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General alliance experience, uncertainty, and marketing alliance governance mode choice

  • Original Empirical Research
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Abstract

Drawing from transaction cost economics (TCE), the knowledge-based view (KBV), and real options theory (ROT), we propose that the general alliance experience of alliance partner firms moderates the impact of market uncertainty and alliance-specific uncertainty on the benefits and costs of the two marketing alliance governance modes, i.e., non-equity alliances and joint ventures. Based on our systematic study of 18,616 marketing alliances occurring in 48 industries across 164 countries between 1992 and 2008, we find general alliance experience significantly moderates firms’ marketing alliance governance mode choices. Our framework reconciles some contradictory empirical results in the interfirm relationship governance structure literature by emphasizing the moderating role of partner firms’ general alliance experience. Specifically, when alliances can be characterized has having a large cultural distance between the partners or having a market with a broad geographic scope, it seems that TCE predictions regarding the marketing alliance governance mode choice hold for inexperienced firms while KBV and ROT predictions hold for experienced firms. In addition, by incorporating key aspects of all three theories, our proposed framework has the potential to provide deeper insights into the role of alliance experience and uncertainty in firms’ marketing alliance governance mode choices.

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Notes

  1. Over 53% of marketing alliances in our sample involve cross-cultural partners or operate in multiple countries.

  2. About 10% of alliances in the SDC alliance database (between 1992 and 2008) have three or four partners.

  3. A joint venture in the SDC alliance database is defined as “a cooperative business activity, formed by two or more separate organizations for strategic purpose(s), which creates an independent business entity, and allocates ownership, operational responsibilities, and financial risks and rewards to each member, while preserving each member’s separate identity/autonomy. The new entity can either be newly formed or the combination of pre-existing units and/or divisions of the members”. A non-equity alliance is “a cooperative business activity, formed by two or more separate organizations for strategic purpose(s), which does not create an independent business entity, but allocates operational responsibilities, and financial risks and rewards to each member, while preserving each member’s separate identity/autonomy”.

  4. According to Oxley (1999), a country’s intellectual property protection plays an important role in firms’ choice of alliance governance mode. This is particularly true for marketing alliances since the product exposure is an inherent part of the arrangement. TCE suggests that difficulties encountered at any of the three stages of contracting (specification of property rights, monitoring, or enforcement) will lead to an increase in appropriability hazards, and a move from non-equity alliances to joint ventures. This would lead to a negative relationship between intellectual property protection and the choice of joint ventures.

  5. There are a number of reasons for selecting 25 prior alliance experiences as the number to signify that the firm has general alliance experience. Our first reason is pragmatic, i.e., we were looking for a cut-off that not only made sense, but also produced a manageable sample size of firms. Using 20 as a cutoff yields 746 experienced firms. This number is too large in terms of being able to estimate our model with firm dummies as well as year and country dummies. Using 30 as the cutoff reduces the sample substantially, especially in terms of available alliances. Second, and possibly more importantly, note that we are less interested in defining what it takes to be “experienced” than finding a sample that allows us to test whether it is important to control for unobserved fixed firm effects.

  6. The reader should note that for the model with firm dummies, in many instances we only control for one of the firms within the alliance, since we only include a firm effect for firms that had formed 25 or more alliances. In effect, we are assuming that the fixed effects associated with less experienced firms in a particular alliance are random.

  7. The results from the experienced sample are available from the authors.

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Authors and Affiliations

  1. School of Management, George Mason University, 4400 University Drive, MSN 5F4, Fairfax, VA, 22030, USA

    Ning Li

  2. Fuqua School of Business, Duke University, Durham, NC, 27708-0120, USA

    William Boulding & Richard Staelin

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  1. Ning Li
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Correspondence to Richard Staelin.

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We would like to thank Will Mitchell, John Sawyer, Vilmos Misangyi, Yasemin Kor, Michael Naor, and Min Shen for their feedback or help on earlier versions of this paper. We would also like to express our sincere appreciation to the four anonymous reviewers whose insightful comments immensely helped us sharpen our thinking.

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Li, N., Boulding, W. & Staelin, R. General alliance experience, uncertainty, and marketing alliance governance mode choice. J. of the Acad. Mark. Sci. 38, 141–158 (2010). https://doi.org/10.1007/s11747-009-0154-0

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