(Continued)
3.2.3 Different Perspectives
There are many different theoretical perspectives of the bulk of writing on strategic alliances. The most popular of them are the economics-based view, strategic management theory, and organisation theory.
Economics-based View
In the business world, theories of strategic alliances from economics view are popular. There are three main perspectives in economics:
Market Power Theory
Transaction Cost Theory
The Resource-based View
Market Power Theory
The market power approach of Michael Porter (1980) dominated the strategic management studies in the 1980s. In his book Competitive Strategy, he suggests that the competitive intensity of industries is determined by five fundamental forces: the degree of rivalry between competing firms, the power of suppliers and buyers, the threats from new entrants and potential substitute products or services. As a result, the strategy should be to position the company to take best advantage of the five forces. Alliances can enhance market power, and the greater market power can enhance the returns. Collaboration may be a faster and cheaper way to gain market power than mergers and acquisitions.
Porter’s (1980) framework assumes that the structure of the industry and national environment dictates a firm’s most appropriate generic strategy—cost leadership, differentiation, or focus. The process of forming strategic alliances is within an analysis of industrial and national structural determinants in this way. Market power theory contributes to the understanding of the links between cooperative strategies and industrial and national context.
Transaction Cost Theory
The perspective on strategic alliances offered by transaction-cost theory views the arrangements as potentially cost-reducing methods of organising business transactions.
Transaction cost are those costs incurred in arranging, managing, and monitoring transactions across markets, such as the cost or negotiation, drawing up contracts, managing the necessary logistics, and monitoring accounts receivable (Child and Faulkner 1998). Transaction cost theory regards the basic choice in organising economic transactions as being between effecting these through market exchanges and internalizing them within a single firm. Alliances combine elements of both markets (in that they represent decision making mechanisms in which no one firm has complete authority) and hierarchies (in that they are ways to govern incomplete contracts between economic actors) (Gomes-Casseres, 1996). This view of alliances as such hybrid structures is discussed in detail by Williamson (1991). Gomes-Casseres (1996) extends this view by considering the way in which ‘constellations’ of hybrid structures can be identified in certain industries.
Transaction cost economics contributes important insights into the governance forms that alliances may assume in view of the circumstances under which they are formed (Child and Faulkner 1998). It provides a powerful framework to identify those situations in which alliances are more efficient than either turning to the market or internalizing transactions. The level of transaction costs involve the considerations in choosing whether to cooperate with other companies, and the form of that cooperation.
The Resource-Based View
Transaction cost economics talked above treats the company as a ‘nexus of contracts’. The primary benefit concerned is the reduction in transactional cost. The resource-based view pushes the logic of transaction cost theory further. It regards the company as a bundle of resources, capabilities, and competencies intended to generate maximum benefits. It is primarily concerned with increasing the value of rents that can be obtained from companies’ resources (Peteraf 1993). The primarily benefit is sustainable competitive advantage. Collaboration provides the company with access to complementary capabilities which provide a potential in building competencies.
The resource-based view holds that a company can achieve and keep a competitive advantage by configuring its tangible and intangible assets in a way that is difficult or indeed impossible to imitate perfectly, or by having resources, skills, or capabilities that are durable, and not appropriable, perfectly transferable, or replicable (Barney 1991; Peteraf, 1993). In some cases of the resource-based view, the Trojan horse strategy is not based on appropriating resources possessed by a partner but on preventing the partner from developing or maintaining its own resources. Thus, companies can restrict their competitors’ innovative capacity by cooperating with them (Dussauge and Garrette, 1999).