THE FOX SCHOOL of Business and Management ELSEVIER Journal of Intermational Management 14 (2008)173-189 E MPLE UNI T Y The stability of strategic alliances: Characteristics, factors and stages Xu Jiang, Yuan Li", Shanxing Gao School of Management, Xi'an Jiaotong University, Xi'an 710049, PR China Received 31 January 2007: received in revised form 18 September 2007; accepted 19 September 2007 Available online 2 May 2008 Abstract A, This paper presents a theoretical framework for understanding the evolutionary dynamics of strategic alliances. Using an tegrated process model, we analyze the conceptual characteristics and antecedents of the stability of strategic alliances. T primary purpose of this study is to(1) conceptualize and characterize alliance stability to fill the academic gap in the literature, and (2)identify a range of endogenous factors underlying alliance stability across four developmental stages- partner selection, structuring/negotiation, implementation and performance evaluation as to fill the managerial relevance gap. From the discussion, we develop a number of propositions to facilitate future empirical testing of our conceptual model. Finally, we indicate some key implications for theoretical research and managerial practice C 2008 Elsevier Inc. All rights reserved. Keywords: Strategic alliances; Dynamics; Stability; Developmental stage 1. Introduction The dynamic aspects of strategic alliances have received increasing attention from both academics and practitioners in the past decade. In their recent contribution, however, Bell et al. (2006)contend that there are still both an academic gap and a managerial relevance gap in the literature on the dynamics of cooperation. The academic gap arises from the fact that the majority of the academic research has failed to contribute to a coherent and empirically validated knowledge foundation. Theoretical progress has been impeded by contradictory assumptions, theoretical diversity, insufficient knowledge accumulation, and scattered, non-comparable findings(De Rond and Bouchikhi, 2004). The managerial relevance gap exists because the existing dynamics research often addresses issues that are irrelevant to alliance managers'needs, providing only partial answers to managerial questions. Bell et al. suggest future research hould be more devoted to developing a proper theory and improving managerial relevance so as to fill the two gaps. What Bell et al. contend is direct to the point in current alliance research. The present paper is an attempt to offer the type of knowledge which they have called for. It is necessary to note that dynamics is a strategic variable which mbodies different dimensions in itself, and therefore it is unlikely that a single research project will take all these This paper was supported by NSFC(70472039, 70671082 and 70372050) s Corresponding author. Tel: +86 29 82665093; fax: +86 29 82668382. E-mailaddresses:jiangaini(@yahoo.com.cn(XJiang),liyuan@mailxjtu.edu.cn(Y.Li),gaozn(@maiLxjtu.edu.cn(S.Gao) 1075-4253/S front matter o 2008 Elsevier Inc. All rights reserved. doi:10.1016/ Inman.2007.09.002
The stability of strategic alliances: Characteristics, factors and stages ☆ Xu Jiang, Yuan Li ⁎, Shanxing Gao School of Management, Xi'an Jiaotong University, Xi'an 710049, PR China Received 31 January 2007; received in revised form 18 September 2007; accepted 19 September 2007 Available online 2 May 2008 Abstract This paper presents a theoretical framework for understanding the evolutionary dynamics of strategic alliances. Using an integrated process model, we analyze the conceptual characteristics and antecedents of the stability of strategic alliances. The primary purpose of this study is to (1) conceptualize and characterize alliance stability to fill the academic gap in the literature, and (2) identify a range of endogenous factors underlying alliance stability across four developmental stages — partner selection, structuring/negotiation, implementation and performance evaluation — so as to fill the managerial relevance gap. From the discussion, we develop a number of propositions to facilitate future empirical testing of our conceptual model. Finally, we indicate some key implications for theoretical research and managerial practice. © 2008 Elsevier Inc. All rights reserved. Keywords: Strategic alliances; Dynamics; Stability; Developmental stage 1. Introduction The dynamic aspects of strategic alliances have received increasing attention from both academics and practitioners in the past decade. In their recent contribution, however, Bell et al. (2006) contend that there are still both an academic gap and a managerial relevance gap in the literature on the dynamics of cooperation. The academic gap arises from the fact that the majority of the academic research has failed to contribute to a coherent and empirically validated knowledge foundation. Theoretical progress has been impeded by contradictory assumptions, theoretical diversity, insufficient knowledge accumulation, and scattered, non-comparable findings (De Rond and Bouchikhi, 2004). The managerial relevance gap exists because the existing dynamics research often addresses issues that are irrelevant to alliance managers' needs, providing only partial answers to managerial questions. Bell et al. suggest future research should be more devoted to developing a proper theory and improving managerial relevance so as to fill the two gaps. What Bell et al. contend is direct to the point in current alliance research. The present paper is an attempt to offer the type of knowledge which they have called for. It is necessary to note that dynamics is a strategic variable which embodies different dimensions in itself, and therefore it is unlikely that a single research project will take all these Journal of International Management 14 (2008) 173–189 ☆ This paper was supported by NSFC (70472039, 70671082 and 70372050). ⁎ Corresponding author. Tel.: +86 29 82665093; fax: +86 29 82668382. E-mail addresses: jiangaini@yahoo.com.cn (X. Jiang), liyuan@mail.xjtu.edu.cn (Y. Li), gaozn@mail.xjtu.edu.cn (S. Gao). 1075-4253/$ - see front matter © 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.intman.2007.09.002
