Determinants of Partner Opportunism in Strategic Alliances: A Conceptual Framework
We present a comprehensive framework of the key determinants of partner opportunism in strategic alliances.
We propose an extended definition of partner opportunism and three categories of the determinants of partner opportunism based on a review of the literature. These categories comprise economic factors (equity involvement, asymmetric alliance-specific investments, mutual hostages, and payoff inequity), relational factors (cultural diversity and goal incompatibilities), and temporal factors (alliance horizon and pressures for quick results).
The framework of determinants makes clear how the various determinants of partner opportunism may be differentially salient in the three major alliance types, namely, equity joint ventures, minority equity alliances, and nonequity alliances.
Based on the framework, a number of propositions are developed to facilitate empirical research on partner opportunism. Managerial implications flowing from the proposed framework are also discussed.
Although scholars in various disciplines have studied the general topic of opportunistic behavior, our understanding of partner opportunism in strategic alliances appears to be fragmented and inadequate. As partner opportunism is acknowledged as a significant threat to alliance survival and success, a comprehensive framework of the key determinants of such opportunism should improve our understanding of this phenomenon and to also provide an impetus for future research. The article also responds to the need of alliance managers for a framework of key factors that are responsible for partner opportunism so that they may be able to deploy appropriate deterrence mechanisms to minimize opportunistic behaviors.
KeywordsStrategic alliances Partner opportunism Determinants of opportunism Alliance horizon Opportunistic behavior Equity joint ventures Minority equity alliances Nonequity alliances
For large corporations as well as small entrepreneurial firms, strategic alliances are becoming more and more a necessity for ensuring a competitive edge in the marketplace. Strategic alliances are “interfirm cooperative arrangements aimed at achieving the strategic objectives of the partners” (Das and Teng 1998, p. 491). A high percentage of alliances that are formed, however, end up as failures (see Das and Teng 2000, for a discussion of possible causes). Clearly, a member firm in an alliance faces certain adversities that are unique because, unlike an independent firm, it is subject to relational risk vis-à-vis its partners in addition to the usual business risks. The literature recognizes the deleterious role that a partner firm’s opportunistic behavior plays in alliances, often resulting in their unplanned termination. Thus, partner opportunism is of paramount concern to an alliance firm engaged in collaborative activities.
Researchers have studied the impact of opportunistic behavior in business for decades. According to Williamson (1975, p. 9), opportunism “refers to a lack of candor or honesty in transactions, to include self-interest seeking with guile.” In the context of strategic alliances, opportunistic behavior includes “breaking promises, not sharing resources or facilities as per agreement, bluffing, lying, misleading, misrepresenting, distorting, cheating, misappropriating, stealing, etc.” (Das and Rahman 2001, p. 43). However, scholars in economics, management, marketing, and sociology have generally treated opportunism as an undifferentiated phenomenon. It is only very recently that some researchers have directed their attention to exploring the essence of opportunism (e.g., Ghoshal and Moran 1996; Wathne and Heide 2000). There is a need to understand more adequately as to what increases the potential for an alliance partner to act opportunistically in different situations. We believe that a wide-ranging analysis of the determinants of partner opportunism would help in understanding its complex nature and in gaining better insights for managing such opportunism.
We divide the remainder of the article into four parts. First, we examine the origins and nature of partner opportunism. Second, we suggest an overarching framework of determinants of partner opportunism comprising three distinct sets of factors: economic, relational, and temporal. We identify and examine a list of significant determinants constituting the framework. Third, we discuss the differential salience of these determinants in each of the three major alliance types: equity joint ventures, minority equity alliances, and nonequity alliances. Lastly, we suggest directions for further research and indicate some of the more significant managerial implications of the proposed framework of partner opportunism.
The Nature of Partner Opportunism
In this section, we briefly review the literature on the general concept of opportunism and then suggest, specific to the field of strategic alliances, a comprehensive definition of partner opportunism as a prelude to proposing a framework of its determinants in the next section.
In their efforts to delineate the character of opportunism, scholars have mentioned various activities that reflect the phenomenon. According to Williamson, for instance, “opportunism refers to the incomplete or distorted disclosure of information, especially to calculated efforts to mislead, distort, disguise, obfuscate, or otherwise confuse” (1985, p. 47). We give below several examples of partner opportunism in alliances to indicate broadly its nature and variety.
Consider, for example, the alliance between Red Dragon Enterprises of China and Batrionics, an Australian manufacturer of industrial batteries (Rarick 2004). Batrionics was interested in setting up an operation in China after having established itself in Taiwan. Rex Adams, representing the Australian company, located a potential Chinese partner in Red Dragon Enterprises, a manufacturer of a variety of batteries. The quality of the Chinese products was not acceptable but Adams “felt that he could leverage his company’s knowledge and skill against a joint venture partner” (Rarick 2004, p. 3). In due course, a joint venture was formed, but a number of problems emerged, including poor manufacturing quality, missing inventory, and lack of finance. Adams accused Tsang, his Chinese counterpart, of behaving opportunistically. In his eagerness to set up an operation in China, Adams was perhaps less than thorough in assessing the risks of opportunism.
Another illustrative case concerns Cameron Auto Parts (B), a North American company, and its UK licensee (Crookell and Beamish 2006). Alex Cameron had gone to the UK to meet his licensee and to France to meet an important customer, Michelard. The UK licensee was interested in partnering with Cameron in establishing a manufacturing facility in Australia. Alex Cameron, however, went on to have a verbal agreement with his French customer to invest 40% in a factory manufacturing flexible couplings that was acquired by the latter. Angered at this development, the UK licensee charged: “I thought you had your head screwed on better than this, Alex. You realize this makes us competitors. Michelard of all people! They run that business in their spare time. You’ve made a damn fool of yourself over there” (Crookell and Beamish 2006, p. 7). To the UK licensee, Cameron had committed an opportunistic act. To placate his UK licensee, Cameron agreed to the original proposal to set up a joint venture in Australia.
Yet another form of opportunism is evident in the decision of the Spanish telecommunications company, Telefonica, to suddenly discontinue its participation in the alliance with Bidland Systems, a small U.S. firm that provided dynamic e-commerce. This is considered opportunistic because Telefonica abandoned the alliance after it had appropriated “Bidland’s proprietary business-to-business auction and dynamic e-commerce business information and technology through the promise of a lucrative joint venture and investment contract” (Business Wire2000). In this case, the contractual provisions were helpful to Bidland to proceed against Telefonica “for breach of contract, breach of fiduciary duty, and violation of the Uniform Trade Secrets Act, among other charges” (Business Wire2000).
Clearly, since strategic alliances are between two or more firms, they create the circumstances where opportunism is possible. Thus, given especially its ubiquitous presence, opportunism in strategic alliances deserves much more study than it has garnered so far. In that research enterprise, we believe that both a careful analysis of the definition of partner opportunism and then an inquiry into its origins are necessary.
Opportunism involves activities generally characterized as fraudulent, deceitful, and obfuscating. It is easy to see that partner opportunism conflicts with partner cooperation (Das and Teng 1998, p. 492). Indeed, partner opportunism goes against the development of mutual trust and the cooperative spirit, accentuating the perception of risk and jeopardizing the interfirm relationship (Das and Teng 2001, 2004). Masten (1988, p. 183) considers moral hazard and haggling as opportunism.
As a further refinement, Ghoshal and Moran (1996) distinguish opportunistic attitude from opportunistic behavior, arguing that the latter is the behavioral manifestation of the former, and offer a set of psychologically oriented factors that influence opportunistic attitude (pp. 18, 21). Scholars have also pointed out certain kinds of behaviors that should not be characterized as opportunism. According to John (1984, p. 278), “hard bargaining, intense and frequent disagreements, and similar conflictual behaviors do not constitute opportunism.” Wathne and Heide (2000) further clarify that “situations in which (1) the parties jointly agree to modify an agreement or (2) one party receives compensation in some form” and “situations in which parties adjust contract terms ex ante in anticipation of shirking” should not be considered opportunism (p. 38).
