not particularly concerned with possible dissolution of the alliance due to performance shortfalls. Dyer (1995) recounts the transformation from arms-length relationship to supplier partnerships between Chrysler and its suppliers of components. (1987) found that the more formalized networks. Clearly. 1. When relational risk is high.com by guest on January 28. Therefore. 1992). According to Hennart (1988). 1994). Since performance risk is relatively low. a contract which remains incomplete exposes the parties to opportunistic behavior in renegotiation. as well as through the distribution process (Root. Thus. 1998 Downloaded from jom. in a manufacturer-distributor relationship. securing physical resource constitutes one major motive for entering into a strategic alliance (Chi. value is added to raw materials and components. 2013 . 1985). Therefore. exercised better control than less formalized networks.g. Examples of such alliances include joint ventures between aluminum firms and firms which provide bauxite (Hennart. Supplier partnerships are supposed not only to last longer. 1987). depending on the direction of expansion (Hennart. due to inefficiencies in the market. In a study of networks. 1988). a firm would endeavor to adopt various mechanisms to curb possible opportunistic behavior. NO.34 T.

To prevent the potential future scenario of an Ericksson entry under deregulation. a British entertainment company. Thus. is high in a strategic alliance (Sunoo.com by guest on January 28. usually through a longer alliance duration. 1993). suggested that joint ventures operating as self-organizing systems that enhance the level of flexibility are more successful. is a better choice.RESOURCE AND RISK MANAGEMENT 35 which requires equity investment from both partners. one is not sure of the prospects of the cooperative arrangement. With equity ownership. if performance risk. In other words. NO. A firm which supplies auto parts to the Big Three automakers may expect the industry to suffer a downturn in a few years. In this case. due to the uncertainties in the market. and opportunistic behavior becomes less likely even without detailed contracts specifying all contingencies (Parkhe. to enable the firm to cope with possible setbacks.he form of an equity alliance helped Thorn secure the relationship. Moreover. 1992). therefore. rather than relational risk. For example. M.sagepub. the objective of the firm should be on recurrent contracts. and shared equity ownership. The advantage of recurrent contracts is that the firm is able to discontinue the relationship whenever it wants JOURNAL OF MANAGEMENT. 1983). 1992). the firm should not routinely let its physical resource be dedicated specifically to the alliance. Cell 6. if the market were to be deregulated. One example is the alliance between Thorn-EMI. as they are now held hostage by each other (Williamson. it needs to be flexible and responsive to market changes. In contrast to embeddedness. the partners are deeply embedded in the joint entity because it becomes difficult to withdraw from the deal. 24. tighter integration. Since the British telecommunication market was regulated until the mid1980s. which would involve repeated agreements contingent upon prior performance (Ring & Van de Ven. Thus: P5: In alliances with high relational risk. 1992). 2013 . it has been reported that most successful alliances shift dramatically during the first few years of the alliance (Sherman. a distributor which provides marketing channels to a manufacturer could be concerned about the prospect of the product. Therefore. as well as veto power on all major decisions. Thorn insisted on having a 51-49 joint venture. Thanks to this alliance configuration. a Swedish telecommunications company (Lewis. and start to worry about its relational investment. VOL. 1998 Downloaded from jom. deep embeddedness in . 1995). Ericksson. In this case. Thorn was concerned that Ericksson might eventually enter the market by itself. Equity investment increases the embeddedness of the partners. a foreign firm could enter the market only through an alliance with a British company. despite its agreements with them. The firm which provides physical resource will be oriented toward flexibility. Thorn provided marketing channels and the relational risk was high. even after the British telecommunication market was thrown wide open to foreign finns. the partners who contribute physical resources will strive to embed the partners deeply in the alliance. Clearly. To achieve physical resource flexibility. 1. Lorange and Probst (1987) have. shared equity ownership aligns the interests of the partners. Indeed. flexibility means being in a position which affords easy withdrawal. Thorn was able to continue with this valuable alliance. and L.

