Interpartner differences and governance mode dilemma: the role of alliance scope.
| Autor | Tseng, Chiung-Hui |
| Cargo | Report |
Introduction
Forming alliances has been a popular strategy among firms over the past two decades (Kayo, Kimura, Patrocinio, & Oliveira, 2010; Lazzarini, Brito, & Chaddad, 2013; Lioukas, Reuer, & Zollo, 2016; Silva, Dacorso, Costa, & Di Serio, 2016), and since then substantial attention has been drawn to the selection of an appropriate governance form, in particular the equity versus nonequity modes (Choi & Contractor, 2016; Colombo, 2003; Garcia-Canal, Valdes-Llaneza, & Sanchez-Lorda, 2014). Simply put, an equity alliance refers to a new jointly-financed and managed entity that allying firms create, while a nonequity alliance is a contractual agreement without setting up a separate legal entity in the cooperation (Pisano, 1989; Oxley, 1999). The strategic choice is an important one, in that an alliance will team up two or more firms that are divergent, more or less, with regard to their upstream resource endowment and/or downstream market coverage (Das & Teng, 2003; Kim & Parkhe, 2009). To bridge interpartner differences and facilitate cooperation, it is thus necessary to opt for a suitable governance structure to organize collaborative activities (Mayer & Salomon, 2006).
Indeed, transaction cost economics provides the guideline that an equity alliance should be formed if the partnership is exposed to greater risks of opportunism and contractual hazards (e.g., Judge & Dooley, 2006), which are primarily shaped by the degree of asset specificity, observability, and appropriability. Despite adherence to this tenet, prior studies have seemed to prescribe conflicting governance modes to manage the interfirm differences. For instance, several scholars have claimed that a large interpartner divergence increases causal ambiguity, owing to possible deficiencies of expertise in each other's field, and raises concerns about the low value of the committed assets for other uses (Colombo, 2003; Simonin, 1999). To enhance mutual understanding and restrain holdup problems, it is necessary to establish an equity alliance that has incentive alignment properties of shared ownership and offers better monitoring mechanisms brought about by the formal managerial hierarchy. On the other hand, significant differences between partnering firms can curb absorptive capacity and alleviate the risk of unintended knowledge leakage (Oxley, 1997; Sampson, 2004), as such, the minor appropriability threat points to a preference for adopting a nonequity alliance. Therefore, partner dissimilarity may lead to a trade-off among contractual hazards, and it becomes unclear whether equity or nonequity alliances are more suitable.
This governance choice dilemma with regard to managing interpartner differences has, perhaps surprisingly, been underexplored in the literature thus far. Through exploiting interfirm similarity or dissimilarity, alliance participants accomplish such goals as consolidation of extant capacity or development of new capabilities (Tyler & Caner, 2016) which involves the issue of whether to restrict or extend joint activities to certain fields (referred to hereafter as alliance scope). As previous research noted that alliance scope also plays a crucial role in influencing the probability of partners ' opportunism (Oxley, 1997; Oxley & Sampson, 2004), it is essential to take into account the contingency of alliance scope in the interpartner difference-governance choice relationship.
In determining an appropriate collaborative form, this study seeks to address gaps in prior research by concurrently considering how disparate partnering firms are from each other and how vast is the domain of collective activities that are performed. In the next section, we review the relevant literature and develop a set of hypotheses. We then explain our research methods, including the sample, data sources, and measurements. After reporting the results, we discuss the theoretical and managerial implications of this research, and suggest directions for future work.
Literature and Hypotheses
This section begins by delineating the primary contractual hazards brought by the opportunism of interpartner collaboration (namely the holdup, observability, and appropriability problems), and reviewing the governance forms prescribed by prior studies to mitigate contractual hazards. Then, we introduce the moderating effect of alliance scope in the relationship between interfirm differences and governance form decision, and develop hypotheses to address the inconsistent mode choices in the extant literature.
