The Size of Strategic Alliances and the Role Played by Managers

The vast empirical literature on strategic alliances has often overlooked their theoretical foundations. We pose a hypothesis: do small and medium enterprises run by professional managers (managerial firms) have a rationale to incur in more alliances than firms run by their owners (entrepreneurial firms)? We consider an industry whose firms may decide to enter or not enter an alliance that decreases the marginal costs for members, while leaving them to operate on a non-cooperative basis. When firms are run by their owners, an alliance is more likely to be implemented the fewer the members of the alliance, while the optimal alliance size is very small as compared to the number of firms in the industry. However, when firms are run by managers (with separation of ownership and control), an alliance is always profitable for the members, irrespective of the synergy it leads to, and is therefore more likely to occur with managerial firms than with entrepreneurial firms. Thus, in a professionalized sector, we should not only observe more alliances but also larger alliances than in an entrepreneurial environment. In any case, since alliances never incorporate all firms, a desirable public policy may be to promote cooperation among firms prior to the market stage. The results are discussed in relation to the empirical literature.