• Cell Z Because of the above two characteristics. 1. incremental approach is more likely to pay off. it signed on only for marketing Astra's new drugs in the U. The difference is that technology is discrete and relatively easy to transfer. since these contracts are usually short-term. p. while competence "is entwined in the social fabric of a company" (p. 24. "the more uncertain the environment. Schaan and Beamish (1986) have reported that hierarchical authority is a key mechanism used by the parent companies to control the activities of the joint entity. 1992. It has also been noted that the general manager position can greatly affect a joint venture's outcomes (Frayne & Geringer. A second characteristic of managerial resource is that its effect usually is magnified if those who possess managerial expertise are placed in authoritative positions.the greater the chances. The firm would like to make sure that it actually calls the shots on overall managerial issues. The lesson is that when performance risk is high. Thus. marketing. a cautious. While technological resource is limited to know-how about the product.sagepub. With recurrent contracts. Hence: P6: In alliances with high performance risk. buyer-supplier relationships. the partner can pull out its physical resource quickly. Recurrent contracts can be widely used in licensing. the firm which provides managerial expertise should retain JOURNAL OF MANAGEMENT. Subsequently. K .com by guest on January 28. It seems that the term "competence" as used by them is analogous to managerial resource. It is skills and knowledge other than technology that the firm possesses.. 136). p. Finally.36 T . 487). DAS AND BING-SHENG TENG to. When Merck started its alliance with AB Astra of Sweden. NO. Thus. Probably the most important characteristic of managerial resource is that it is often tied to the people in the company. Hamel et al.that such a long-term contract will break down. and with alternative methods for resolving conflict" (Ring & Van de Ven.. without putting too much burden on the partners. they are likely to take certain firm-specific managerial resource along with them. Merck went on to establish a new corporation to handle distribution of a range of Astra products. As Hennart (1988.. although the partners are skeptical about each other. 1998 Downloaded from jom. 1992). 1990). Managerial Resource Managerial resource refers to firm-specific competence and know-how in functional areas such as planning. Merck felt comfortable in inviting Astra to take up half the equity of that separate corporation. (Sherman. a f'wm which devotes managerial resource to the alliance will orient itself to acquiring managerial authority in the alliance when relational risk is high. In other words. operations. the firm can "experiment with safeguards. after satisfactory experience. 2013 . If the performance is not satisfactory.. (1989) make a distinction between technology and competence. 368) put it. managerial resource is broader in scope. Thus.S. VOL. short-term contracts are the key. if key personnel or professionals of a fLrm leave. the firm can avoid being embedded in an alliance of high performance risk." Short-term contracts allow contingencies to unfold. and manufacturer-dealer relationships. and human resource management. the partners who contribute physical resources will be interested in providing for recurrent contracts.

however. An exception. This could reflect ignorance of the importance and delicate nature of strategic alliances. 1998 Downloaded from jom. Yan and Gray (1994) found that the firms try very hard to exercise authority through having their people in the position of general manager.com by guest on January 28. Thanks to his personal involvement and close scrutiny. This calls for special attention to their availability. the firm must be sure to place its best people in the alliance. the orientation is that of managerial efficiency. 1989. 24. the partners who contribute managerial resources will focus on placing their own people in key positions of the alliance. Kodak insisted on putting its division general manager on Chinon's board. In their study of joint ventures. some officials in Chinon were uneasy about Kodak's presence (Yoshino & Rangan. there is a danger they will go native" (Hamel et al. the firm should guard its key personnel from being recruited by the partner. the firm must try to put its people in the key positions of the joint entity. the quest is improving managerial effectiveness. feeds. the firm should not only better protect its key personnel. such as the board of directors and the executive committee of the venture or of the partner.. The general manager was then elected to manage the relationship between Kodak and Chinon. Since the partners basically trust each other. the alliance turned out to be a success. because now it is managerial efficiency. 1989). but also pay special attention to the choice of its alliance managers (Lyles & Reger. tenure. which very carefully JOURNAL OF MANAGEMENT. especially when relational risk is high.. Secondly. 138). 1994). Therefore. As the warning goes. 1993). Indeed. "when a foreign partner houses. and looks after your managers. rather than managerial control. the objective of the firm is to have competent alliance managers. Since managerial resource of a firm mostly resides in its key personnel. In case a firm brings in managerial resource and performance risk is high in the alliance. 1. Being aware of this possibility. the objective of the firm should be to secure its most important personnel. Again. Thus. a partner should be concerned with possible loss of these personnel. as managerial resource mostly resides in individuals. VOL. However. is that of Motorola. First. To deal with this relational risk. 2013 . to focus on securing one's own people in key positions would not be a good strategy. First. that would make a difference. Cell 8. especially the skills in effectively coordinating with the partner (Kanter. p.sagepub. 1978). firms oftentimes are unwilling to contribute the cream of their talents. the emphasis is on how best to exploit the competence of each firm. When Kodak decided to reenter the camera business and took an equity position with Chinon. To exercise authority through the board is probably the most direct approach (Pfeffer & Salancik. since the alliance as a special form of competition demands the very best people (Hamel et al. NO. a medium-size Japanese firm.RESOURCE AND RISK MANAGEMENT 37 authority of the alliance. the firm should be concerned with the proper use of these talents. and working style. Hence: P7: In alliances with high relational risk. In this case. 1995). only if that firm is in an authoritative position to use its managerial resource would the alliance succeed. rather than on how to better protect oneself from the partner. To retain managerial authority.

