Strategic technology alliance termination: An empirical investigation

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Abstract

There is growing consensus that overall alliance termination rates are high. However, despite this track record of termination and despite unsurpassed growth rates of strategic technology alliances, little is known about the reasons for their termination. Typically strategic alliances have been characterized as inherently instable, i.e. often involving unplanned and premature termination of the alliance by partnering firms indicating alliance failure. The literature on strategic technology alliances, however, proposes that alliance termination does not always indicate failure, but can be intended and can be a sign of strength. We examine these different perceptions by using a sample of 48 strategic technology alliances in different high-technology industries. The findings in the paper confirm that the rates of termination are rather high for strategic technology alliances. Overall, we found that in particular negative prospects about future cooperation, negative perceptions about joint benefits and the lack of a win-win situation had an impact on the decision to terminate a strategic technology alliance. Also, the fact that some companies opt only for short-term (not for long-term and renewed) cooperation seems to introduce a negative factor into the longevity of strategic technology alliances.

Introduction

Since the 1980s, the strong growth of strategic technology alliances has dramatically changed the competitive landscape. Strategic technology alliances have become a key competitive weapon for companies contending in an increasingly hostile international environment. It allows companies to efficiently leverage their resources, to participate in emerging cutting-edge technologies and to strategically re-position themselves in different market segments. By allying with competent technology partners, firms are able to share risks and costs associated with technological development. At the same time, they are able to reduce time-to-market because of complementarities in skills and technologies among alliance partners (Tyler, 2001). It has often been argued that the flexibility and adaptability of these alliances makes them a perfect substitute to more conventional modes of organization such as mergers and acquisitions and internal development (Dyer, 2000, Duysters and de Man, 2005). In spite of these noted advantages, less is known in the literature about the reasons for termination of strategic technology alliances (for a notable exception see Bierly and Coombs, 2004a, Bierly and Coombs, 2004b).

Within the long-standing debate in the marketing, strategic management, and technology management literature, the termination of strategic technology alliance has just recently been considered as a distinct outcome compared to termination of other forms of strategic (e.g. marketing) alliances. As the early literature contended that termination was due to insufficient value creation within the strategic alliance (Harrigan, 1986, Harrigan, 1988), more recently performance differentials between partnering firms have been considered as major reasons for (strategic) alliance termination (Madhok and Tallman, 1998, Spekman et al., 1998, Spekman and Isabella, 2000). For strategic technology alliances, research has characterized technological capabilities of partnering companies and their link with these alliances as crucial to determine the outcome of these alliances (Reuer and Zollo, 2005). This literature has not yet explored the termination of strategic technology alliances in high technology industries in which companies utilize these alliances to enhance (different forms of) their technological capabilities (Vanhaverbeke et al., forthcoming).

Given the growing number of strategic technology alliances and their strategic importance for companies, questions about reasons for alliance termination (and failure) have become more important than ever. With empirical studies suggesting a termination rate of strategic alliances somewhere between 40% and 70% (for an overview of the literature see Duysters et al., 1999), the termination rates for strategic technology alliances might be different (Duysters and de Man, 2003). This paper aims to shed more light on the specific causes of termination. In order to examine termination of strategic technology alliances, we assume that termination can either be (1) deliberately planned, pointing to a successful ending of an alliance, or (2) associated with an unintended termination, which is generally associated with failure. This dichotomy allows us to exclude alliance termination which has been intended and has been considered as desirable by the parties involved. In the paper, our focus is on strategic technology alliances, i.e. cooperative ventures in which the development of technology has been a strategic objective at least of one partner. This definition excludes short-term inter-firm agreements as well as more conventional (e.g. marketing) alliances. It allows us to focus on the importance of the technological component in the evolution of these ventures.

This paper is structured as follows. First, we characterize the discussion on alliance termination rates and their measurement in the light of current trends in strategic technology alliance activity. We then examine the theoretical discussion on alliance termination and develop a conceptual model that is related to partnering company’s dissatisfaction due to insufficient managerial skills and competencies in coordinating and stabilizing existing alliances. This conceptual model is then used to examine a sample of 48 strategic technology alliances. This paper is concluded by summarizing our arguments and by drawing some conclusions with respect to preventing unintended termination of strategic technology alliances.

Section snippets

The termination of strategic technology alliances: paradoxes and mismatches

Quite paradoxically, we have been witnessing an enormous growth in terms of the number of strategic technology alliances since the 1970s despite of an ongoing discussion of high failure rates for strategic alliances in the theoretical and business literature. As the data show (see Fig. 1), there has been a vast increase in the number of strategic technology alliances since the late 1970s and, in particular, in the early 1980s. Despite some decline in the early 1990s, the growth of strategic

Termination of strategic technology alliances: failure rates

The literature on alliance termination has generated a mixed bag of findings. However, the general picture has been rather pessimistic. For example, Spekman et al. (1996) proposed that the failure rate of strategic alliances has been at around 60%. In the literature, this high failure rate has been used as a benchmark to characterize alliance termination (see Kok and Wildeman, 1997, Dacin et al., 1997). More optimistic studies have postulated that only half of all strategic alliances fail (

Reasons for strategic alliance termination

Since the 1980s, a growing number of studies has dealt with the issue of termination of strategic alliances with only a few focusing on strategic technology alliances. In our theoretical discussion we therefore characterize the general and mostly empirical literature on strategic alliance failure which has developed over the past years and produced some interesting new insights.

First, in the literature a shift could be observed from more static approaches towards a more process-oriented

Data and descriptive statistics

We used as a primary source of information the MERIT-Cooperative Agreements and Technology Indicators (CATI) information system. This databank contained information on nearly 10,000 cooperative agreements in various sectors, ranging from high technology sectors such as IT and biotechnology to less technology intensive sectors, such as chemicals and heavy electrical equipment (Hagedoorn and Sadowski, 1999). As a first step, we identified strategic technology alliances of which information on

Summary and conclusions

The growth in strategic technology alliances since the 1970s has been accompanied by an intense discussion on failure rates without having let to a more coherent approach towards alliance termination. The different theoretical traditions in the alliance area are still very much dispersed ranging from learning based to transaction costs accounts, which evolved to include more process explanations and included more recently also alliance-capability explanations. The common denominator in this

Implications and directions for future research

In spite of the interesting results, our model has some limitations: first, it did not allow us to characterize a wide variety of firm as well as alliance specific motivations that might influence the termination of strategic technology alliances. Second, it might be the case that the causal effect is reverse and that firms that engaged in a prematurely terminated alliance for that reason did not seek further cooperation and do not see mutual benefits. It seems that there is a wide variety of

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