Effect of Alliance Experience on New Alliance Formations and Internal R&D Capabilities

Although their advantages are well-known, technology alliance may not always positively affect innovative performance. Previous studies have found several explanations for this problem. Technology alliances often require excessive resources and capabilities to form and maintain relationships with partners. In addition, they cause a diversion of managerial attention and functions from internal R&D activities, yet many firms are often unequipped to deal with these problems. In this paper, we hypothesize that firms often execute an inefficient technology alliance strategy, thus negatively affecting their innovative capabilities and consequently reducing subsequent innovation performance. More specifically, we test whether firms with greater prior experience on technology alliances are more likely to execute inefficient technology alliance strategies. Second, we try to investigate negative effects of technology alliances on firms’ internal R&D capabilities. To test our hypotheses, we employ data from 9629 technology alliances in the US biotechnology and pharmaceutical industries. Implications from these analyses are offered for executives and technology alliance strategies. Specifically, we propose that firms should undertake technology alliances while considering the negative aspects and the firm’s limited resources.