Equity Alliances, Stages of Product Development

The purpose of this research is to analyze the stability of strategic alliances initiated at different

stages of the new product development process and to determine the appropriateness of different

governance structures (e.g., joint ventures, minority equity alliances, non-equity alliances). Specif-

ically, we argue that the minority equity form of alliance is an inherently unstable structure for

product development partnerships. Key findings of this study are: (a) minority equity alliances are

more likely to be terminatedwithin 5 years than joint ventures and non-equity alliances, (b) alliances

are more likely to be terminated if they are initiated in the early and late stages of product develop-

ment and less likely to be terminated if they are initiated in the mid-stages of product development,

and (c) alliances are more likely to become acquisitions if they are initiated in the mid-stages of

product development and less likely to become acquisitions if they are initiated in the early and late

stages of product development.

1. Introduction

Partnerships and a network type of structure can help a firm maintain a superior compet-

itive position in dynamic environments (Hagedoorn, 1993; Powell et al., 1996). Firms can

focus on those tasks that they do well (i.e., core competencies) and rely on partners in other

areas (Hamel and Prahalad, 1994). Partners can be valuable in helping to understand the

changing rules of the game. They also can improve a firm's strategic flexibility since the

firmcommits fewer resources to each of the different technologies and activities.Moreover

strategic alliances provide firms with new sources of competitive advantage, such as access

to complementary technologies, access to new markets, and risk reduction (Hagedoorn,

1993). Interfirm cooperation may also allow industry incumbents to adapt to radical tech-

nological change (Rothaermel, 2001). Koza and Lewin (1998) describe alliances as having

either exploitation or exploration objectives.

Alliances with exploration objectives aim to reduce information asymmetries and facil-