Formal versus informal contracts: achieving alliance success

Observes that strategic alliances continue to be an important research and business focus. Many firms struggle with how to link alliance theory with actual practice. In particular, managers question how long‐term commitment between alliance partners is developed and achieved. Traditional business practice has relied primarily on formal written contracts, but informal social contracts or verbal agreements are also utilized. Examines the role of formal and informal contracts in positioning alliances for long‐term success. Findings indicate that extremely successful alliances exhibited informal social contracts regardless of whether or not formal written contracts were included in the relationship. In other words, while a written contract may initially serve as an agreement to collaborate, the partners’ actions signify long‐term commitment to the alliance. This has important managerial implications for how key contacts in the alliance develop co‐operation, trust and loyalty which illustrates the strength of the informal contract.