alliance managers with short tenure do not contribute much to managerial efficiency. and for extended tenures in the alliance. 1994). The motive is to keep the managers long enough in the venture so that effective managerial control could be exercised. Brouthers et al. Second.com by guest on January 28. who had been a central figure in designing the alliance strategy and in forging the alliance. (1995) argued that alliances should be avoided unless there is a real need for resources. 1998 Downloaded from jom. One also hears of the warning that "colluding with competitors is a dead end" (Harari. especially Western firms. Relatively short tenure of alliance managers hurts the continued development of managerial skills in the alliance. informal understandings and commitments must be formalized into contracts. it is clear that in today's increasingly diversified markets. Predictably.sagepub. the spirit of competition connotes a winner-take-all attitude (Frank & Cook. NO. because the valuable assets of informal understanding and psychological contracts between managers from both sides are not given the time to grow (Ring & Van de Ven. Nevertheless. 1997a). 2013 . of course with a price tag. Thus: P8: In alliances with high performance risk. and require more energy to sustain. 1503). the firm should keep its managers in the alliance for a long period of time and encourage an interactive and coordinating style. Alliances often take longer to forge than mergers. Concluding Remarks The strategic alliance making process is known to be messy. 1994. Reflecting this sentiment. Ring and Van de Ven (1994) have also pointed out that when an alliance is.. some managers feel uncomfortable with cooperation as a new form of competition (Hamel et al. Even as free-trade among countries is beneficial to all parties. The challenge is to keep the two parent entities separate. 1989). p. tend to rotate their managers in an alliance long before the results can be assessed (Lei. expected to last longer than the tenure of managers. Thus. the partners who contribute managerial resources will focus on improving managerial efficiency by committing their best managers. The key to success is in the execution. 24. 1993). VOL. K . Kanter (1994) has observed that establishing interpersonal ties between managers helps resolve conflicts between the partners. 1. was selected. 1994. Against this background.38 T . 53). We identified two critical JOURNAL OF MANAGEMENT. self-sufficiency is no longer a viable goal for many growing companies. His expertise gave Motorola a good start in the alliance. the exchange of resources among companies could be similarly advantageous. In addition. A corporate vice president. many firms. 1995). since they are deeply rooted in the old-fashioned zero-sum competitive mode of behavior. or the management of the alliance making process (Das & Teng. it makes perfect sense for a partner to state that "I would be reluctant to take any expatriates out in the first ten years of the venture" (Yan & Gray. DAS AND BING-SHENG TENG picked its manager in its alliance with Toshiba (Yoshino & Rangan. p. That is why it seems useful to develop a framework for understanding the fundamental considerations in forming an alliance. To most people. and yet to align their interests and achieve a high degree of coordination. 1995).

