Strategic Alliances and the Learning Life-Cycle of Biotechnology Firms

Abstract

Strategic alliances in the biotechnology industry are used as an inter-organizational learning device, in addition to their ability to provide financial resources, vertical and horizontal integration facilities, and legitimacy to dedicated biotechnology firms (DBFs). However, despite the advantages associated with strategic alliances, the literature accounts for hazards and disadvantages as well. This paper analyzes the relationship between organizational life-cycle and the formation of strategic alliances based on a population of 554 new biotechnology firms (DBFs) in a 15-year period. Using event history analysis, this study tests two propositions: that the inability of DBFs to form strategic alliances will be associated with organizational death and that firm growth will make it possible to reduce network learning through alliances (exploration stage of learning), allowing the firm to enter a period of internalized learning (exploitation). These propositions are supported by the data. The findings showed that lack of alliances is associated with organizational death, that learning through alliances is not a cumulative process, and that firm life-cycle alliance formation is not linear. Although alliance-based learning is vital to biotechnology firms at the early stages of their formation, when learning is associated with exploration, at later phases of the life-cycle, learning is internally exploited through intrafirm networks. The results also provide some evidence that another phase of external, network based, learning follows.