174 X Jiang et al. /Journal of International Management 14(2008)173-189 dimensions into account. Hennart(2006: 1623)suggests that the main task in alliance research is to"keep it simple Hence, this study focuses on the stability dimension in particular Stability is vital for alliance survival, development and evolution, and it provides a necessary condition and a good proxy for performance gains and alliance success(Dussauge and Garrette, 1995; Beamish and Inkpen, 1995 Surprisingly however, few research efforts have been devoted to creating a comprehensive understanding of the stability issue in the strategic alliance field. With respect to the question of whether or not alliances are by nature unstable and transitional, we still have only limited knowledge. Some well-known alliances-for example, the IBM Sony-Toshiba R&D alliance and the Disney-McDonald's-Coca-Cola marketing alliance- have operated stably for many years and are considered successful. Many others, however, have been terminated shortly after they were formed. Alliance stability remains one of the least understood aspects of alliances and a big challenge for alliance researchers en In this paper, we argue that at the center of this academic gap might be the lack of a rigorous conceptualization of alliance stability. The gap may also result from limited knowledge about antecedents, elements and consequences of alliance stability. To fill this gap, we will first stress the need for stability research and discuss its relationship with alliance outcomes, and then we propose a precise conceptualization of alliance stability. We feel this conceptualization will be helpful in understanding the evolutionary nature of strategic alliances Furthermore, while studies examining the developmental process of alliances are increasing (e. g, Ring and Van de en, 1994; Doz, 1996; Das and Teng, 2002; De Rond and Bouchikhi, 2004), they have failed to incorporate the stability issue into this process. To date, little is known about which variables and factors may have impacts on stability in each specific stage of alliance development. For the purposes of this paper, the research initiatives appear to be fragmented and incomplete: while some researchers have focused on initial alliance conditions, others have covered factors at later stages. We contend that any one of these issues alone is unlikely to provide sufficient guidance to alliance managers, and the research stream is therefore in need of a comprehensive synthesis that organizes the existing literature. To fill this managerial relevance gap, we propose a process model in which the main antecedents of alliance stability will be examined. We argue that an alliance' s evolutionary dynamics depend on these factors and variables that the partners must assess and manage over its developmental stages We begin with an in-depth review and critique of prior research on alliance instability and stability. After that, we plain the important role of stability as a strategic variable, analyze its relationship with alliance outcomes, and offer a clear definition for it. A subsequent section focuses on the four commonly identified stages of alliance development and the key factors that actually determine the dynamics underlying alliance stability across the stages. The final section presents implications, limitations and directions for future research 2. Alliance instability and stability: a critical review Increasing academic attention to the complex evolving phenomenon of strategic alliances has led to research examining the specific dynamics within alliances. Table 1 lists a number of previous important and representative studies and their findings related to alliance instability and stability. As shown in Table 1, scholars have examined this topic in such areas as strategic alliances in general, special alliances(e. g, Bidault and Salgados multi-point alliances), equity joint ventures(hereafter: JVs), and international joint ventures(hereafter: IJVs) 2. 1. Previous research on alliance instability 2. .1. IV instability research Since the initial work undertaken by Franko(1971), the instability issue has long been a subject of research in strategic alliance literature. Notably, much of this prior research has addressed the issue in the context of [Vs. One possible reason is that international alliances that involve two or more firms across national and cultural boundaries have more fragile structures, more inter-partner conflicts, and a higher level of relational risks than other types of alliances. The inter-cultural and inter-organizational hybrid nature also suggests that the collaborative motives for IJVs and the factors underlying their instability are different from those associated with other types of alliances. As a result, UV instability has received much attention in the literature Reuer et al.(2002)argue that the root of alliance evolution research lies at the early work on DV instability. Past DV stability research has gone through a methodological process consisting of statistical observation, theoretical analysis, and empirical investigation. Early research(e.g, Franko, 1971; Killing, 1983; Gomes-Casseres, 1987)adopted a survey
