Partner Nationality and the Structure-Performance Relationship in Strategic Alliances

Abstract

The dramatic growth of global strategic alliances between firms is fundamentally reshaping the nature of international business, Indeed, interfirm cooperation has become a crucial component of the pursuit of global competitive advantage. Yet such alliances are enormously complex to manage successfully, in part because of the opportunity and incentive to cheat, and profit at the partner's expense, that is an inescapable part of these relationships. Consequently, strategic alliances are frequently subject to high instability, poor performance, and premature dissolution. Thus, an important question arises: Is it possible to promote more stable cooperation and higher alliance performance through a realignment of companies' incentives? This question is addressed empirically in the present paper using recent work in game theory, which suggests that high performance is linked to specific elements of the alliance structure. Further, this study applies insights from international business literature, suggesting that alliance partners from different countries are often characterized by sharp cultural, national, and organizational differences, to test this linkage in an international context. The study's data strongly support the hypothesis that alliance performance is linked to alliance structure. This finding has broad implications both for managers and management scholars, in suggesting that “up front” attention to alliance structure may help arrest the high failure rates, and improve alliance stability and performance levels. However, the data also support the hypothesis that the linkage between structure and performance varies by partner nationality. This finding points to the need for: (a) systematic assessment of salient characteristics of potential international partners; (b) development of programs to effectively deal with important differences between partner firms; and (c) attention to different key alliance structure dimensions, depending upon partner nationality. Finally, this study shows game theory to provide an extremely useful perspective in understanding crucial aspects of strategic alliances, although in the analysis of cross-border strategic alliances, the perspective must be enriched by an appreciation of interfirm diversity.