The Two Faces of Learning by Cooperating: The Evolution and Stability of Inter-Firm Agreements in the European Electronics Industry

Abstract

Learning is a key factor affecting the evolution of inter-firm cooperation. Particularly knowledge accumulation through collaborative interaction heavily influences the decisions to continue or discontinue inter-firm agreements in time. Using evidence from case studies of alliances in which European electronic firms were involved over the past decade, this paper aims to shed some light on this evolutionary process. We suggest that two aspects of learning by collaborating should be considered in order to explain firms' decisions to continue or discontinue cooperation. On the one hand learning by cooperating will negatively affect the stability of alliances to the extent that new assets are created which can be used outside the specific relationship that has generated it. On the other hand, learning by cooperating positively impacts on the stability of inter-firm agreements because it is a commitment intensive process. Two factors are at work here. First, commitment is a pre-condition for learning. In fact firms tend to use commitment as a means to reduce uncertainty and create a more stable condition for learning. By sustaining highly irreversible investments, that are specific to the agreement, firms will signal their actual availability to cooperate, and they will reveal their preferences and skills. Moreover, learning by cooperating requires specific investments devoted to absorption, adaptation and use of assets contributed by the different parties. Specialized workers and managers must be devoted to these functions acting as gate keepers, new skills must be formed for this purpose. Second, part of the outcomes of learning is also specific to the collaborative venture, and tends to reinforce commitment. Routines and communication procedures are generated, tested in the process of cooperation, modified and eventually replaced. New specific competencies are accumulated by personnel devoted to cooperation. Partners get to know each other, and trust will eventually emerge. Mutual acquaintance and trust may represent key assets, but they are scarcely re-deployable in contexts different from the collaborative venture that generated them. Thus they also increase the costs the parties would sustain in case of contractual breach, and contribute stabilizing the venture. In sum: decisions to continue or discontinue cooperation will depend on the balance between the allocation, use and generation of knowledge and other resources that are redeployable and guarantee flexibility, and the allocation, use and creation of assets that are specific and will favor inertia of collaborative ventures valuable assets that firms may effectively utilize on their own or with different partne rs in different contexts

JEL Classification: L20, M12, L99