dimensions into account. Hennart (2006: 1623) suggests that the main task in alliance research is to “keep it simple”. Hence, this study focuses on the stability dimension in particular. Stability is vital for alliance survival, development and evolution, and it provides a necessary condition and a good proxy for performance gains and alliance success (Dussauge and Garrette, 1995; Beamish and Inkpen, 1995). Surprisingly however, few research efforts have been devoted to creating a comprehensive understanding of the stability issue in the strategic alliance field. With respect to the question of whether or not alliances are by nature unstable and transitional, we still have only limited knowledge. Some well-known alliances — for example, the IBM– Sony–Toshiba R&D alliance and the Disney–McDonald's–Coca-Cola marketing alliance — have operated stably for many years and are considered successful. Many others, however, have been terminated shortly after they were formed. Alliance stability remains one of the least understood aspects of alliances and a big challenge for alliance researchers. In this paper, we argue that at the center of this academic gap might be the lack of a rigorous conceptualization of alliance stability. The gap may also result from limited knowledge about antecedents, elements and consequences of alliance stability. To fill this gap, we will first stress the need for stability research and discuss its relationship with alliance outcomes, and then we propose a precise conceptualization of alliance stability. We feel this conceptualization will be helpful in understanding the evolutionary nature of strategic alliances. Furthermore, while studies examining the developmental process of alliances are increasing (e.g., Ring and Van de Ven, 1994; Doz, 1996; Das and Teng, 2002; De Rond and Bouchikhi, 2004), they have failed to incorporate the stability issue into this process. To date, little is known about which variables and factors may have impacts on stability in each specific stage of alliance development. For the purposes of this paper, the research initiatives appear to be fragmented and incomplete: while some researchers have focused on initial alliance conditions, others have covered factors at later stages. We contend that any one of these issues alone is unlikely to provide sufficient guidance to alliance managers, and the research stream is therefore in need of a comprehensive synthesis that organizes the existing literature. To fill this managerial relevance gap, we propose a process model in which the main antecedents of alliance stability will be examined. We argue that an alliance's evolutionary dynamics depend on these factors and variables that the partners must assess and manage over its developmental stages. We begin with an in-depth review and critique of prior research on alliance instability and stability. After that, we explain the important role of stability as a strategic variable, analyze its relationship with alliance outcomes, and offer a clear definition for it. A subsequent section focuses on the four commonly identified stages of alliance development and the key factors that actually determine the dynamics underlying alliance stability across the stages. The final section presents implications, limitations and directions for future research. 2. Alliance instability and stability: a critical review Increasing academic attention to the complex evolving phenomenon of strategic alliances has led to research examining the specific dynamics within alliances. Table 1 lists a number of previous important and representative studies and their findings related to alliance instability and stability. As shown in Table 1, scholars have examined this topic in such areas as strategic alliances in general, special alliances (e.g., Bidault and Salgado's multi-point alliances), equity joint ventures (hereafter: JVs), and international joint ventures (hereafter: IJVs). 2.1. Previous research on alliance instability 2.1.1. IJV instability research Since the initial work undertaken by Franko (1971), the instability issue has long been a subject of research in strategic alliance literature. Notably, much of this prior research has addressed the issue in the context of IJVs. One possible reason is that international alliances that involve two or more firms across national and cultural boundaries have more fragile structures, more inter-partner conflicts, and a higher level of relational risks than other types of alliances. The inter-cultural and inter-organizational hybrid nature also suggests that the collaborative motives for IJVs and the factors underlying their instability are different from those associated with other types of alliances. As a result, IJV instability has received much attention in the literature. Reuer et al. (2002) argue that the root of alliance evolution research lies at the early work on IJV instability. Past IJV instability research has gone through a methodological process consisting of statistical observation, theoretical analysis, and empirical investigation. Early research (e.g., Franko, 1971; Killing, 1983; Gomes-Casseres, 1987) adopted a survey- 174 X. Jiang et al. / Journal of International Management 14 (2008) 173–189