Some attempts have been made to devise a classification for the extensive inventory of activities that pertain to opportunism. Griesinger (1990, pp. 486–487) categorizes opportunism into three groups—dishonesty, infidelity, and shirking. In a more systematic approach, Wathne and Heide (2000, p. 41) categorize opportunism into four groups: evasion, refusal to adapt, violation, and forced renegotiation. These studies, however, do not attempt to understand the roots of opportunism.
It would appear that most scholars accept Williamson’s compact definition of opportunism, “self-interest seeking with guile,” in their research on related topics. The literature on the subject of opportunism is devoted to research questions that can be considered peripheral to the actual phenomenon of opportunism. There is a dearth of studies on the basic concept of opportunism and, consequently, our understanding of the complexities of partner opportunism in strategic alliances remains inadequate.
Our own review of the research points to two key deficiencies in the extant literature. First, most of the research seems to be based on the classic definition offered by Williamson (1975), mentioned earlier, with no particular exploration of its implicit assumptions. Thus, we have yet to adequately capture the complex nature of partner opportunism in alliances. Second, the extant research on the determinants of partner opportunism points to the need for an integrated approach. We will now propose a definition of partner opportunism and then present, in the next section, an overarching framework of its determinants.
As we stated earlier, opportunism has been aptly defined by Williamson as “self-interest seeking with guile” (1975, p. 9). While this definition is parsimonious in scope, it highlights only two attributes of opportunism: self-interest and guile. It leaves certain attributes of opportunism implicit, allowing researchers to interpret variously what constitutes opportunism. In the following paragraphs we make explicit the significant attributes of opportunism, supplementing the definition of Williamson.
Based on a recognition of the assumptions implicit in Williamson’s definition, we define partner opportunism in a somewhat more extended form as behavior by a partner firm that is motivated to pursue its self-interest with deceit to achieve gains at the expense of the other alliance members. This elaborated form of the Williamson definition of opportunism, as applied to alliances, has five major components: behavior, motives, self-interest seeking, deceit, and gains at the expense of others. First, we examine opportunism as a behavior, so that opportunism refers to specific actions by an opportunistic alliance partner. This is consistent with the extant literature (e.g., Joshi and Stump 1999; Luo 2007a; Wathne and Heide 2000). For instance, Wathne and Heide (2000, p. 36) observe that “the concept of opportunism, as currently used in the literature, includes a broad range of potentially different behaviors.” Our definition is not concerned with the opportunistic attitude or propensity of the partner because our focus is on actual opportunistic behavior.
Second, the definition suggests that conscious motives are involved in opportunism. In other words, opportunism is deliberate, not accidental. If the partner firm inadvertently brings harm to the focal firm in pursuing its self-interest, it is quite likely to make amends for it. It is only when such harmful behavior has been consciously engaged in that the partner will be unlikely to compensate for damages. The motives of the opportunistic partner eventually lead to opportunistic action. Prior research on strategic alliances has not explicitly considered motives as an essential element in understanding partner opportunism.
Third, partner opportunism takes place to gratify self-interest. There is a general consensus among scholars that opportunism involves some form of self-interest seeking (Ghoshal and Moran 1996; Wathne and Heide 2000; Williamson 1975, 1993). We note that the nature of the pursuit of this self-interest by an alliance partner can take two alternate paths. First, the opportunistic partner could seek to acquire the focal firm’s rightful share of the alliance-specific gains. Second, the opportunistic partner could shirk its own alliance-specific obligations, foisting the relevant costs onto the focal firm. Both these approaches would serve the self-interest of the partner, even as they also adversely affect the focal firm.
Fourth, we should note that simple self-interest seeking is not tantamount to opportunism. It is critical for an opportunistic partner to keep its actual motives deliberately hidden from other alliance members. Thus, a partner firm must use deceit to conceal and mask its actual motives. Whereas Williamson (1975) uses the term “guile” in discussing opportunism, we prefer the more accessible term “deceit” to convey the same notion (Das 2005).
Fifth, we must recognize that seeking self-interested gains by a partner firm that does not affect the focal firm in any adverse way does not fall within the ambit of partner opportunism. This would be so even if the partner’s actions were not entirely above board. Such partner behavior must also, somehow, result in gains that are at the expense of the other members of the alliance. Note that the two paths of self-interest seeking that we mentioned above also leave the other alliance members worse off.
We suggest that the observations of various authors in the literature on what constitutes partner opportunism in alliances can be subsumed within the contours of our proposed definition. By adopting this expanded definition, we provide a general basis for the further study of partner opportunism in a rigorous manner, recognizing the multi-faceted nature of the phenomenon.
Framework of Determinants
Types of determinants of opportunism
Type of determinant
Doney et al. (1998)
“Norms supporting power differentials also provide evidence that targets will act for personal gain. … To the extent that such self-serving behaviors are sanctioned, one might infer that targets in high power distance societies will act opportunistically and fail to associate high costs with opportunistic behavior.” (p. 613)
“Targets in low uncertainty avoidance cultures may engage in opportunistic behavior, even if doing so risks damaging the relationship. This follows from the fact that people in low uncertainty avoidance cultures do not fear the future and tolerate risk easily …” (p. 614)
Ghoshal and Moran (1996)
“Opportunism is influenced by three factors. The first is “prior conditioning” (relationship “i”) that includes all the attitudes and values formed through exposure to conscious as well as subliminal stimuli … Second, opportunism is influenced by what we describe as the “feeling for the entity,” which represents the individuals’ favorable or unfavorable assessment of the specific transaction partner, the group or the organization… The third influencer of opportunism is opportunistic behavior.” (p. 2)
“The extent of the risk [of dishonesty] depends on the magnitude of the possible deception, the norms of disclosure surrounding the transaction, the possibility of detection, and the conscience of the potential offender. If the transaction is nonrecurrent, the information inherently asymmetric, and the parties strangers to each other (i.e., the moral character is not known), then the risk will be high and safeguards are warranted.” (p. 486)
“Parties who make idiosyncratic contributions to an exchange are particularly vulnerable to the termination of the relationship because their investments have substantially less value apart from it.” (p. 486)
Heide and Miner (1992)
Empirical (155 purchasing agents; 60 suppliers)
“The analysis of games implies that although anticipated open-ended interaction does not require cooperation, it does make it possible – even when neither party has altruism or concern about the other party’s well-being.” (p. 269)
“Players may cooperate in the present because they anticipate possible reciprocal future responses. Or they may cooperate in the present because they know that they can retaliate for a defection by defecting later themselves.” (p. 269)
Empirical (147 dealers of major oil company; dealer–company relationships)
“Bureaucratic structuring is related positively to opportunism and negatively to the attitudinal orientation of involvement with another channel member” (p. 280). “When perceptions of increased formalization, centralization, and controls (rule enforcement and surveillance) are present they lead to an erosion of positive attitudes and consequently more opportunism.” (p. 287)
“Perceptions of coercive power attribution lead to a less favorable attitudinal orientation and a greater degree of opportunism. Reward power usage leads to similar effects, but to a much lesser degree” (p. 281). “When attributions of influence are made to rewards and coercion, more opportunistic behavior is induced. The coercive attributions also have a deleterious effect on attitudinal orientation which in turn leads to more opportunism.” (p. 287)
Johnson et al. (1996)