The alliance was a success. the whole idea of a strategic alliance is to let everybody contribute different ingredients and then derive different desired benefits.sagepub. firms should be comfortable with their different resource and risk assessments. For example. Our framework suggests that when the partners do not adopt the specific kinds of orientations identified therein. By appreciating the partner's position. a firm can better understand what the partner wants from the alliance using the same framework. NO. many of the orientations and objectives in our framework are in conflict with each other.RESOURCE AND RISK MANAGEMENT 39 factors in alliance making: resource and risk. Hence. Our contingency framework equips decision makers with knowledge of the dynamics of interaction between the two critical factors. and also have different expectations from the alliance (Frayne & Geringer. and yet a mutually beneficial partnership may well be in the cards. A number of problems that arise in strategic alliance making are caused by a lack of understanding and communication. While Microsoft made $265 million out of its applications software for Macintosh in fiscal 1992. p. 1. Thus. with less misunderstanding. With such analytical knowledge of each other's position. Macintosh also benefited from the alliance by gaining more acceptance in the business community. 78). As one Microsoft senior vice president observed. The framework provides a firm with guidelines for adopting effective orientations in the alliance making process according to the resource commitments and perceived risk. The success of strategic alliances would be largely enhanced if firms adopt an alliance making process that is based on a full appreciation of the types of resource and risk that determine the position of each partner in the process. Indeed. VOL. "This is business. Apple and Microsoft are direct competitors and have quite divergent ideas about what they wanted from their alliance. The framework proposed here should help clarify where each partner stands. A second direction for future research would be the study of how partners with diverse orientations work out their differences.com by guest on January 28. In addition. Indeed. though. the partners bring in different resources to an alliance. a fruitful direction for future research would be the exploration of the empirical relationships between alliance performance and alliance orientations and objectives. For examJOURNAL OF MANAGEMENT. but supplement it with the partner's angle as well. self-deception. 1992. Another implication of the framework is that a firm should not evaluate the alliance exclusively from its own perspective. so long as the objectives are compatible. 24. One partner's objective could be dramatically different from that of the other. the firm would be prepared to deal with the partner in an effective way. We're not allied with Apple out of love" (Sherman. 2013 . Thus. or surprise. These two factors help decision makers determine the kind of orientation that would be effective under specific conditions. To that end. The framework presented here needs to be supported by empirical research. the eight propositions derived from the framework provide a starting point. communications are likely to be more productive in the alliance making process. examining such linkages is important for gaining insights into the overall robustness of the framework. the alliances are unlikely to be successful. Many researchers have argued that partners of a successful alliance must have similar objectives. 1998 Downloaded from jom. In reality. One implication of the framework is that the objectives of the partners are rarely the same. 1990).

Deutsch. (1996b). A study of these kinds of relationships could help in further linking our resource-based and risk-based view of alliances with the traditional bargaining power view of alliances. To manage an alliance effectively. Chi. Thus. JOURNAL OF MANAGEMENT. Conner. (1995). L. J. Das. & Thomas. J." i. Paper presented at the annual meeting of the Academy of Management.e. S. B. and choice of exchange structure. Improving performance by transforming arms-length relationships to supplier partnership: The Chrysler case. & Teng. Bleeke. F. the orientation in Cell 1 (equity control) could be in direct competition with the orientation in Cell 7 (managerial