X Jiang et al. /Journal of International Management 14(2008)173-189 ry of previous studies on alliance instability and stability Findings related to instability or stabil Instability JVs: subsidiaries of 170 irical research as unstable when parent holdings (1971) US-based corporations Killing Instability 37 DVs in No hence pirical research Shared-management ventures are more difficult to (1982,1983) erate and less stable than dominant-parent and independent ones. Culture difference, firm size, and the Gomes-Casseres Instability JVs: 5933 subsidiaries of Empirical research A JV is defined as"a subsidiary in which the multi- (1987) 180 large US multi-nationals tional enterprises own 5% to 95%of equity"(p. 97). ventures. Kogut(1989) 92 pirical research The stability of JVs is promoted by the poter reciprocate and the long-term, integrative ties 40 US-Japanese UV Case study firm Inkpen(1995) ic,political, and cultural environments is a critical factor in UV stability. If foreign partner attaches a high value to the acquisition of local knowledge, the instability of UVs will increase. Inkpen an Instability DVs Conceptual framework: a The primary factor associated with DV instability is bargaining power and shifts in partner bargaining power that allow a firm dependence perspective UVS Conceptual framework: Four factors affect UV instability: unexpect stability an structural instability and ontingencies, undesirable venture performance structural inertia perspectives obsolescing bargain with the local parties, and inter-partner competitive learning. Four principal sources of structural inertia contribute to stability: the local political and legal environments at founding, partner initial resource contributions, the original match of inter-partner bargaining power, and pre-venture relationships between partners Yan and Zeng Instability DVs Conceptual framework The authors summarized the major limitations of (1999) literature review previous research on IJV instability. They then reconceptualized instability as a neutral, dynamic, process-based, and multi-faceted phenomenon im and Ali Stability 59 IJVs from a Empirical research A set of firm. managerial and culture related eveloping country determinants of Uv stability were examined. context(Bangladesh) Cooperation and psychic distance between partners have significant impact on venture stability. Das and Teng Instability Strategic alliances in general Conceptual framework: Three sets of internal tensions that will lead to internal tension perspective instability were identified: cooperation vs competition, structural rigidity vs. flexibility, and Bidault and Stability 29 multi-point alliances Case stu The higher the business and organizational from 22 Frances largest complexities, the more likely a cooperative rangement will diverge from its initial objectives and the less stable a multi-point alliance. ll and Butler Instability IJVs: two Japanese JVs Case stu The key factors affecting stability are: trust, conflict 2003) cated in the uK d dependence. The relative importance of these d Malaysia factors varies due to the different national cultur Ernst and Stability tegic alliances in Practice experience dity is the real reason for alliance make them succeed. Executives need to restruc their alliances. even though the alliances are stable. Nakamura(2005) Instability 231 DVs formed in the post- Empirical research Inter-organizational learning may alter the relative World War ll period until the argaining power of the partners over time. Such late 1970s in Japan change in the partners relative power position often results in reorganization of the ljv
Table 1 Summary of previous studies on alliance instability and stability Authors Topic Alliance types Approaches Findings related to instability or stability Franko (1971) Instability JVs: subsidiaries of 170 US-based corporations Empirical research A JV was seen as unstable when parent holdings changed to include 50% or 95% ownership, a parent sold its JV interest, or the venture was liquidated. Killing (1982, 1983) Instability 37 IJVs in North America and Europe Empirical research Shared-management ventures are more difficult to operate and less stable than dominant-parent and independent ones. Culture difference, firm size, and the degree of ventures' linkages with parents affect stability. Gomes-Casseres (1987) Instability JVs: 5933 subsidiaries of 180 large US multi-nationals Empirical research A JV is defined as “a subsidiary in which the multinational enterprises own 5% to 95% of equity” (p.97). JVs were less stable compared to wholly-owned ventures. Kogut (1989) Stability 92 manufacturing JVs located in the US Empirical research The stability of JVs is promoted by the potential to reciprocate and the long-term, integrative ties among partners. Beamish and Inkpen (1995) Stability 40 US-Japanese IJVs Case study Foreign partner firms' knowledge of the local economic, political, and cultural environments is a critical factor in IJV stability. If foreign partner attaches a high value to the acquisition of local knowledge, the instability of IJVs will increase. Inkpen and Beamish (1997) Instability IJVs Conceptual framework: a bargaining power and dependence perspective The primary factor associated with IJV instability is shifts in partner bargaining power that allow a firm to eliminate its dependency on its partners. Yan (1998) Both stability and instability IJVs Conceptual framework: structural instability and structural inertia perspectives Four factors affect IJV instability: unexpected contingencies, undesirable venture performance, obsolescing bargain with the local parties, and inter-partner competitive learning. Four principal sources of structural inertia contribute to stability: the local political and legal environments at founding, partner initial resource contributions, the original match of inter-partner bargaining power, and pre-venture relationships between partners. Yan and Zeng (1999) Instability IJVs Conceptual framework: literature review The authors summarized the major limitations of previous research on IJV instability. They then reconceptualized instability as a neutral, dynamic, process-based, and multi-faceted phenomenon. Sim