Empirical (155 IJVs)
“In general, cross-cultural interaction, often replete with misunderstandings and miscommunication, can foster opportunistic tendencies.” (p. 83)
Joshi and Stump (1999)
Empirical (168 purchasing managers; buyer–supplier relationships)
“A manufacturer’s investment of specific assets in a supplier is positively related to the manufacturer’s dependence on the supplier” [and] “A manufacturer’s dependence on a supplier is negatively related to that manufacturer’s opportunism against the supplier.” (pp. 338, 340)
“Technological unpredictability is negatively related to a manufacturer’s dependence on a supplier” [and] “A manufacturer’s dependence on a supplier is negatively related to that manufacturer’s opportunism against the supplier.” (pp. 338, 340)
“Many relationships die an early death when they are scrutinized for quick returns. COMCO’s alliance with Martech for environmental cleanup services in Eastern Europe dissolved in less than two years because of disputes over slower-than-expected results and the need for new investment, even though the market potential was still great.” (p. 102)
Empirical (105 Australian exporters; alliances with Korean importers)
“Exporters’ perceptions of decision making uncertainty will be positive related to their degree of opportunism.” (p. 337)
“Exporters’ cultural distance towards the importing country will be positively related to their degree of opportunism.” (p. 337)
“Exporters’ economic ethnocentrism will be positively related to their degree of opportunism.” (p. 338)
Provan and Skinner (1989)
Empirical (226 farm and power equipment dealers)
“A low level of dependence on a supplier may well lead to high levels of opportunism among dealers; if caught, these dealers can more easily shift to other suppliers or provide critical services on their own than can their highly dependent counterparts.” (p. 205)
“Opportunistic behavior by dealers in relations with their primary supplier will be positively related to supplier control over dealer decisions.” (p. 205)
Sako and Helper (1998)
Empirical (675 U.S. and 472 Japanese first-tier automotive suppliers)
“The more a supplier is asked to provide information to its customer without the customer reciprocating by giving information to the supplier, the greater the supplier’s perception of customer opportunism.” (p. 393)
“The more uncertain the market and technology environments, and the higher the degree of asset specificity, the greater the level of customer opportunism.” (p. 394)
Wathne and Heide (2000)
“In general, information asymmetry means that one party’s ability to detect opportunism is limited … [which] gives the exchange partner the opportunity to pursue opportunistic actions without being caught.” (p. 42)
“Lock-in, in contrast, represents vulnerability because a party cannot leave a given relationship without incurring economic losses. As a consequence, a lock-in situation may require a party to tolerate opportunistic behavior.” (p. 42)
“Opportunism refers to a lack of candor or honesty in transactions, to include self-interest seeking with guile.” (p. 9)
“Responsible parties who would otherwise be prepared to self-enforce promises to take efficient loss-mitigating actions may find that such behavior is not competitively viable and will consequently be induced to imitate opportunistic types by underinvesting in loss mitigation.” (p. 15)
According to John (1984, p. 287), “opportunism can be viewed usefully as an endogenous variable that is evoked by certain determinants within a long-run relationship. In other words, individuals may not always behave opportunistically even if conditions permit such behavior.” Scholars in economics, management, and marketing have proposed a number of factors that influence the incidence of opportunism in alliances. We examined the nature of these factors and concluded that they can be usefully grouped according to the nature of the process through which they influence partner opportunism.
Recently, Lee (1998, pp. 337–338) tested a set of three antecedents of opportunism—decision-making uncertainty, cultural distance, and economic ethnocentrism—and found empirical evidence in support of them. Sako and Helper (1998, pp. 393–394) used customer-specific assets, lack of reciprocity, and uncertain market and technology environments as antecedents of the supplier’s perception of customer opportunism, while Joshi and Stump (1999, p. 346) used only technological unpredictability as a determinant of opportunism.
Provan and Skinner (1989, p. 205) find dependence and control of decision making to be predictors of opportunism. Nooteboom (1996, p. 999) lists different external events that may trigger opportunistic behavior. Also, Wathne and Heide (2000, p. 42) note that the focal firm would be vulnerable to opportunism under conditions of information asymmetry and lock-ins. Finally, according to John (1984, p. 281), an alliance member would be more likely to act opportunistically if it felt coerced by another alliance member.
We may note here that explicit cooperation-building mechanisms are likely to impact upon the determinants of opportunism. For example, Gulati (1995) shows that familiarity breeds trust, a fundamental requirement for cooperation. Hence, familiarity between alliance members may temper opportunistic tendencies.
Clearly, not all firms behave opportunistically all the time. Following Williamson’s reasoning, firms refrain from opportunism when the resultant losses (i.e., loss of image, goodwill, legal retribution, etc.) are expected to be greater than the potential economic gains. The problematic feature of this conceptualization is that it renders opportunism to be a monolithic phenomenon. Because a partner may act opportunistically for a variety of reasons, the focal firm needs to be wary of all such possibilities. It would thus seem useful to formulate an appropriately sophisticated view of the concept of partner opportunism.
Selected studies of the determinants of opportunism
Deeds and Hill (1999)
“An equity investment by the partner firm will decrease perceived opportunism.” (p. 145)
52 biotechnology firms
β = −0.126 (ns)
While partner’s equity involvement leads to focal firm perceiving less partner opportunism, the effect is not substantial. Nevertheless, it is possible that equity involvement has a substantial effect on decreasing the likelihood of actual partner opportunism.
“Alliances are more likely to be equity based if they have a shared R&D component.” (p. 91)
β = 0.90
It is assumed that alliances with a shared R&D component will have a higher likelihood of partner opportunism. Findings suggest that a firm apprehending partner opportunism will prefer equity structure for its alliance.
(p < .01)
Asymmetric alliance-specific investments
Brown et al. (2000)
“The hotel’s opportunism will be reduced the more the hotel has invested in TSAs of its own.” (p. 53)
395 general managers of hotels
t = 2.29
Results are significant in the opposite direction from the hypothesized relationship. The findings suggest that more alliance-specific investments can lead to higher potential for opportunism as well. This supports the notion of paranoid concerns about making asymmetric resource commitments, which increases the potential for opportunism.
(p < .05)
Joshi and Stump (1999)
“A manufacturer’s investment of specific assets in a supplier is positively related to the manufacturer’s dependence on the supplier.” (p. 338)
168 purchasing managers
t = 12.16
Alliance-specific investments directly affect asymmetry in resource commitment. It increases dependence, which in effect reduces the dependent firm’s potential for opportunism. Conversely, the less dependent partner has a higher potential for opportunism.
(p < .001)
“A manufacturer’s dependence on a supplier is negatively related to that manufacturer’s opportunism against the supplier.” (p. 340)
t = −2.10
(p < .05)
Ross et al. (1997)
“Perceived asymmetry of commitment rises as actual asymmetry of commitment rises.” (p. 683)
510 focal actors from 255 dyads (insurer and agent)
β = 0.116
Resource commitment is the most objective form of commitment. Actual asymmetry in resource commitment will increase the perceived asymmetry in resource commitment.
(p < .01)
β = 0.279
(p < .01)
“The greater the commitment a focal party attributes to its counterpart, relative to its own, P1a: The less conflict the focal party will perceive in the relationship [and] P1b: The more profit (current and expected) the focal party will derive from the relationship.” (p. 684)
Perceived asymmetry in commitment increases perceived conflict. It is argued that perceived conflict leads to fears of opportunism.
Dyer and Singh (1998)
“hostages may be financial (e.g., equity) or symmetric investments in specialized or cospecialized assets, which constitute a visible collateral bond that aligns the economic incentives of exchange partners.” (p. 669)
Mutual hostages pave the way for credible commitments, strengthening interfirm relational bonds. Also, by acting opportunistically a partner would lose the assets that are held hostage by the focal firm. Hence, mutual hostages decrease the potential for partner opportunism.