control). Badaracco. D. A historical comparison of resource-based theory and five schools of thought within industrial organization economics: Do we have a new theory of the firm? Journal of Management. Journal of Management. Strategic alliances: Choose your partners. & Jemison. H. Long Range Planning. Das. Brouthers. Jr. the partners must agree on a direction which would serve to buttress the particular orientation in all the activities of the alliance. T. (1995). The knowledge link: Howfirms compete through strategic alliances.154. Sustaining strategic alliances: Options and guidelines. (1986).. I. K. A different assessment of risk may also lead the partners to favor licensing (Cell 4) and embeddedness (Cell 5). & Teng. B. & Bleackley. T. T. transaction cost problems.. 15: 167--188. ( 1991). M. NO. the pattern of resource combination and the risk assessment by the partners. B. Hypercompetition: Managing the dynamics of strategic maneuvering. J. R. 11:41--55. Academy of Management Executive. if it exists. K. 22(4): 49--64. L. Contractor.. Trading in strategic resources: Necessary conditions. J. D'Aveni. Das. H. L. would also depend on two factors. C. the mechanisms and processes by which the partners reconcile and align their divergent orientations are important to understand. J. Choosing between direct investment and licensing: Theoretical considerations and empirical tests. Long Range Planning. (1991). L. 17:99--120. B. Boston. New Haven: Yale University Press. New York: Free Press. 33: 827--843. Strategic alliances and the rate of new product development: An empirical study of entrepreneurial biotechnology firms.sagepub. Baird. (199 l). J. Dyer. B. D. 28(3): 18--25. K. VOL. (1991). Risk types and inter-firm alliance structures. Canada. Journal of General Management. Looking inside for competitive advantage. The dialectics of strategic alliances. K. (1985). an alliance orientation shared by both partners. 9(4): 49--6 I. K. Borys. Boston. Is your strategic alliance really a sale? Harvard Business Review. (1995).40 T. Journal of Management Studies. 15:271--290. & Hill. MA. J. 14: 234--249. New York: Praeger. 73( 1): 97--105. (1994). K. Future research may thus explore the notion of "shared orientation. T. Das. Journal of International Business Studies. K. T. D. Business Week. respectively. (1973). MA: Harvard Business School Press. (1984). Strategic alliances~Guidelines for success. T. It seems that a shared orientation. Strategic Management Journal. D. The resolution of conflict: Constructive and destructive processes. References Armstrong. Toward a contingency model of strategic risk taking. & Wilkinson. Barney. Vancouver. & Teng. Paper presented at the annual meeting of the Academy of Management. Journal of Business Venturing. E. Deeds. 1998 Downloaded from jom. (1988). (1997a). Brouthers. 1. The strategic alliance structuring process: A risk perception model. & Holyoke.. Journal of International Business Studies. L. R. (1989). Hybrid arrangements as strategic alliances: Theoretical issues in organizational combinations. Academy of Management Review. Paper presented at the annual meeting of the Academy of Management. & Ernst. Cincinnati. M. namely. (1996). W. B. Barney. March 28: 28--29. Blodgett. & Teng. 17:12 l-. (1994). DAS AND BING-SHENG TENG ple. 21(5): 18--23. B. Das. B. Look who's stuck in the slow lane. 2013 . L. Partner contributions as predictors of equity share in international joint ventures. Firm resources and sustainable competitive advantage. Devlin. 22: 63--78. Academy of Management Review.com by guest on January 28. 24. (1994). G. T. 10: 230--243. (1997b). (1996a). The subjective side of strategy making: Future orientations and perceptions of executives. OH.K. L. (1995). L.