and Ali (2000) Stability 59 IJVs from a developing country context (Bangladesh) Empirical research A set of firm, managerial and culture related determinants of IJV stability were examined. Cooperation and psychic distance between partners have significant impact on venture stability. Das and Teng (2000) Instability Strategic alliances in general Conceptual framework: internal tension perspective Three sets of internal tensions that will lead to instability were identified: cooperation vs. competition, structural rigidity vs. flexibility, and short-term vs. long-term orientation. Bidault and Salgado (2001) Stability 29 multi-point alliances from 22 France's largest corporations Case study The higher the business and organizational complexities, the more likely a cooperative arrangement will diverge from its initial objectives and the less stable a multi-point alliance. Gill and Butler (2003) Instability IJVs: two Japanese JVs located in the UK and Malaysia Case study The key factors affecting stability are: trust, conflict and dependence. The relative importance of these factors varies due to the different national cultures. Ernst and Bamford (2005) Stability Strategic alliances in general Practice experience Corporate rigidity is the real reason for alliance instability. Flexibility must be built into alliances to make them succeed. Executives need to restructure their alliances, even though the alliances are stable. Nakamura (2005) Instability 231 IJVs formed in the postWorld War II period until the late 1970s in Japan Empirical research Inter-organizational learning may alter the relative bargaining power of the partners over time. Such a change in the partners' relative power positions often results in reorganization of the IJV ownership, leading to instability. X. Jiang et al. / Journal of International Management 14 (2008) 173–189 175
176 X Jiang et al. /Journal of International Management 14(2008)173-189 based observation approach and cited the high incidence of uV instability (for a review, see Sim and Ali, 2000). They therefore concluded that DVs are fragile organizational forms. Following this view, subsequent research has proposed several important conceptual models in discussing the causes and antecedents of IV instability, e.g., Inkpen and Beamish's(1997) bargaining power and dependence perspective and Yans(1998)structural instability and structural inertia perspective. More recently, some scholars have empirically tested the factors and antecedents proposed by prior studies and offered important evidence for their arguments(e.g, Sim and All, 2000; Nakamura, 2005) 2.1.2. Limitations in instability research Despite the rich literature on instability, previous studies have limitations(Yan and Zeng, 1999; Sim and Ali, 2000) First, several streams of research have examined alliance instability through a variety of theoretical perspectives and approaches(for a review, see Das and Teng, 2000), but no single theoretical approach can offer comprehensive insights nto its nature. The incompatible perspectives have also produced different and even contradictory findings, leading to the result that relevant research findings are not cumulative and comparable. Second, these studies have the problem of non-generalizability. For example, most research focuses on the instability of [JVs, but these research findings are not necessarily the same as those associated with other types of alliances. Third, while researchers have identified various kinds of destabilizing factors, it is unclear how these factors emerge and how they affect instability There are two distinct approaches for conceptualizing and operationalizing stability in the extant literature(Yan and Zeng, 1999; Gill and Butler, 2003). One is a static and outcome-oriented approach whose focus is on the final fates of an alliance, including the alliance being bought out, turning into an acquisition, or being liquidated. The other is a dynamic and process-oriented approach, in which instability is defined as changes in ownership structure in terms of ajor reorganizations and reconfigurations or contractual renegotiations. Since instability itself is a dynamic process variable, the more process-oriented perspective provides a better explanation for alliance instability. Unfortunately, prior research, with few exceptions (e. g, Killing, 1983; Yan and Zeng, 1999), has been dominated by the outcome-oriented approach. Das and Teng(2000: 96), who have conducted some of the most comprehensive and representative research so far, also acknowledge that their research only links alliance outcomes with imbalances of three pairs of competing forces and"does not clearly depict the evolutionary process by which these forces may develop". As a result, the process aspect and dynamic nature of instability are largely ignored, incurring serious methodological barriers and understanding biases 2.2. Previous research on alliance stabilin Research on the topic of stability is relatively scarce as opposed to the rich instability literature. Table I also lists prior representative studies on alliance stability, research contributions which also have limitations. For example, many studies do not conceptually differentiate instability from stability. Others(e.g, Yan, 1998; Yan and Zeng, 1999) parate the two but do not offer a reasonable theoretical rationale for this separation. In particular, while some of the udies nominally address the stability issue, they instead center most attention on the inverse side, i.e., alliance instability, or mix the two concepts in one study. Moreover, many studies deal with the stability of some particular type of alliances(typically JV or IJV stability), leading to the lack of consensus on the relative stability of different types of alliances. As a result, the conceptual blurring and inconsistency in research results increase the difficulty in understanding the dynamics within alliances. 