“A minority party’s opportunism is negatively associated with equity captiveness, ceteris paribus.” (p. 861)
192 international joint ventures (163 IJVs used to test this hypothesis)
β = −0.29
Equity captiveness in this paper is akin to a mutual hostage situation. Whereas a local party is more opportunistic when equity captiveness is less, a foreign party is consistently less opportunistic regardless of its equity captiveness.
(p < 0.001 when minority party is local; not significant when minority party is foreign)
Ring and Van de Ven (1994)
“We assume that an equally important criterion for assessing a cooperative IOR is equity, defined as ‘fair dealing’ (which does not require that inputs or outcomes always be divided equally between the parties).” (p. 93; emphasis in original)
Ensuring equitable outcomes in alliances is considered just as important as attaining economic efficiency. Since alliance members are keen on preserving equity, partners perceiving payoff inequity will strive to bring back equity to the alliance. Subtle forms of opportunistic behavior (e.g., shirking) offers a quick way to resolve perceived inequity in the alliance.
“We also assume that the parties to a cooperative IOR are motivated to seek both equity and efficiency outcomes because of a desire to preserve a reputation for fair dealing that will enable them to continue to exchange transaction-specific investments under conditions of high uncertainty (Helper and Levine 1992).” (p. 94; emphasis in original)
Barkema and Vermeulen (1997)
“Differences in uncertainty avoidance between home and host country – rather than differences in power distance, individualism and masculinity – have a negative impact on IJV survival.” (p. 849)
228 international joint ventures
t = 2.01
Differences in cultures, in general, are negatively related to alliance performance. More specifically, however, only select dimensions of uncertainty avoidance and long-term orientation negatively influences alliance outcome. It is implied by the authors that alliance survival is threatened due to relational difficulties (one specific form of which is partner opportunism).
(p < .05)
“Differences in long-term orientation between home and host country – rather differences in power distance, individualism and masculinity – have a negative impact on IJV survival.” (p. 850)
t = 2.61
(p < .01)
Anderson and Weitz (1989)
“A channel member’s trust in a manufacturer increases … the more congruent the manufacturer’s and channel member’s goals.” (p. 315)
690 dyadic relationships
t = 14.46
If goal congruence increases interfirm trust, then goal incompatibility will increase the potential for partner opportunism in alliances (assuming trust and opportunism are inversely related).
(p < .01)
Ross et al. (1997)
A focal firm’s “belief that the counterpart shares the focal party’s objectives” refers to goal congruence, which is negatively associated with the conflict the focal firm experiences in the relationship. (p. 691)
510 focal actors from 255 dyads (insurer and agent)
β = 0.156
Reversing the logic, goal incompatibility will be positively associated with perceived conflicts in an alliance relationship, which undermines relational bonds and increases the potential for opportunism.
(p < 0.05)
Heide and Miner (1992)
“Extendedness in a relationship will have a positive effect on the level of cooperation between two interacting firms in a Prisoner’s Dilemma context.” (p. 269) (Note: Four measures of cooperation for both purchasers and suppliers, creating eight regression coefficients)
155 purchasing agents and 60 suppliers
p < .01 for 7 coefficients; p < .10 for the other coefficient
Evidently, firms expecting to continue in an alliance are likely to be more cooperative. In alliances with long horizons, firms will not only expect to continue in their alliances, but will also be less likely to act opportunistically.
Joshi and Stump (1999)
“A manufacturer’s long-term orientation toward a supplier is negatively related to that manufacturer’s opportunism against the supplier.” (p. 340)
168 purchasing managers
t = −2.47
Long-term orientation of a manufacturer will be reflected in its preference for a long alliance horizon. Evidently, this condition is negatively related to the potential for a manufacturer’s opportunism.
(p < .01)
Pressures for quick results
Das and Teng (1999)
“Partners demand quick results in the short run and tend to be less patient with long-term investment and commitment. Consequently, alliance performance evaluation will rely heavily on financial and market-based indicators.” (p. 59)
Pressures for quick results are very real in most alliances. Many firms are unable to cope with such pressures for various reasons. Since opportunism offers a clear-cut and quick way to reap substantial benefits (albeit through unfair means), these firms have a higher potential to act opportunistically to respond to the pressures for quick results.
“Many relationships die an early death when they are scrutinized for quick returns.” (p. 102)
An alliance partner that evaluates alliance performance without allowing sufficient time is not going to be satisfied with the results. A dissatisfied partner will be disinclined to continue in the joint project, perhaps causing premature termination of the alliance.
The economic determinants of opportunism are the most widely acknowledged in the literature, but especially so in transaction cost economics (Klein et al. 1978; Masten 1988; Williamson 1975, 1979, 1993). Scholars maintain that an alliance partner’s opportunism is shaped by economic considerations (e.g., Klein 1996). An alliance partner is driven by the need to procure economic benefits or to avert economic losses. When such needs are acute, an alliance partner may harm other alliance members in furtherance of its own economic self-interest. The larger the potential economic gains to be made, the more an alliance partner would be driven toward opportunism. Thus, “even among the less opportunistic, most have their price” to give in to opportunism (Williamson 1979, p. 234). The presence or absence of these factors can restrict or facilitate a partner in opportunistically pursuing its economic self-interest. As a group, we call these factors the economic determinants of partner opportunism. The set of economic determinants comprise equity involvement, alliance-specific investments, mutual hostages, and payoff inequity.
Broadly, alliance structural arrangements can be either equity-based or nonequity-based. Equity alliances are considered more effective than nonequity alliances in curbing opportunistic behavior (Das and Teng 1996; Gulati 1995) because equity binds member firms to the alliance, making it difficult for them to withdraw easily. A partner firm will not jeopardize its alliance relationship by exploiting the focal firm’s alliance-specific investments if it has an equity stake in that alliance. Similarly, if both firms contribute known shares of equity in their alliance, they would be more accepting of asymmetric resource commitments.
Equity is generally expressed in monetary terms. The equity invested in the alliance would get tied up with ongoing operations for an indefinite period of time and, thus, cannot be readily retrievable. In fact, a partner would have to depend on the focal firm’s cooperation to withdraw its equity stake from the alliance. Plainly, a partner behaving opportunistically with the focal firm cannot expect cooperation from the focal firm in the withdrawal process. Thus, opportunism creates problems for the partner in recovering its equity stake in the alliance. The value of the tied-up equity that an opportunistic partner risks losing would raise the required threshold of economic gains from opportunism.
The extent of equity involvement will be negatively associated with potential for partner opportunism.
Asymmetric Alliance-Specific Investments
In alliances, members often have to develop facilities or acquire assets that are useful and valuable only within the specific alliance context. The rationale for investing in alliance-specific assets is to achieve higher efficiency in alliance operations. However, as an unintended consequence, a focal firm investing in these alliance-specific assets becomes dependent on its partner’s cooperation in the alliance. If there is a low level of dependence on the focal firm, the partner will be more likely to behave opportunistically, since it “can more easily shift to other suppliers or provide critical services on their own than can their highly dependent counterpart” (Provan and Skinner 1989, p. 205). Asymmetry in actual resource commitments may affect the perceived asymmetry in commitment. Indeed, as Ross et al. (1997) observe, “in the principal-agent context it may be discomfiting or disadvantageous for the perceiver to believe that it is overcommitted relative to its counterpart because this belief may create fear of opportunism” (p. 683; emphasis in original).
Generally speaking, a focal firm becomes vulnerable to partner opportunism when it invests in alliance-specific assets. This is because there would be sufficient scope for the opportunist to misappropriate the quasi-rents generated from such investments. As Klein et al. (1978, p. 298) emphasize: “After a specific investment is made and such quasi rents are created, the possibility of opportunistic behavior is very real.” If the opportunistic partner were to leave the alliance, the focal firm would likely lose the alliance-specific value of its assets. Hence, as long as the loss of abandoning the alliance is greater than the loss incurred due to partner opportunism, the focal firm will have to continue to be a part of the alliance. The opportunistic partner, in turn, would try to ensure just enough reward for the focal firm to dissuade it from severing ties.
