Dynamics of Strategic Alliance Networks in the Global Information Sector David Knoke

University of Minnesota

University of Tilburg June 20, 2003

Thanks to the Ford Foundation and Digital Media Forum for funding and to Anne Genereux, Song Yang, and Francisco J. Granados for research assistance.

PROLIFERATING ALLIANCES Business press annually reports hundreds of intercorporate collaborations, creating intricately interconnected “partners of partners” networks

Helsinki to Seattle via Tokyo

April 22, 2001:

Nokia, Ericsson

brand or the software.

and

Motorola

announced a joint corporate effort to create a universal standard to allow cell phone, pagers, and PDAs to send real-time instant messages to each other, regardless of equipment April 25, 2001:

Ericsson

handsets for consumers. and

Sony

confirmed they would combine their mobile phone businesses in an attempt to create the definitive next-generation June 13, 2001: More than 10 Japanese companies, including

Sony

and

NEC

, will set up a consortium to jointly develop next-generation semiconductor manufacturing equipment.

Oct 21, 2001:

NEC

and

Microsoft

alliance for developing platform products, system integration and Internet services for corporate users. announced they will form a strategic

STRATEGIC ALLIANCES

Between market relations & org’l hierarchies reside several short-lived, hybrid forms of interorganizational relationships

Strategic alliance

: at least two partner firms that (1) remain legally independent; (2) share benefits, managerial control over performance of assigned tasks; (3) make contributions in strategic areas, e.g., technology or products (Yoshino & Rangan 1995)

SA governance forms vary in the types of legal & social mechanisms to coordinate & safeguard alliance partners’ resource contributions, administrative responsibilities, divide rewards from their collaboration

(Todeva & Knoke 2003)

Hierarchical Relations -------------------------------------------------------- JOINT VENTURES COOPERATIVES EQUITY INVESTMENTS R&D CONSORTIA STRATEGIC COOP. AGREEMENTS CARTELS FRANCHISING LICENSING SUBCONTRACTOR NETWORKS INDUSTRY STANDARDS GROUPS ACTION SETS -------------------------------------------------------- Market Relations

ALLIANCE FORMATION

Many alliance-formation explanations focus on dyads • Org’l & environ’l attributes & motives explaining who allies with whom?

( Baker & Faulkner; Ebers)

• Impact of past alliances on future ties: “Does familiarity breed trust?”

(Gulati; Gulati & Gargiulo)

• Orgs brokering deals among partners

Gould) (Fernandez &

Fewer analyses examine complete-network structures • MERIT-CATI multi-industry

(Hagedoorn & Schakenraad)

• Biotech-pharmaceutical industry

(Powell et al.)

• Impact of formal org’l field-net properties on alliance formation rates

(Kenis & Knoke)

ALLIANCE CONSEQUENCES

Others investigate strategic alliance impacts outcomes and • Implementation stage

(Larson 1992)

Managing conflicts among autonomous partners • Success/failure in reaching a venture’s goals R&D innovations, org’l learning, market penetration • Impact on the partners’ performances

(Stuart 2000)

Profits, sales growth, patents, mergers/takeovers • Societal consequences Innovation rates and product proliferation Market competition or collusion?

The GLOBAL INFO SECTOR GIS project on the formation, change, & outcomes of strategic alliances among world’s largest info firms



Five NAIC information subsectors (publishing; motion pictures & sound recording; broadcasting & telecomms; info services & data processing) plus computer, telecomm, semiconductor manufacturing industries



145 core orgs: 66% USA, 16% Europe, 15% Asia



Alliance & venture announcements in general and business news media from 1989 to 2000



Total of 3,569 alliances involving two or more core orgs (some collaborations also include noncore partners)

TWO RESEARCH QUESTIONS

What are the interorganizational structures of the alliance network among the core GIS orgs?

Alliance Network

:

a set of organizations connected through overlapping partnerships in different strategic alliances

(Knoke 2001) Analyze complete-network proximities among orgs to plot spatial locations of alliance blocks: UCINET hierarchical clustering & multidimensional scaling on matrices of interorg’l similarities (# partnerships)

Globalization H 0 : The search for competitive advantages through strategic partnering increases corporate integration across national & industry boundaries, creating a stable alliance network structure dominated by a few core MNCs

How does the GIS network structure evolve?