3. Toward a comprehensive understanding of alliance stability 3. 1. Explaining the importance of stability research 3.1.1. Necessity of perspective conversion In contrast to prior relevant research, in this study we differentiate instability from stability Instability is a dynamic concept in itself, but research has traditionally taken an outcome-oriented approach and treated it as synonymous with the alliance's termination, death or failure(Franko, 1971; Killing, 1983; Kogut, 1989). In fact, however, an alliances termination does not necessarily imply instability. Some alliances are terminated according to plan(Inkpen and Beamish 1997), and others go out of existence because they have successfully accomplished the initial objectives( Gomes-Casseres 1987). Both of these possibilities indicate that not all terminated or short-life alliances should be considered unstable
based observation approach and cited the high incidence of IJV instability (for a review, see Sim and Ali, 2000). They therefore concluded that IJVs are fragile organizational forms. Following this view, subsequent research has proposed several important conceptual models in discussing the causes and antecedents of IJV instability, e.g., Inkpen and Beamish's (1997) bargaining power and dependence perspective and Yan's (1998) structural instability and structural inertia perspective. More recently, some scholars have empirically tested the factors and antecedents proposed by prior studies and offered important evidence for their arguments (e.g., Sim and Ali, 2000; Nakamura, 2005). 2.1.2. Limitations in instability research Despite the rich literature on instability, previous studies have limitations (Yan and Zeng, 1999; Sim and Ali, 2000). First, several streams of research have examined alliance instability through a variety of theoretical perspectives and approaches (for a review, see Das and Teng, 2000), but no single theoretical approach can offer comprehensive insights into its nature. The incompatible perspectives have also produced different and even contradictory findings, leading to the result that relevant research findings are not cumulative and comparable. Second, these studies have the problem of non-generalizability. For example, most research focuses on the instability of IJVs, but these research findings are not necessarily the same as those associated with other types of alliances. Third, while researchers have identified various kinds of destabilizing factors, it is unclear how these factors emerge and how they affect instability. There are two distinct approaches for conceptualizing and operationalizing stability in the extant literature (Yan and Zeng, 1999; Gill and Butler, 2003). One is a static and outcome-oriented approach whose focus is on the final fates of an alliance, including the alliance being bought out, turning into an acquisition, or being liquidated. The other is a dynamic and process-oriented approach, in which instability is defined as changes in ownership structure in terms of major reorganizations and reconfigurations or contractual renegotiations. Since instability itself is a dynamic process variable, the more process-oriented perspective provides a better explanation for alliance instability. Unfortunately, prior research, with few exceptions (e.g., Killing, 1983; Yan and Zeng, 1999), has been dominated by the outcome-oriented approach. Das and Teng (2000: 96), who have conducted some of the most comprehensive and representative research so far, also acknowledge that their research only links alliance outcomes with imbalances of three pairs of competing forces and “does not clearly depict the evolutionary process by which these forces may develop”. As a result, the process aspect and dynamic nature of instability are largely ignored, incurring serious methodological barriers and understanding biases. 2.2. Previous research on alliance stability Research on the topic of stability is relatively scarce as opposed to the rich instability literature. Table 1 also lists prior representative studies on alliance stability, research contributions which also have limitations. For example, many studies do not conceptually differentiate instability from stability. Others (e.g., Yan, 1998; Yan and Zeng, 1999) separate the two but do not offer a reasonable theoretical rationale for this separation. In particular, while some of the studies nominally address the stability issue, they instead center most attention on the inverse side, i.e., alliance instability, or mix the two concepts in one study. Moreover, many studies deal with the stability of some particular type of alliances (typically JV or IJV stability), leading to the lack of consensus on the relative stability of different types of alliances. As a result, the conceptual blurring and inconsistency in research results increase the difficulty in understanding the dynamics within alliances. 3. Toward a comprehensive understanding of alliance stability 3.1. Explaining the importance of stability research 3.1.1. Necessity of perspective conversion In contrast to prior relevant research, in this study we differentiate instability from stability. Instability is a dynamic concept in itself, but research has traditionally taken an outcome-oriented approach and treated it as synonymous with the alliance's termination, death or failure (Franko, 1971; Killing, 1983; Kogut, 1989). In fact, however, an alliance's termination does not necessarily imply instability. Some alliances are terminated according to plan (Inkpen and Beamish, 1997), and others go out of existence because they have successfully accomplished the initial objectives (Gomes-Casseres, 1987). Both of these possibilities indicate that not all terminated or short-life alliances should be considered unstable. 176 X. Jiang et al. / Journal of International Management 14 (2008) 173–189