If a focal firm believes its commitment to the alliance to be greater than that of the partner firm, it might perceive a higher potential for partner opportunism, but especially so if the focal firm happens to be a small firm or an entrepreneurial firm (Das and He 2006). A firm’s apprehension of opportunistic behavior by the partner may be exacerbated when it has “paranoid concerns and fantasies about the long-term lack of equity in the transfer of knowledge and capability” (Gould et al. 1999, p. 697). By a similar logic, a partner firm will also be apprehensive about possible opportunistic behavior by the focal firm if it believes that its own resource commitments are greater than that of the focal firm. This heightened apprehension will, in turn, lead to an increase in the partner’s potential for opportunistic behavior. In other words, the fear of the focal firm’s opportunism may increase the partner’s own potential for opportunistic behavior. The focal firm should understand this logic, and realize that just as it apprehends opportunistic behavior by the partner, the partner may in turn also fear opportunism from the focal firm in situations of asymmetric investments. Accordingly, the asymmetry intrinsically adds to the potential for partner opportunism.
Asymmetric alliance-specific investments will be positively associated with potential for partner opportunism.
The idea of using mutual hostages by alliance members is not new as a means of expressing credible commitment and deterring partner opportunism. Mutual hostages serve as a guarantee against defection (Williamson 1983). Alliance firms can hold mutual hostages by exchanging their respective critical resources with counterparts. The type, amount, or value of resources to be used as hostages (e.g., equity, know how, personnel) can be explicitly stated as contractual provisions. In this context, Hwang and Burgers (1997, p. 105) assert that “mutual commitment offers a way of enhancing the robustness of cooperation and diminishing the attractiveness of defection.”
Clearly, mutual hostages would thwart partner opportunism even when the focal firm makes alliance-specific investments. Such hostages would also reduce the perceived asymmetry in resource commitments, since credible commitments are established by both alliance members. Finally, mutual hostages would artificially reduce the level of private benefits for the opportunist, since it would have to forgo its own hostage investment. This would yield a low private to common benefits ratio, effectively decreasing the potential for partner opportunism.
Mutual hostages will be negatively associated with potential for partner opportunism.
Partners often perceive their gains from the alliance to be inequitable compared to those of the focal firm. Following equity theory (Adams 1963), the partner that perceives its rewards as inequitable would be driven to assure a sense of equity. Often, this may be accomplished by resorting to opportunistic behavior. We are, of course, concerned here only with under-compensation as a form of inequity. An over-compensated partner firm will have no motivation for behaving opportunistically. It is only when the partner feels under-compensated that it will seek to even out the payoff arrangements through non-cooperative means.
The partner firm will react opportunistically to restore equity when it perceives inequitable allocation of alliance gains. Alliance firms tend to work in an intertwined fashion, often to such an extent that it becomes impossible to objectively account for each partner’s contribution toward the alliance’s performance. Ambiguity in measuring each member’s performance would complicate the problem of payoff inequity. The greater the perceived inequity, the higher will be the potential for opportunistic behavior by the partner.
Payoff inequity will be positively associated with potential for partner opportunism.
The second set of determinants of opportunism is relational. Ghoshal and Moran (1996) note that a partner’s feeling for other alliance members would affect that partner’s opportunistic attitude, which would lead to opportunistic behavior. The relational determinants influence partner opportunism in three general ways. First, a relationship that lacks interpartner legitimacy (Kumar and Das 2007) can act as a sanction for a partner to be less sensitive to the well-being of other members. Therefore, an opportunistic partner would not feel guilty or even be concerned about the focal firm being adversely affected by its opportunism. Second, when an alliance partner feels coerced by the focal firm in some way, it would be likely to consider a response to the coercion. An atmosphere of interpartner harmony (Das and Kumar 2009a) is breached, thereby making way for partner opportunism. Third, the lack of an intimate relationship could easily give rise to misunderstandings, thereby provoking partner opportunism. The relational determinants of opportunism discussed here are cultural diversity and goal incompatibilities.
Cultural diversity among alliance members is a common phenomenon. Although most research on cultural diversity in alliances has been in the context of cross-national alliances (e.g., Johnson et al. 1996; Kumar and Das 2009; Meschi and Roger 1994), alliance firms from the same country may also have very distinct organizational cultures (Harrigan 1988). However, regardless of the source—be it national or organizational—cultural diversity creates relational issues in alliances. Firms from different cultures see the strategic behavior of their partners through different lenses, since “different cultures are likely to interpret and respond to the same strategic issue in different ways” (Schneider and De Meyer 1991, p. 307). Thus, the chances of misinterpreting the partner’s actions are high. Contrasting national cultures, Brown et al. (1989, pp. 237–238) observe: “The Japanese believe the straightforwardness of Westerners is rude and probably masks deceit. Westerners believe the Japanese inability to come to the point quickly denotes trickery, and find their negotiating tactics underhanded.” In their study of IJVs, Johnson et al. (1996, p. 83) argue that, in general, “cross-cultural interaction, often replete with misunderstandings and miscommunication, can foster opportunistic tendencies.”
From the focal firm’s perspective, cultural diversity would be cause for increased partner opportunism for a couple of reasons. First, the partner firm may react opportunistically based on a misinterpretation of the focal firm’s behavior as threatening. According to Brouthers et al. (1995, p. 23), “Different cultures have unique time frames, alternative priorities, and distinctive methods of saying no. Those managers cognizant of these cultural differences will not misread partner signals and will therefore be more successful in their alliances.” Misunderstandings due to different cultural values and interpretation mechanisms would hinder communication and lead to poor interfirm relationship, perhaps provoking the partner into behaving opportunistically.
Second, cultural distance may result in a self-centered, ethnocentric approach in dealings with alliance members. Firms would be more likely to hold a positive feeling for a potential alliance partner with a similar cultural background, whereas they would be more apprehensive about one with a different cultural background. As Ghoshal and Moran (1996, p. 21) also observe: “As shown by Ajzen and Fishbein (1977) and Eagly and Chaiken (1992), a positive feeling for the entity would reduce opportunism whereas a negative feeling would enhance it.” Over all, increased cultural diversity leads to greater potential for partner opportunism.
The cultural diversity among alliance members will be positively associated with potential for partner opportunism.
Goals are incompatible when the pursuit of one hinders the pursuit of the others. This is different from goal dissimilarity, whereby alliance members have different goals, but without any problem, because these goals are not in conflict with each other. Although mutual strategic interests often bring prospective alliance partners together, their goals can sometimes be incompatible. According to Hill and Hellriegel (1994, p. 594), “joint ventures are particularly likely to be subject to goal conflicts since they are formed by two or more firms, each with its own set of goals. Ultimately, a joint venture is measured by the extent to which the venture meets the goals and expectations of the individual partners.” In time, alliance relationships may become sour, filled with bickering and the blaming of each other. When the attractions of newness in cooperative arrangements fade away and the potential for disputes becomes apparent, alliance members “may feel compelled to retreat from interactions, withhold information, and safeguard personal interests” (Gassenheimer et al. 1996, p. 77).