Joint ventures as self-organizing systems: A key to successful joint ventures design and implementation. Miller. Strategic Management Journal. Control and performance of international joint ventures. F. J. Heath. Martin. K. 2013 . (1995). W. Hofer. M. (1992). (1988). An integrative model of organizational trust.. JOURNAL OF MANAGEMENT. Managerial perspectives on risk and risk taking. Cambridge. D. J. J. 7: 136--150. & Schoonhoven. A transaction costs theory of equity joint ventures. The strategic use of human resource management practices as control mechanisms in international joint ventures. 28(3): 58--67. D. Doz. Organizational Dynamics. & Singh. Contemporary. VOL. 23(2): 311--33 I. Davis. J. Management aspects of strategic partnering. A framework for integrated risk management in international business.com by guest on January 28. 17: 173--190. & Prahalad. & Armstrong. Colluding with competitors is a dead end. (1992). Kogut. C. M. & Leverick. C. R. R. Strategic Management Journal. NO. B. Resource-based view of strategic alliance formation: Strategic and social effects in entrepreneurial firms. Heide. Columbia Journal of Worm Business. J. American Economic Review. techniques. (1987). (1992). Underlying dilemmas in the management of international joint ventures. W. Geringer. Frayne. A. C. L. Forrest.. G. R. Joint ventures for product development: Learning from experience. S. B.RESOURCE AND RISK MANAGEMENT 41 Eisenhardt. Academy of Management Journal. A. M. Hoskisson. H. Journal of Management. (1978). (1991). (1991). Gulati. Journal of Management Studies. 38:85--112. Lexington. J. 67(1): 133--139. C. •9(3): 44--62. (1985). Lorange (Eds. R. & Slocum. 17: 169--195. D. J. Mayer. (1996). MN: West Publishing. (1996. Y. (1988). R. The winner-take-all society. Lorange. & Schendel. F. D. Supplement 2: 53---69. C. Kanter. Mitchell.. Joint ventures: Theoretical and empirical perspectives. Synergies and post. O. Understanding strategic intent in the global marketplace. New York Times. L. & Schoorman. M. 77: 168--185. P. & Leiblein. (1995). Hamel. J. Hamel. W. C. J.. Global strategic alliances: Payoffs and pitfalls. 72(4): 96--108. Strategic Management Journal. (1996). & Reger. 9:319-332. 78: 954--968. & Cook. Harvard Business Review. W. applications (2nd ed). 24. Management Science. K. (1987). M. Survival of business using collaborative relationships to commercialize complex goods.sagepub. 20: 709--734. G. 22(2): 71--77. J. St. 35: 265--291. March 12). & Shapira. (1992). (1995). Hardee. Contractor & P. Strategic Management Journal. P. Paul. Hitt. Collaborative advantage: The art of alliances. 1998 Downloaded from jom. March. M. K. Lei. G. R. Planning Review. Jr. & Geringer. Journal of International Business Studies. & Hebert. & Park.. J.. Management Review. Research in Personnel and Human Resources Management. D. 347--368). Holyoke. Long Range Planning. Corporate risk-return relations: Returns variability versus downside risk.acquisition performance: Differences versus similarities in resource allocations. MA: Blackwell. A. & Miner. Video warfare: How Toshiba took the high ground. Academy of Management Journal. Tyler. Harvard Business Review. Joskow. Harrison. D. R. (1996). Lei. 39: 91--122. 62. (1991). M. Lewis. (1994). In F. MA: D. L. S. D. K. (1988). February 20: 64--66. H. J. (1989). P. Strategic Management Journal. Long Range Planning. P. 14:371--385. 26(4): 32--41. Organization Science. Grant. (1995). B. R D. L. A. (1993). Lyles. D. R. Offensive and defensive uses of alliances. K. Collaborate with your competitors--and win. J. (1989). Academy of Management Executive. 20: 235--254. The shadow of the future: Effects of anticipated interaction and frequency of contact on buyer-seller cooperation. (1988). Does familiarity breed trust? The implication of repeated ties for contractual choice in alliances. B. Cooperative strategies in international business (pp.). (1995). Frank. (1990). Academy of Management Journal. (1995). Hitt. Competition for competence and interpartner learning within international strategic alliances. E. 30: 383--404. Managing for autonomy in joint ventures: A longitudinal study of upward influence. D. K. Koot. T. American Economic Review. C. Journal of General Management. B. F. M. 9(2): 12--19. Hennart. J. H. Harari. 9:361-374. 83(10): 53--55. strategy analysis: Concepts. G. Understanding the rationale of strategic technology partnering: Interorganizational modes of cooperation and sectoral differences. 17(4): 25--40. Lewis. (1994). 12: 83--103. 20(5): 45--46. 33: 1404--1418. A. E. (1993).. Academy of Management Review. Littler. Z. Franchising and risk management. & Ireland. Business Week. Hagedoorn. Strategy formulation: Analytical concepts. Contract duration and relationship-specific investments: Empirical evidence from coal markets. E. Journal of International Business Studies. 1. Miller. J. The new power of strategic alliances. DI-2. America Online in alliances with AT&T and Netscape. (1993). M. New York: Free Press. (1995). & Probst.

