STRATEGIC MANAGEMENT ARTICLE REPORT: Technology Development Mode: A Transaction Cost Conceptualization

Technology alliances have emerged in the past decade as a significant mode for the development of innovation. The present research assesses the factors explaining whether firms will engage in such technology alliances or utilize the more traditional mode of internal R&D. The hypotheses stem from a transaction cost conceptualization. Results suggest that firms which pursue technology alliances are likely to have less commitment to product category-specific assets, to face higher technological uncertainty, to be more capable at measuring innovation performance, to have more successful technology alliance experiences, and to compete in lower growth product categories.

Theories of corporations as positive social change agents, (Corporations and Enviromental Groups: A Transaction Cost Perspective) this article provides one mechanism for identifying positive social change and for understanding when and how corporations can act as change agents. Positive social change occurs when parties reduce impediments to mutually beneficial exchange. Thus theories of social change should consider the role of firms in reducing such barriers. Any analysis of the role of corporations as change agents must consider their relations with stakeholders. 

BASIC CONCEPTS

Joint Venture

• An entity that is created when two or more firms pool a portion of their resources to create a separately jointly owned firm.An entity that is created when two or more firms pool a portion of their resources to create a separately jointly owned firm
• Scale joint venture
• Partners collaborate at a single point in the value chain.
• Link joint venture
• The position of the partners is not symmetrical, and the objectives of the partners may diverge

Network

• A hub and wheel configuration with a local firm at the hub organizing the interdependencies of a complex array of firms.
• The benefit of organizing in this manner is that each participating firm is permitted to focus on its specialty.

Consortia

• Specialized joint ventures encompassing many different arrangements.  
• Consortia are often grouping of firms oriented towards problem solving and technology development, such as R&D consortia like SEMATECH. 
• Each participant retains its separate legal status and the consortium’s control over each participant is generally limited to activities involving the joint venture.

Alliance

• An arrangement between two or more firms that establishes an exchange relationship but has no joint ownership involved. 
• Technological alliance; Features cooperation in research and development, engineering, and manufacturing.

• Marketing alliance; Typically match a company with a distribution system with a company that has a product to sell.

Trade Association

• Organizations (typically non-profit) that are formed by firms in the same industry to collect and disseminate trade information, offer legal and technical advice, furnish industry-related training, and provide a platform for collective lobbying. 
• The formation of trade associations is particularly high in industries where the threat of government intervention is high and lobbying activity is strong.

Gain Access to a Particular Resource

• Firms form alliances to gain access to a particular resource, such as capital, employees with specialized skills, intimate knowledge of a market, or a modern production facility.
• Economies of Scale; In many industries, high fixed costs allow two or more firms to share the risk and cost of a particular business endeavor.

• Risk and Cost Sharing; Alliances allow two or more firms to share the risk and cost of a particular business endeavor.

• Flexibility; Alliances provide a valuable alternative to markets and hierarchies, and are subject to fewer regulatory concerns than acquisitions.

• Collective Lobbying; Through alliances, firms can gain the competencies and market power that is needed to neutralize or block the moves of a competitor.

• Neutralizing or Blocking Competitors; Through alliances, firms can gain the competencies and market power that is needed to neutralize or block the moves of a competitor.

Disadvantages of Participating in Alliances

• Loss of Proprietary Information; Proprietary information can be lost to a partner who is already a competitor or will eventually become one. This is a common worry

• Management Complexities; Because alliances require a combined effort of two or more firms, they are often difficult to manage.

• Financial and Organizational Risks; The failure rate for alliances is high.  In addition, participation in alliances subjects a firm to potential opportunistic behavior on the part of an alliance partner.

• Risk Becoming Dependent on a Partner; A power imbalance arises if one partner becomes overly dependent on the other.  This situation increases the potential for opportunism on the part of the stronger partner.

• Partial Loss of Decision Autonomy; Joint planning and decision making may result in a loss of decision autonomy.  

• Partners’ “cultures” may clash; The corporate cultures of alliance partners may clash, making the implementation and management of the alliance difficult. 

• Loss of Organizational Flexibility; Establishing a partnership with one firm may foreclose the possibility of establishing a partnership with another.

HYPOTHESIS

The greater the specifity of existing assets the more likely that the firm will develop tech, Internally rather than establish a tech.

2: The greater the demand uncertainty the more likely that the firm will develop tech, Internally rather than establish a tech.

3: The greater uncertainty the more likely that the firm will establish a tech Alliances rather than develop tech.

4: The greater the difficulty in measuring an innovation performance, the more likely that the firm will develop tech, Internally rather than establish a tech.

5a: The greater the firm’s level of experience with alliances the more likely that the firm will establish a tech, Alliances rather than develop tech.

5b: This relationship becomes more pronounced when these past alliances have been succesful.

CONCLUSION

      Young-Ybarra and Wiersema (1999), their study is the first to examine strategic flexibility by using two important strategic alliances, joint development agreements and joint research pacts. The corresponding study is also the first to examine two important dimensions of strategic flexibility in alliances, the ability to modify the arrangement and the ability to exit the relationship.

Finance and economics scholars have a traditional interest in the relationship between top managers and shareholders, and they have found that agency and transaction cost theories may explain some of its puzzling aspects (Jensen & Meckling, 1976; Williamson, 1985).

The evolutionary model stresses the importance of learning in the process of increasing involvement in international operations (Johanson and Vahlne, 1990; Chang and Rozenweig, 2001). In entering foreign markets, firms progressively shift from exporting to higher forms of international operations such as foreign direct investment as they gradually accumulate and integrate the knowledge of foreign markets.