Self-interest seeking may encourage deceit when goals are not aligned. When goals are compatible, each member can pursue its own interests without harming those of the others. In that case, mutual self-interest seeking becomes possible. However, when alliance members’ goals are incompatible, a partner firm trying to accomplish its own goals may seem to behave in an uncooperative manner. “Firms involved in alliances must have goals that support each other, not compete with each other. Competitive goals, such as ‘get all you can,’ are counterproductive and result in alliance failure” (Brouthers et al. 1995, pp. 21–22). Thus, the focal firm is likely to perceive its partner’s actions as opportunistic when goals are incompatible. An alliance partner would harm the focal firm if it pursues self-interest when the focal firm’s goals are incompatible. Opportunism yields no risk of loss for the partner, for the focal firm’s goals would not benefit the partner anyway. Thus, the relational tension would increase—and the relational bond would weaken. A partner would feel less restraint against opportunism. Thus, conflict is very likely when alliance firms have incompatible goals. As a consequence, as Cullen et al. (1995, p. 95) observe, “Conflict erodes trust, increases the potential for opportunistic behavior, and reduces the likelihood of partners dedicating necessary idiosyncratic assets to the relationship.” Disagreement over goals may also lead to dissatisfaction with the relationship, to the detriment of the cooperative spirit. Dissatisfied alliance members will be less likely to feel committed to each other or to the alliance, thereby increasing the likelihood of opportunism.
Goal incompatibilities among alliance members will be positively associated with potential for partner opportunism.
The third set of factors determining partner opportunism is concerned with the time dimension. Alliances differ in their intended duration of existence. A short duration would elicit a different partner behavior, with scope for easy exit after opportunistic gains, compared to a long duration, in which the partner has to continue dealing with the focal firm for some period of time. Also, temporal pressures can motivate a partner to behave in ways that it would not do under ordinary conditions. For instance, the sense that operating results need to be achieved in an accelerated manner can cause a partner to worry excessively and to resort to desperate measures (i.e., opportunistic actions) to meet deadlines. The notion that partner opportunism may arise from temporal determinants has been proposed recently by Das (2006). We need to be careful here to exclude factors that merely evolve over time, and may superficially appear to be temporal in nature (such as learning races) but are intrinsically economic in motivation. The temporal determinants of opportunism are comprised of alliance horizon and pressures for quick results.
Strategic alliances are inherently temporary. Although some joint ventures have lasted for multiple decades, the underlying intention of alliance members during the formation of the alliance is to have an arrangement that would exist for a finite time period, not a permanent arrangement. While explicit dates of dissolution are generally agreed on during alliance formation, some alliances have an indeterminate termination date. Alliance horizon is the duration an alliance is expected to be in existence, or the intended time span between the formation of an alliance and its dissolution.
Alliance horizons can vary in time span from short to long to open-ended. A short alliance horizon would foster opportunism, whereas a long alliance horizon would deter such deceitful behavior. Alliance horizons affect partner opportunism in several ways (Das 2004, 2006). First, alliance horizons positively impact the length of “the shadow of the future.” Research suggests that a long shadow of the future compels a partner to seriously assess the prudence of engaging in opportunism, for it has to be concerned about possible repercussions it might have to face in the upcoming future (Axelrod 1984; Heide and Miner 1992). Second, during the course of alliance operations, not all gains can be split equitably between alliancing firms. When the alliance horizon is long, sufficient time is usually available for evening out temporary inequities between alliance members. Therefore, a long alliance horizon would give a partner confidence that apparent inequities will not persist in the long run. In such a circumstance, a partner will not have to resort to opportunism to restore its sense of equity. Third, having set up a long alliance horizon, a partner would be more inclined toward preserving the relationship. According to Ring and Van de Ven, “in the temporal development of a cooperative IOR [interorganizational relationship], social psychological processes will create a separate set of pressures to preserve the relationship” (1994, p. 95). Moreover, continued and supplementary commitments are likely to be high in an alliance with a long horizon, which would also serve to constrain partner opportunism.
The length of alliance horizon will be negatively associated with potential for partner opportunism.
Pressures for Quick Results
It usually takes some considerable time before alliances start producing results. Das and Teng (1999, p. 59) explain that “alliances are time-consuming projects because partner firms have to learn to work together smoothly and efficiently,” so that pressures for quick results during the initial stages of the alliance may in fact jeopardize the possibilities of that alliance becoming a profitable venture. However, firms differ in their preferences: “One partner may have a sense of urgency and favor quick results, while the other has a long-term view and is more oriented towards investments in financial assets and in building up a relationship with the partner” (Barkema and Vermeulen 1997, p. 849). Also, firms may have a host of reasons for seeking quick results from their alliance projects. First, firms often lack the patience to allow the interfirm relationships to develop, so that they tend to treat the alliance merely as a one-off business transaction. Second, a firm may be unwilling to wait sufficiently long to see the performance results develop because it does not have the requisite faith in its partner or in the alliance. Third, a firm may simply not be able to afford to wait long enough for optimum alliance outcomes, because substantial resources would remain tied up in the alliance during such an extended period.
A partner experiencing pressures for quick results may resort to desperate means to acquire gains from the alliance. One of the significant advantages of opportunistic behavior is that it provides immediate results, although it comes at the expense of potentially greater long-term benefits. Brown et al. (2000, p. 51) observe: “A firm behaves opportunistically to increase its short-term, unilateral gains. As a result, opportunism by one party can erode the long-term gains potentially accruing to both parties in a dyadic channel relationship.” Because a partner under pressure for quick results would discount future outcomes at a much higher rate, the opportunity cost of opportunistic behavior would appear negligible to such firms and the potential for opportunistic behavior would be high.
Pressures for quick results will be positively associated with potential for partner opportunism.
Our discussion of the broad framework of determinants should, we hope, help in appreciating the multiplicity of influences that are simultaneously at play in constituting partner opportunism in alliances. In particular, the wide variety evident in the list of determinants attests to the inherent complexities of partner opportunism. It would be useful now to explore the differential saliencies of the various determinants in the three principal forms of alliances.
Determinants in Different Types of Alliances
The basic distinction among the myriad forms of strategic alliances is in terms of equity and nonequity alliances. This simple dichotomy is widely evident in the empirical literature for eminently practical reasons (e.g., Gulati 1995). Of course, more complex classifications have also been proposed (e.g., Lorange and Roos 1993). However, for our purposes here, we follow a somewhat parsimonious categorization of the rich variety of alliances, and use the three types followed by Das and Teng (1998)—equity joint ventures, minority equity alliances, and nonequity alliances. Equity joint ventures are the only form of alliances involving the creation of a third entity. Alliance members are usually referred to as parents of the joint venture organization. The parents share the ownership of the joint venture and influence its strategic direction. Minority equity alliances are interfirm relationships where a member holds an equity stake in the partner, or cross-hold equity in each other. Sharing of ownership reflects a high level of commitment to the alliance on the part of the alliance members. Nonequity alliances, as the name suggests, do not involve any equity or the transfer of ownership. They are contract-based and contingency provisions in the contract can usually make them quite flexible. Nonequity alliances do not ordinarily bring alliance members into close proximity and do not usually foster an intimate business relationship.
Significant determinants of partner opportunism in different alliance types
Equity joint ventures
Minority equity alliances
Asymmetric alliance-specific investments
Pressures for quick results
Pressures for quick results
Equity Joint Ventures
Among the economic determinants of partner opportunism, equity involvement appears to be the most prominent in equity joint ventures. A joint venture requires the parent firms to invest substantial equity to set up the commonly owned, independent organization. Therefore, equity involvement is likely to be an active determinant of opportunism in a joint venture. Scholars have argued, both conceptually and empirically, that the more equity an alliance member invests in a joint venture, the less likely it is to resort to opportunism (Beamish and Banks 1987; Buckley and Casson 1988; Das and Teng 1996; Gulati 1995). This is because of the possibility of losing the equity investments tied up in the joint venture if the partner firm were to get caught in an opportunistic act and had to face legal or social consequences. There is added complication if we try to distinguish between equal and unequal splits in equity involvement by the members. However, the specific kind of arrangement that would most enhance the effects of equity involvement, as a determinant of opportunism, is unclear from existing empirical findings. Whereas some scholars have found equal equity involvement to be more conducive to joint venture success (Bleeke and Ernst 1991; Blodgett 1991), others have found unequal equity involvement by the parents to be positively associated with joint venture success (Killing 1982).