X Jiang et al. /Journal of International Management 14(2008)173-189 Furthermore, past studies have often cited high instability rates (or more precisely, a high termination ratio) and therefore have viewed alliances as inherently fragile and unstable. But this view has been challenged by other scholars Yan(1998), for instance, argued that such a view fails to explain why many alliances have operated stably over a long eriod of time. Hennart et al. (1998)found, after controlling for age and size, that the instability of JVs is similar to that of wholly-owned subsidiaries. In a recent large sample analysis (27, 974 Japanese foreign subsidiaries), Delios and Beamish(2004) similarly found evidence that JV exit rates(or survival rates) were almost identical to those of wholly owned subsidiaries. Thus, strategic alliances should not be casually treated as intrinsically fragile or unstable(Doz, 1996: Koza and Lewin, 1998). Because of these concems, this paper adopts a different perspective and views stability as a process-based construct This perspective requires an analysis of the evolutionary process of alliance development, so that we can develop a comprehensive framework of alliance stability. Further, we view stability as a determinant of alliance performance and success, rather than as an ultimate outcome emphasized by prior studies. Below, we will discuss these in greater detail 3.l.2.St We first discuss why stability is an important construct in different theories used in the alliance literature. Many theories have been used to address alliance stability issues. Among these, the competitive leaning perspective is a powerful tool(Inkpen and Beamish, 1997; Nakamura, 2005). It argues that learning and acquisition of knowledge over time may alter the relative bargaining power of the partners and thus seriously undermine the initial balance of collaborative relationships. Hamel(1991)describes alliances as a"race to learn, and the partner who first successfully accomplishes its learning objectives will tend to leave the alliance. For example, the competitive learning between Chrysler and Mitsubishi leads to the termination of their Diamond Star alliance in 1991, with Mitsubishi taking over the jointly owned automobile assembly plant. The more speedy and efficient learning enabled the Japanese partner to successfully develop its own distribution network in North America, while Chrysler failed to acquire the manufacturing technologies from Mitsubishi. This exerted a negative influence on the stability of the Diamond Star alliance. In this nstance, competitive learning becomes a critical source of instability. We dont deny that collaboration, while initially harmonious, will gradually strain as a result of such considerations as the race to learn. But we contend that before the partners have achieved their learning goals, the alliances must go through a relatively stable( developmental) period so that the learning can be carried out. Inkpen and Beamish(1997) posit that a partner who is learning from the knowledge provider will prefer to maintain rather than terminate the relationship. Toppan Moore, a JV between Canadas Moore Corporation and Japan's Toppan Printing Company, was widely considered as one of the most successful [Vs in Japan. Despite many years of accumulated experience in the local market, Moore Corporation continued to cooperate closely with its Japanese partner in order to gain more specialized knowledge about the market and the customers. Likewise, Toppan Printing relied on Moore Corporation in order to obtain advanced manufacturing and product technology. Thus the partners'realization that they have much to learn from each other has made a major contribution to the stability of the venture(Beamish and Inkpen, 1995) We also contend that, in most alliances, there are stabilizing and sustaining forces which may prevent instability and shelter alliance relationships from unplanned changes. Specifically, forming an alliance takes much time and effort. Substantial non-recoverable, relationship-specific investments must be put into the alliance, and these investments usually cannot be recovered for other uses(Anderson and Weitz, 1992; Parkhe, 1993). The efforts, time and resources involved in an alliance incur high exit costs and create inertia towards leaving the alliance( Ford et al, 1998). Even leaving is often done in a gradual way(Gadde and Mattsson, 1987) Furthermore, joint contributions and reciprocal commitments create attachments among partners. Attachment refers to"an inertial or binding force between exchange partners that can lead to the maintenance of an existing relationship to the exclusion of altematives"(Seabright et al, 1992: 126). By definition, partners with strong attachments may feel obligated to enhance the joint strength and maintain a high degree of"couplings", which may act as a cohesive force that fosters confidence, reciprocation and intimate cooperation (Luo, 2005). As a result, attachment serves as a stabilizing force that blocks the pressures for change in each cooperative relationship( Seabright et al, 1992) 3.1.3. Relationship to alliance outcomes A Alliance outcomes have often been evaluated in terms of alliance success or failure. Despite a significant amount of earch, however, alliance success remains a limitedly studied area, and thus far there are no all-accepted criteria and measures for alliance success. In the extant literature. a conventional measure is to examine whether an alliance has
