Old technology meets new technology: complementarities, similarities, and alliance formation

TLDR

Alliance formation is common in high‑technology industries, with established firms partnering with new entrants to adapt to radical change, yet little is known about how firms select specific partners. This study investigates the factors that drive alliance formation between pharmaceutical and biotechnology firms, emphasizing the role of dyadic complementarities and similarities. By treating each alliance tie as the unit of analysis, the authors propose that dyadic complementarities and similarities influence alliance formation, with their effect moderated by the age of the new‑technology firm. The study finds that alliances are more likely when a younger biotechnology firm complements a pharmaceutical firm, and that broad capability proxies predict alliance formation as well or better than fine‑grained science‑technology indicators, highlighting the importance of cross‑level interactions. © 2007 John Wiley & Sons, Ltd.

Abstract

Abstract Alliance formation is commonplace in many high‐technology industries experiencing radical technological change, where established firms use alliances with new entrants to adapt to technological change, while new entrants benefit from the ability of established players to commercialize the new technology. Despite the prevalence of these alliances, we know little about how these firms choose to ally with specific firms given the range of possible partners they may choose from. This study explores factors that lead to alliance formation between pharmaceutical and biotechnology companies. We focus on the alliance tie as the unit of analysis and argue that dyadic complementarities and similarities directly influence alliance formation. We then introduce a contingency model in which the positive effect of complementarities and similarities on alliance formation is moderated by the age of the new technology firm. We draw theoretical attention to the intersection between levels of analysis, in particular, the intersection between dyadic and firm‐level constructs. We find that a pharmaceutical and a biotechnology firm are more likely to enter an alliance based on complementarities when the biotechnology firm is younger. Another noteworthy finding is that proxies for broad capabilities appear to be at least as effective, if not more so, in predicting alliance formation compared to fine‐grained science and technology‐related indicators, like patent cross‐citations or patent common citations. We conclude by suggesting that future studies on alliance formation need to take into account interactions across levels; for example, how dyadic capabilities interact with firm‐level factors, and the advantages and disadvantages of more or less fine‐grained measures of organizational capabilities. Copyright © 2007 John Wiley & Sons, Ltd.