Of the relational determinants, cultural diversity has the more important role in equity joint ventures. First, joint venture parents have to work very closely with each other. This closeness would reveal the various critical cultural characteristics of each parent. Hence, also, the cultural differences are more likely to surface in equity joint ventures than in other forms of alliances. These differences could be a serious problem, because they could hinder the tightly integrated work process through poor communication, misunderstanding, and unnecessary provocations (Glaister and Buckley 1999, p. 127). Research also suggests that organizational culture differences are more detrimental to interfirm relationships than are national cultural differences of the joint venture firms (Harrigan 1988).
We observed from our analysis that the temporal determinants of opportunism would be important in influencing potential partner opportunism in equity joint ventures. As the parent firms jointly create a new firm, it is usually the case that operations would have to continue for a long period of time to realize net gains. Given the relatively long-term nature of equity joint ventures, alliance members realize that they would have to work together for a relatively long period of time. Therefore, firms planning to form an equity joint venture would generally prefer a long alliance horizon. Based on our rationale regarding temporal determinants, a long alliance horizon would have a significant impact on decreasing the potential for partner opportunism.
Minority Equity Alliances
Among the economic determinants, asymmetric resource commitments in the form of alliance-specific investments would have a strong influence on partner opportunism in minority equity alliances. When an alliance firm commits alliance-specific resources, it becomes very vulnerable to its partner’s potential exploitative intentions. In such asymmetric contributions, one firm is bound to become more or less dependent vis-à-vis the other firm. A partner that is less dependent may behave opportunistically because of the excessive dependence of its counterpart. It should be noted that the impact of alliance-specific resource commitments would be strong when such commitments are made disproportionately or one-sidedly, i.e., only by the focal firm. The problem is more acute in a minority equity alliance than in an equity joint venture. This is because a partner with less alliance-specific resource commitments may take advantage of the focal firm’s vulnerability arising from more resources committed.
Of the relational determinants, goal incompatibilities appear to be the important influence on partner opportunism in minority equity alliances. Incompatible goals between alliance members of a minority equity alliance would be likely to erode relational harmony over time. The effect of goal incompatibilities is further complicated by the fact that alliance firms cannot just disband the alliance on account of the equity stakes they hold in each other. As dissolving the alliance is not a ready option, a partner firm would seek self-interest through every way possible, including opportunism. A partner would resort to shirking, withholding of critical information, and various acts of infidelity under such circumstances.
Of the temporal determinants, pressures for quick results affect opportunism in minority equity alliances. Such pressures might arise if a partner overlooks the time it would take to resolve numerous unforeseen problems within the alliance, before getting into actual performance-related activities (Das and Teng 1999). Because of the idiosyncratic nature of the equity tie-up, where a partner cannot just hold back and leave the alliance, a partner feeling put upon by pressures for quick results would discount long-term results and would be drawn toward short-term gains. Since opportunism offers the perfect method for ensuring short-term gains, a partner feeling pressures for quick results would be inclined toward opportunism.
A partner is most likely to perceive payoff inequity in a nonequity alliance. Given the lack of an objective and tangible basis for distributing income generated from alliance activities (there being no relative equity contribution by alliance members in a nonequity alliance that can serve as a basis for distributing residuals), perceptions of payoff inequity can exist. Reacting to its perceptions, a partner firm may resort to opportunistic behavior to regain a sense of equity.
Of the relational determinants, goal incompatibilities could be potent in breeding opportunism in nonequity alliances. In this type of alliance, member firms usually do not have to interact closely in carrying out alliance tasks. Thus, they are not exposed to each other’s organizational culture, diminishing the saliency of cultural diversity as a relational determinant of opportunism. However, an alliance partner might find it convenient to breach the principle of exclusivity that forms part of the contracts of nonequity alliances. Griesinger (1990) characterizes this form of opportunism as infidelity.
Of the temporal determinants, pressures for quick results are common in nonequity alliances. Firms start off with this type of alliance to test the waters before engaging in more deeply involved business relationships. An alliance partner feels the pressures for quick results because realizing alliance outcomes quickly lets it decide on possible extension of the existing alliance. Unfortunately, a lack of time often yields less than satisfactory results, prompting the alliance partner to behave opportunistically to secure self-interests.
Discussion and Conclusion
We noted from a review of the literature that our understanding of partner opportunism in strategic alliances has generally been inadequate. In this article we attempted to contribute to the literature by proposing an overarching framework of determinants of potential partner opportunism. We began by suggesting an encompassing definition of partner opportunism as a basis for better understanding and study of the phenomenon. We then identified a comprehensive set of determinants comprising three categories of factors: economic, relational, and temporal. These determinants were discussed individually to better understand the rationale for a partner firm to behave opportunistically.
We followed this up with a brief examination of the differential saliencies of these determinants in three major types of alliance settings, namely, equity joint ventures, minority equity alliances, and nonequity alliances. This kind of analysis should eventually assist mid-range theorizing consistent with our contingency approach.
A striking—and unexpected—insight that emerged from this exercise is that minority equity and nonequity alliances seem to be prominently influenced by very similar kinds of determinants of partner opportunism (see Table 3). Although these two types of alliances have different economic determinants, they have the same relational and temporal determinants. The overall array of the determinants in minority equity and nonequity alliances are in clear contrast with the list of determinants in equity joint ventures. We believe this difference maybe due to the fundamental distinction between an equity joint venture, which involves the creation of a third entity by the member firms, and the other two forms of alliances, which involve no such third entity. Thus, the mostly similar sets of critical determinants in minority equity and nonequity alliances, and a quite different set of determinants in equity joint ventures, suggest that perhaps we should adopt a new perspective in research concerning partner opportunism in alliances. Whereas extant empirical studies have routinely contrasted equity and nonequity alliances (i.e., treating equity joint ventures and minority equity alliances together as one cluster), such categories may not be the most conceptually sound way of grouping alliances for purposes of testing hypotheses relating to partner opportunism. Accordingly, we suggest that it would probably be useful to distinguish joint ventures from all other forms of alliances, minority equity and nonequity. This would facilitate more focused research on partner opportunism, especially in light of the specific sets of salient determinants in the three different alliance forms discussed here.
As an extension, we would speculate that there might indeed be reason for entertaining the notion that other relevant constructs in alliance research—such as confidence in partner cooperation, relational risk, interfirm trust, and partner control—might also be better examined through the dichotomy based on creation or otherwise of a third entity rather than on the basis of equity versus nonequity. Our discussion also, of course, suggests a fortiori that a three-part categorization, giving minority equity alliances a distinctive status along with the other two, would be warranted in all research where alliance variety is of interest and focus.
Limitations and Future Research
The framework of determinants of opportunism proposed here may be augmented with other factors. We mention briefly a few other candidates for determinants, each of which can be included in one of our three categories. For example, a partner firm’s embeddedness in a dense network ensures good behavior (Hill 1990), since opportunistic behavior with the focal firm will become known to all networked members, who are in a position to collectively impose social sanctions on the opportunistic firm. Relational embeddedness (i.e., the extent of direct relationship between two firms) and structural embeddedness (i.e., the structural position of the firm in the network) reduce the potential for partner opportunism within the context of sparse and dense networks respectively (Rowley et al. 2000). Relational embeddedness reduces the potential for opportunism that can occur due to a lack of relational harmony. Hence, we would include this factor in the category of relational determinants. In contrast, structural embeddedness reduces the potential for opportunism by the threat of sanctions that could result in substantial economic losses for the opportunistic partner. Thus, this factor can be placed in the category of economic determinants.
