The Self-Organisation of Strategic Alliances

Strategic alliances form a vital part of today's business environment. The sheer variety ofcollaborative forms is notable - which include R&D coalitions, marketing and distributionagreements, franchising, co-production agreements, licensing, consortiums and joint ventures.Here we define a strategic alliance as a cooperative agreement between two or more autonomousfirms pursuing common objectives or working towards solving common problems througha period of sustained interaction. A distinction is commonly made between 'formal'and 'informal' inter-firm alliances. Informal alliances involve voluntary contact andinteraction while in formal alliances cooperation is governed by a contractual agreement.The advantage of formal alliances is the ability to put in place IPR clauses, confidentiallyagreements and other contractual measures designed to safeguard the firm againstknowledge spill-over. However, these measures are costly to instigate and police. By contrast,a key attraction of informal relationships is their low co-ordination costs. Informalknow-how trading is relatively simple, uncomplicated and more flexible, and has been observedin a number of industries.A number of factors affecting firms' decisions to cooperate or not cooperate within strategicalliances have been raised in the literature. In this paper we consider three factors in particular:the relative costs of coordinating activity through strategic alliances vis-a-vis the costs ofcoordinating activity in-house, the degree of uncertainty present in the competitive environment,and the feedback between individual decision-making and industry structure. Whereasdiscussion of the first two factors is well developed in the strategic alliance literature, the thirdfactor has hitherto only been addressed indirectly. The contribution to this under-researchedarea represents an important contribution of this paper to the current discourse. In orderto focus the discussion, the paper considers the formation of horizontal inter-firm strategicalliances in dynamic product markets. These markets are characterised by rapid rates oftechnological change, a high degree of market uncertainty, and high rewards(supernormal profits) for successful firms offset by shortening life cycles.