Furthermore, past studies have often cited high instability rates (or more precisely, a high termination ratio) and therefore have viewed alliances as inherently fragile and unstable. But this view has been challenged by other scholars. Yan (1998), for instance, argued that such a view fails to explain why many alliances have operated stably over a long period of time. Hennart et al. (1998) found, after controlling for age and size, that the instability of JVs is similar to that of wholly-owned subsidiaries. In a recent large sample analysis (27,974 Japanese foreign subsidiaries), Delios and Beamish (2004) similarly found evidence that JV exit rates (or survival rates) were almost identical to those of whollyowned subsidiaries. Thus, strategic alliances should not be casually treated as intrinsically fragile or unstable (Doz, 1996; Koza and Lewin, 1998). Because of these concerns, this paper adopts a different perspective and views stability as a process-based construct. This perspective requires an analysis of the evolutionary process of alliance development, so that we can develop a comprehensive framework of alliance stability. Further, we view stability as a determinant of alliance performance and success, rather than as an ultimate outcome emphasized by prior studies. Below, we will discuss these in greater detail. 3.1.2. Stabilizing forces We first discuss why stability is an important construct in different theories used in the alliance literature. Many theories have been used to address alliance stability issues. Among these, the competitive learning perspective is a powerful tool (Inkpen and Beamish, 1997; Nakamura, 2005). It argues that learning and acquisition of knowledge over time may alter the relative bargaining power of the partners and thus seriously undermine the initial balance of collaborative relationships. Hamel (1991) describes alliances as a “race to learn”, and the partner who first successfully accomplishes its learning objectives will tend to leave the alliance. For example, the competitive learning between Chrysler and Mitsubishi leads to the termination of their Diamond Star alliance in 1991, with Mitsubishi taking over the jointly owned automobile assembly plant. The more speedy and efficient learning enabled the Japanese partner to successfully develop its own distribution network in North America, while Chrysler failed to acquire the manufacturing technologies from Mitsubishi. This exerted a negative influence on the stability of the Diamond Star alliance. In this instance, competitive learning becomes a critical source of instability. We don't deny that collaboration, while initially harmonious, will gradually strain as a result of such considerations as the race to learn. But we contend that before the partners have achieved their learning goals, the alliances must go through a relatively stable (developmental) period so that the learning can be carried out. Inkpen and Beamish (1997) posit that a partner who is learning from the knowledge provider will prefer to maintain rather than terminate the relationship. Toppan Moore, a JV between Canada's Moore Corporation and Japan's Toppan Printing Company, was widely considered as one of the most successful IJVs in Japan. Despite many years of accumulated experience in the local market, Moore Corporation continued to cooperate closely with its Japanese partner in order to gain more specialized knowledge about the market and the customers. Likewise, Toppan Printing relied on Moore Corporation in order to obtain advanced manufacturing and product technology. Thus the partners' realization that they have much to learn from each other has made a major contribution to the stability of the venture (Beamish and Inkpen, 1995). We also contend that, in most alliances, there are stabilizing and sustaining forces which may prevent instability and shelter alliance relationships from unplanned changes. Specifically, forming an alliance takes much time and effort. Substantial non-recoverable, relationship-specific investments must be put into the alliance, and these investments usually cannot be recovered for other uses (Anderson and Weitz, 1992; Parkhe, 1993). The efforts, time and resources involved in an alliance incur high exit costs and create inertia towards leaving the alliance (Ford et al., 1998). Even leaving is often done in a gradual way (Gadde and Mattsson, 1987). Furthermore, joint contributions and reciprocal commitments create attachments among partners. Attachment refers to “an inertial or binding force between exchange partners that can lead to the maintenance of an existing relationship to the exclusion of alternatives” (Seabright et al., 1992: 126). By definition, partners with strong attachments may feel obligated to enhance the joint strength and maintain a high degree of “couplings”, which may act as a cohesive force that fosters confidence, reciprocation and intimate cooperation (Luo, 2005). As a result, attachment serves as a stabilizing force that blocks the pressures for change in each cooperative relationship (Seabright et al., 1992). 3.1.3. Relationship to alliance outcomes Alliance outcomes have often been evaluated in terms of alliance success or failure. Despite a significant amount of research, however, alliance success remains a limitedly studied area, and thus far there are no all-accepted criteria and measures for alliance success. In the extant literature, a conventional measure is to examine whether an alliance has X. Jiang et al. / Journal of International Management 14 (2008) 173–189 177