Economic Reasoning or Experience-Based Capabilities? Effects of Alliance Experience on Governance Structure Design
35 Pages Posted: 17 Feb 2010
Date Written: February 16, 2010
Governance design of interfirm relationships has been primarily viewed as driven by transaction cost considerations. However, firm capabilities, in particular experience-based capabilities, have often been ignored in the decision making process of governance structures. This study proposes that firm experience from prior alliances builds capabilities and knowledge in managing interfirm relationships, thus influence choices of alliance governance modes. Drawing from the capability view and organizational learning literature, I argue that the diversity of alliance governance experience broadens the range of knowledge to manage cooperative relationships, thus reduces the need for more hierarchical governance modes in interfirm relationships. In addition, alliance experience in specific governance modes increases the likelihood that a firm chooses similar governance structures again, providing evidence for path-dependency in capability building. Hypotheses are supported by a sample of 1700 alliances formed by 152 focal companies in the US software design industry from 2001 to 2005.
Keywords: strategic alliance, governance structure, firm capability, experience
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