Furthermore, John (1984) found that coercion is related to the perception of partner opportunism. Thus, a focal firm that feels coerced by the partner would perceive its partner to be opportunistic. This type of opportunism arises from a lack of relational understanding and feeling of antipathy toward the supposedly coercive partner. Thus, we would categorize this factor under relational determinants.
While there may be other factors that can be thought of as determinants of opportunism, we believe that all these will consistently fit into the three-category framework we have proposed here. Doz et al. (2000) reviewed nine latent constructs that play significant roles in making up the initial conditions of alliance formation. Some of the latent constructs they review may influence the incidence of opportunism once the alliance gets underway, e.g., similar interests, domain consensus, escalation of commitment, continuity of expectation, and learning. Similar interests allude to less goal conflicts (Doz 1996; Larson 1992), thereby reducing the potential for opportunistic behavior. Seeking domain consensus implies “efforts to produce consensus by sense making and understanding processes undertaken during negotiation processes. … Potential collaborators need to reach meetings of the mind not only intellectually and strategically, but also culturally and ethically” (Doz et al. 2000, p. 241). Thus, domain consensus can foster cultural blending as well as common alliance objectives for member firms, which effectively would reduce the probability of partner opportunism, and can thus be included among relational determinants. This is also true of the construct of escalation of commitment, which would tend to reduce the likelihood of the alliance partner behaving opportunistically, as relational bonds between alliance firms grow stronger over time.
The construct of continuity of expectation has time at its core (Telser 1980). A partner’s expectation of continuing the alliance relationship is subsumed in the notion of alliance horizon, which is one of the temporal drivers of opportunism that we have introduced in this paper (see also Das 2004, 2005, 2006). While Doz et al. (2000, p. 242) argue that difficulties in learning and adapting initial conditions invite spiraling conflicts between alliance members, that issue is more about adaptation than learning. Partner opportunism can also be associated with the learning race in alliances (Hamel 1991). Learning races conjure up the probability of a partner outlearning a focal firm (Das and Kumar 2007). In such circumstances, the faster-learning partner would be in a position to find ways to advantageously back out of the alliance, violating the spirit of the alliance contract. This kind of partner opportunism, stemming from learning races, would belong in the economic determinants category.
An interesting question is whether partner opportunism may be associated with exogenous factors, such as demand uncertainty and technological uncertainty. Clearly, these factors limit the probability of accomplishing alliance-specific goals, thereby increasing the performance risk of alliances. However, such conditions have no direct effect in triggering non-cooperative behavior (i.e., partner opportunism). Nevertheless, economic hardship, arising from exogenous factors, can make economic drivers of opportunism more salient. That is, a partner’s desire to acquire economic benefits through opportunistic behavior may increase when the general economic conditions are not favorable (i.e., under conditions of high demand and technological uncertainty). Therefore, these exogenous variables may positively moderate the relationship between economic determinants and the potential for partner opportunism.
Future research would also need to explore the role, generally, of various moderators that could affect the potency of the three categories of determinants of partner opportunism. For instance, the financial standing of a partner firm may have a moderating effect on the impact that some of the economic determinants may have on opportunism. A partner with a weak financial standing would have a dire need for economic gains from the alliance and would accentuate the influence of the economic determinants. In terms of the relational determinants, industry similarity between alliance members may have a moderating role. Alliance members from similar industries would more likely understand the managerial styles of their counterparts. Thus, even if conflicts or misunderstandings occur, the impact on partner opportunism would be much less when alliance members come from the same or similar industries. In the case of the temporal determinants, the preferred planning horizon of a partner firm may have a moderating effect. A partner’s long-term goal (e.g., building market share) would be in alignment with a long alliance horizon but at odds with a short alliance horizon (Das 2006). Similarly, a short-term primary goal (boosting the stock price) would probably enhance the function of pressures for quick results in partner opportunism. Furthermore, it would be useful to study how particular determinants of potential partner opportunism may have selectively conspicuous roles in specific alliance developmental stages (Das and Teng 2002a). The temporal aspects of alliances and their intersection with potential partner opportunism may also have critical significance in alliance development.
As academic inquiry of the role of partner opportunism extends into the emerging areas of alliance research, it would be fruitful to explore how the various determinants discussed here would be modified in the case, for example, of multi-partner alliances. Having much more complex internal dynamics because of indirect reciprocity among the members (Das and Teng 2002b), it would be reasonable to expect that the relational determinants, in particular, in this type of alliance will have the more prominent part. Renewed attention is needed for examining the changing functional impact of partner opportunism in the increasingly micro-behavioral approaches that are being adopted for studying alliance functioning, such as interpartner legitimacy (Kumar and Das 2007), interpartner sensemaking (Das and Kumar 2009b), interpretive schemes (Das and Kumar 2009c), and the socio-cognitive motivational principle of regulatory focus (Das and Kumar 2009d). For instance, it seems that alliance firms with a promotion regulatory focus will be more tolerant of their partners’ opportunistic behavior than alliance firms with a prevention regulatory focus. When this contingent view of the sensitivity to partner opportunism is considered in conjunction with the different stages of alliance development, an obvious research task would be to seek a fine-grained appreciation of the comparative influences of the different categories of determinants of partner opportunism across all developmental stages and alliance types.
Our discussion here has important managerial implications. The comprehensive approach to the determinants of partner opportunism should help the manager of the focal firm to evaluate systematically the circumstances that may increase or decrease the probability of the partner firm acting opportunistically. Thus, managers of the focal firm would be in a better position to assess the risk of an alliance engagement with a particular partner.
Alliance managers have at their disposal a set of tools to ensure the smooth functioning of the alliance. These tools are related to the functions of alliance managers and to ongoing operations. The unique feature of these managerial tools is that they are all geared toward restricting the scope of partner opportunism. The key tools to deter and control potential partner opportunism comprise monitoring, budgeting, and participatory decision making (Das 2005; Das and Rahman 2001, 2002).
Monitoring is useful in detecting signs of the partner’s opportunistic behavior by closely observing the activities of the partner within the alliance context. At a conceptual level, we would argue that the probability of being exposed as an opportunist would sometimes be sufficient in dissuading the partner from misbehavior. Close monitoring can identify shirking even when performance measurement is ambiguous. The focal firm can also use this mechanism when the partner has a reputation for defecting. In the alliance context, budgeting covers the allocation of resources to alliance members to enable them to perform designated tasks. Budgets financially restrict wasteful behavior by the partner. Since a minimum level of performance is expected within specific budget constraints, misrepresentations or delivery of sub-standard goods would very likely get detected. Therefore, budgets can effectively put a leash on an ill-reputed partner’s conduct within the alliance. As a managerial tool, participatory decision making involves bringing in representatives of all member firms to make decisions regarding alliance goals, maintenance, operations, performance, and the like. It also bridges the gap in values, understanding, and communication between partners. Furthermore, when alliance members share in decision making, the inequity perceived by each member can be readily addressed. For these reasons, participatory decision making will decrease the potential for partner opportunism.
Depending on the potential for partner opportunism, the focal firm would be able to use the optimally efficient combination of deterrence mechanisms to curb the incidence of opportunism (Das 2005). In particular, managers may be able to select specific mechanisms that would be appropriate for controlling partner opportunism generated primarily by each of the three types of determinants. For instance, if the focal firm is apprehensive of partner opportunism that is driven predominantly by cultural diversity (a relational determinant), it might well emphasize employee training designed specifically to foster sensitivity to cultural differences and institute trust-building processes.
In summary, we hope this article contributes toward a better appreciation of the factors that account for opportunistic behavior of partner firms. The framework of determinants proposed here should facilitate the rigorous study of partner opportunism, thus far inadequately examined as a problematic and complex phenomenon in the field of strategic alliances.
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