Contractual hazards and the dilemma of governance-form choice
Through exploiting similarity or exploring dissimilarity in resource endowment and/or market coverage between partners, firms gain efficiencies or synergies that are not attainable when operating alone (Hoetker & Mellewigt, 2009; Mitchell, Dussauge, & Garrette, 2002). On the path to accomplishing such goals, however, transaction cost economics raises the concern of opportunism (Das, 2006; Holloway & Parmigiani, 2016; J. Lee, Hoetker, & Qualls, 2015; Williamson, 1975, 1985), arising primarily from such contractual hazards as the holdup, observability, and appropriability problems (Mayer & Salomon, 2006).
Holdup refers to the condition in which the commitment that one firm dedicates to the alliance is of little value in other contexts (Williamson, 1985). This sunk investment would lock the firm into the cooperation, and it thus becomes vulnerable to expropriation by partners attempting to extract excessive rents. By corollary, the magnitude of the holdup risk is associated with the specificity of the assets committed to the partnership, and high asset specificity represents that an asset is worth less if deployed in another use or for another user (Klein, Crawford, & Alchian, 1978). Alliance participants are not subject to a holdup threat if the asset can be employed in other activities or in collaboration with other partners without losing its value.
Observability concerns how easy it is to assess the quality of partners' actions and measure collaborative outcomes (Holmstrom, 1979). A high difficulty in verifying whether partners have lived up to their contractual obligations provides them with incentives to shirk their contracted responsibilities. The situation that one party's behaviors are not observable by the counterparty to the contract is related particularly to information asymmetry in which one party knows more than the other and fails to credibly communicate the information to its collaborators (Akerlof, 1970). Imperfect observability of partners' behaviors makes it problematic to enforce contracts and appraise partners' contributions to the shared goal.
Appropriability is a contractual hazard of leaking valuable intellectual property in ways that are not intended in the agreements (Gulati & Singh, 1998; Oxley, 1997; Teece, 1986). This is detrimental to the firms owning this property, because they forfeit their exclusive right to a rent-generating asset and fail to capture a fair share of rents from the collaboration in which they are engaged (Mayer & Salomon, 2006). Worse still, partners may re-deploy the acquired assets to areas beyond the scope of the current alliance, adversely impacting the focal firms' competitive position (Colombo, 2003). Because successful completion of alliance objectives often demands participants to exchange sufficient knowledge with each other, it is difficult to prevent undesired spillovers of proprietary assets (Davis, in press).
To alleviate the above contractual hazards in alliances, many scholars have proposed different forms of governance, particularly in relation to the choice of an equity versus a nonequity structure (e.g., Colombo, 2003; Mayer & Salomon, 2006; N. Li, Boulding, & Staelin, 2010; Pangarkar & Klein, 2001). An equity-based alliance, or a so-called joint venture, is a new legal entity jointly created by two or more firms who share equity and management control over the cooperation, whereas a nonequity alliance pools together allying firms' resources and/or capabilities without involving equity sharing (Osborn & Baughn, 1990; Oxley, 1997). Unlike nonequity modes, equity-based governance structures enable each participant to effectively post a bond equal to its equity share, and the ongoing returns to each partner are based on the profits of the venture as a whole. Further, compared with nonequity modes, equity alliances have governance attributes closer to those of an internal organization, such as authority, command, and incentive systems.
The logic of transaction cost economics suggests that, when contractual hazards are severe, an equity alliance would be preferred. The ownership control and share in the profits or losses of such ventures' performance better align the incentives of the parent firms, thus mitigating opportunistic behaviors (Hennart, 1988). Moreover, the hierarchical elements provide an effective means of dispute resolution and task coordination between partners (Gulati & Singh, 1998). Besides, Oxley (1997) and Sampson (2004) indicated that equity alliances usually have a joint board of directors composed of members from all partnering firms, which offers a superior monitoring mechanism and access to partnering information. Although an equity-based structure is effective in attenuating opportunism and contractual hazards, this type of cooperative mode is subject to higher administrative and bureaucratic costs, as opposed to nonequity alliances. Hence, when it is not cumbersome to draft a contract against contractors ' incentive to shirk, nonequity alliances may be a better choice (Reuer & Devarakonda, 2016).
Although there is some consensus among transaction cost theorists with regard to managing high contractual hazards with equity alliances, and low contractual hazards with nonequity alliances, the issue of partner discrepancy can lead to contrasting changes in contractual hazards. For the partnerships in...
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