W2: Oxley, J. E., & Sampson, R. C. (2004). The scope and governance of international R&D alliances

what alternative response does this paper explore to the hazards of R&D cooperation?

a reduction in the scope of the alliance.

• when firms are direct competitors in end resource markets even protective structures like EJVs may provide insufficient protection

• rather than abandoning potential gains altogether, partners may choose to limit the scope of activities to those that can be completed with limited and regulated knowledge sharing

what is the downside of aiming of successful completion of alliance objectives?

they require a firm to put valuable knowledge at risk of appropriation by alliance partners

what conflict do firms have to balance between when it comes to alliances?

• on one hand: maintaining open knowledge exchange to further the technological development goals

• on the other hand: controlling knowledge flows to avoid unintended leakage of technology

what is a mechanism firms have previously used to promote knowledge sharing and protection in an alliance?

choosing an appropriate governance structure

• for example an equity joint venture. but even this one doesn’t always manage to reduce leakage concerns sufficiently to ensure the level of knowledge sharing requires.

• The choice of alliance scope is an alternative way to control the threat of knowledge leakage and protect technological assets in an R&D alliance.

what does the scope of activities for an alliance relate to?

whether to restrict joint activity to pre-competitive R&D only or to extend it to include manufacturing and/or marketing

• So, scope decisions have important implications for the extent to which alliance partners expose valuable knowledge to each other.

if costs of knowledge leakage are deemed high, what will be the effect on alliance scope?

If costs of knowledge leakage are deemed high, one might expect that alliance scope will be narrow in order to limit exposure.

when are alliance partners more likely to limit their joint activities to pure R&D?

when they are direct competitors in the final product and geographic markets

what alliance structure do firms choose when alliance scope is broad?

a more protective alliance structure such as an EJV

• the reverse is also true: when firms choose a more protective alliance structure, this encourages them to broaden the alliance scope.

what happens when firms are part of an EJV?

it encourages firms to broaden their alliance scope and to engage in joint activities beyond pure R&D; so they will also engage in marketing or manufacturing, for example

• the reverse is also true: a broad alliance scope is also more likely to result a more protective alliance structure, such as an EJV.

when are JVs commonly created?

when partners have to share complex/or tacit knowledge, especially in technologically innovative projects.

• transaction cost analysis suggests this is because firms have incentives to misappropriate the knowledge assets of alliance partners or to free-ride on their innovative efforts

• contractual governance of exchanges involving complex tacit knowledge is difficult as contracts are incomplete

• by adopting an equity joint venture, the hazards of opportunism are mitigated because incentives are more aligned

what is the functional or vertical scope of the alliance?

to what extent the partners combine multiple/sequential functions or value chain activities such as R&D, manufacturing or marketing

is it better for firms to engage in pure R&D alliances or mixed-activity alliances, why?

mixed-activity alliances are superior because information transfer and and the use of cross-functional teams helps reduce time-to-market and improves product quality

why are pure R&D alliances more common than mixed-activity alliances?

because they allow partners to separate the activities such that the exposure of a firm’s tacit knowledge in skills and routines to its partners is relatively small, and necessary exposure of codified knowledge is controlled through contractual safeguards

H1: the greater the overlap among partner firms’ end-product markets, the lower the probability of broad alliance scope.

• supported or not?

If they’re competitors in end-product markets, they want to internalize each other knowledge while simultaneously limiting access to their own skills.

The balance between competitive/cooperative behavior in alliances is determined by relative pay-offs. When partners are direct competitors in final product markets, the pay-off from competitive behavior within the alliance is high (e.g: free-riding or misappropriation).

To prevent this, the firms in an alliance will opt for a more narrow alliance scope.

• Supported.

H2: the probability of broad alliance scope is higher when all partner firms are industry laggards.

• supported or not?

Firms far behind in terms of technology and other resources may be more willing to expose competitive know-how to alliance partners if they can together produce a new product that will improve their competitive position.

Market leaders are more likely to do it alone to protect firm-specific know-how, while laggards may be willing to team up to try to leapfrog industry leaders.

Thus, industry laggards are more willing to be part of a broad alliance scope.

• Supported.

H3a: the higher the technology overlap between partners the lower the probability of broad alliance scope (due to factor market competition).

• supported or not?

When there’s extensive overlap in alliance partners’ areas of expertise, they’re likely to draw on the same pools of knowledge and may perceive each other as direct competitors in relevance resource markets (e.g. labor).

• In this case, the scope of alliance activities may be restricted to limit exposure of knowledge relevant to competititon.

• Not supported.

H3b: the lower the technology overlap between partners the lower the probability of broad alliance scope (due to inadequate absorptive capacity).

• supported or not?

To effectively share knowledge, partner firms must possess adequate absorptive capacity. When alliance partners are far apart in terms of technological expertise, deficiencies in absorptive capacity are likely to limit the objectives achievable within an alliance, so that only those requiring restrictive knowledge sharing are feasible.

• Supported.

H4a: the probability that partner firms select an equity JV is higher when alliance scope is broad.

H4b: the probability of broad alliance scope is higher when partner firms select an equity JV.

Broader scope increases the need for protective governance (i.e. an EJV), while protective governance enables firms to pursue broader scope by reducing the hazards of partner opportunism.

• Both supported.

Can restrictions in alliance scope substitute for protective governance structures?

Yes

When the overlap in the partners’ end-product markets are great, firms tend to engage in an alliance with a narrow scope.

• True/false?

True.

Broad alliance scope increases the need for hierarchical governance. Is that statement true?

Yes