Long Range Planning. New York: Haper & Row. & Ivancevich. Schaan. P. Causal ambiguity. G. Strategic alliances: Gateway to the new Europe? Long Range Planning. Williamson. New York: Free Press. Sohn. & Weingart. and performance in United States-42hina joint ventures: A comparative case study. Thompson. New York: McGraw-Hill. J. Y. (1988). Academy of Management Journal. D. Wernerfelt. & Oosterveld. F. Strategic Management Journal. Lorange (Eds. Academy of Management Review. (1992). A. 2•(3): 11--17. interdependence. 15: 88--102. barriers to imitation. R. E. 4: 227--256. E. H. Collaborative arrangements and global technology strategy: Some evidence from the telecommunications equipment industry. Personnel Journal. Are strategic alliances working? Fortune. O. Ring. MA: D. O. G. Academy of Management Review. Joint venture general managers in LDCs. J. & Rangan. Lexington. and opportunism in organizational supplier-buyer networks. 21: 48--57. J. Boston. Skinner. & Mahon. 74(5): 28--36. Acad- emy of Management Journal.. J. End-games in international alliances. J. 68(3): 79--91. 19:841--856. (1986). & Teece. The core competence of the corporation. 1. 25: 295--324. E. Embeddedness. Provan. C. D. G. A. B. 33:503--519. 2013 . C. In F. (1994). and sustainable competitive advantage. (t992). D. Wedding HR to strategic alliances. (1994). Heath. 31: 55-68. 28(3): 10--17. 18: 1--25. Zaheer. F. W. Reed.. (1990). C. (1993). G. K. J. (1996). Organizations in action. Root. management and policy. Shaughnessy. Economic organization: The case for candor. U. & Van de Ven. J. A. Using co-operative strategies to make alliances work. (1983). 19:90--118. K. The external control of organizations: A resource dependence perspective. Interfirm diversity. and innovation: Organizational arrangements for regimes of rapid technological progress. (1993). M. B. 38: 1573--1592. M. K. 27(3): 64--74. and longevity in global strategic alliances. DAS AND BING-SHENG TENG Murray. JOURNAL OF MANAGEMENT. 30: 577--588. Contractor & P. organizational learning. (1990). 26(4): 102--111. G. R. Strategic alliances: An entrepreneurial approach to globalization. Ring. B. NO. Relational governance as an interorganizational strategy: An empirical test of the role of trust in economic exchange. Journal of International Business Studies. Journal of Economic Behavior and Organization.). (1987). R. Parkhe. Academy of Management Journal. Prahalad. International joint ventures: Managing successful collaborations. (1995). MA: D. Lorange (Eds. S. Research on technological innovation. R. Determinants of risky decision-making behavior: A test of the mediating role of risk perceptions and propensity. Journal of International Business Studies. The evolution of strategic alliances: Opportunities for managerial influence.42 T. Pisano. (1995). Cooperative strategies in international business (pp. P. P. (1994). J. Some taxonomies of international cooperative arrangements. & Van de Ven. Osborn. H. (1990). Structuring cooperative relationships between organizations. (1994). (1995). 16: 373--392. N. (1991). Contractor & P. 24. Parkhe. Niederkofler. & Beamish. 10( 1): 62--73. P. Long Range Planning. & Gassenheimer. 36: 794--829. Strategic Management Journal. Stafford. (1993). 6: 237--257. 69--80). H. J. 37:1478--1517. Competition.K. A. L. (1994). 279"-299). H. & Cascio. Nueno. (1988). & Salancik. B. Strategic Management Journal. Credible commitments: Using hostages to support exchange. (1978). & Baughn. Academy of Management Executive. Sherman. Academy of Management Journal.).sagepub. Pfeffer. M. Effects of transactional form on environmental linkages and power-dependence relations. Sitkin. (1991). Managing technology alliances. VOL. Strategic alliance structuring: A game theory and transaction cost examination of interfirm cooperation. R. 5:171--180. Serapio. The economic institutions of capitalism. Bargaining power. Jr. 22: 579--601. & Gray. J. S. cooperation. J. A resource-based view of the firm. Long Range Planning. M. (1995). management control.126(6): 77--78. (1995).com by guest on January 28. S. Journal of Management Studies. Yoshino. Donnelly. & Hamel. P. O. Williamson. E. Academy of Management Journal. B. J. C. Developmental processes of cooperative interorganizational relationships. Lexington. (1985). (1992). E. & DeFillippi. Academy of Management Review. Social knowledge as a control system: A proposition and evidence from the Japanese FDI behavior. A. Harvard Business Review. G. J. 13: 483--498. Journal of Business Venturing. Williamson. P. H. & Venkatraman. F. Provan. Sunoo. R. American Economic Review. In F. Teece. S. S. (1989). (1984). MA: Harvard Business School Press. 73: 519--540. S. N. (1967). 1998 Downloaded from jom. Forms of interorganizational governance for multinational alliances. J. C. Heath. (1996). Journal of Management.-L. Cooperative strategies in international business (pp. Yan. A. Supplier commitment in relational contract exchanges with buyers: A study of interorganizational dependence and exercised power. September 21. R. W. A.