Effects of previous network structural relations on later changes in complete-network connections

Use longitudinal, stochastic simulation model to estimate network effects (reciprocity, transitivity, balance, etc.) among organizational partners’ choices: SIENA analysis of annual matrices of nondirected, binarized alliance network (dichotomized at varied levels)

Positive Preference H 0 : Organizations choose partners, using their knowledge of the current network structure, in efforts to create a “positively evaluated” configuration

RISING ALLIANCE RATES

GIS Strategic Alliances 1989-2000 5 4

Total (100s)

3 2

Mean per Org

1 0 1988 1990 1992 1994 YEAR 1996 1998 2000

DIVERSE PURPOSES

GIS Types of Alliances 100 90 80 70 60 50 40 30 20 10 0 1988 1990 1992 1994 1996 1998 2000 Equity Investment Product Adaptation Research & Develop Marketing Production Contract License Standards Legal-Political YEAR

CLOSENESS CENTRALITY

CENTRALITY : ORGS INVOLVED WITH MANY PARTNERS DEGREE = Number of ties directly connecting focal org to other orgs (in- or out-degrees) CLOSENESS = Inverse of sum of distances to other orgs (geodesics = shortest paths) NETWORK CENTRALIZATION : Extent to which one actor has high centrality and others low GIS Closeness 1989-2000 6.0

5.0

4.0

3.0

2.0

1.0

0.0

1988

Mean

1990 1992

Network

1994 YEAR 1996 1998 2000 CLOSENESS 1991: AT&T 1995: IBM; Sun; Intel 2000: Microsoft; IBM; Sun; HP

BETWEENNESS CENTRALITY

CENTRALITY : ORGS INVOLVED WITH MANY PARTNERS BETWEENNESS = Number of times an org occurs on a geodesic between other pairs of orgs NETWORK CENTRALIZATION : Extent to which one actor has high centrality and others low GIS Betweenness 1989-2000 100.0

80.0

60.0

40.0

Mean

20.0

Network

0.0

1988 1990 1992 1994 YEAR 1996 1998 2000 BETWEENESS 1991: AT&T; Time Warner 1995: AT&T; Intel; IBM 2000: Microsoft; IBM

MAPPING the GIS CORE Hierarchical cluster & multidimensional scaling analyses to identify positions and spatial proximities among 30 most-active GIS firms (1991, 1995, 2000).

Similarity = N of partnerships per dyad.

Organization

America Online AOL Apple AT&T BellSouth BS Cisco Compaq Hewlett-Packard HP IBM Intel Microsoft Motorola Novell Oracle Sun Microsystems Texas Instruments TI

Primary SIC

Info retrieval Computer Telecomm Telecomm Communic equip Computer Computer Computer Semiconductor Software TV equip Software Software Computer Semiconductor

Organization

British Telecomm BT Ericsson France Telecomm FT Philips Siemens Fujitsu Hitachi Matsushita Mitsubishi NEC NTT Sony Toshiba Bell Canada BCE Samsung (Korea)

Primary SIC

Telecomm Telecomm equip Telecomm TV equip Computer periph Computer Computer AV equip AV equip Computer Telecomm AV equip AV equip Telecomm Semiconductor

GIS Core Alliances in the Triad 2 1 0 4 3 6 5 USA Japan Europe Europe-USA USA-Japan Japan-Europe YR91 YR95 YR00

CHANGING CENTRAL GIS FIRMS

Top-ranked orgs by degree, closeness, or betweenness measures* (red underline in figures) 1991 1995 2000 Fujitsu IBM AT&T Hitachi Sun IBM AT&T Motorola NEC Mitsubishi IBM Microsoft Sun Toshiba

1.0

0.0

-1.0

-1.5

1991 GIS (MDS Stress = 0.102)

ERICSSON TI SAMSUNG BS BCE INTEL CISCO ORACLE BT SUN HP NOVELL HITACHI COMPAQ MICROSOFT ATT IBM APPLE FUJITSU MOTOROLA TOSHIBA NTT MITSUBISHI FT PHILIPS SONY MATSUSHITA

-.5

.5

1.5

1995 GIS (MDS stress = 0.142) 1.5

1.0

.5

0.0

PHILIPS BCE BT CISCO ERICSSON TI SIEMENS FUJITSU MICROSOFT NOVELL INTEL HP COMPAQ ATT IBM SUN NEC MOTOROLA MITSUBISHI TOSHIBA MATSUSHITA HITACHI SAMSUNG

-.5

AOL APPLE ORACLE

-1.0

BS

-1.5

-2.3

-2.0

-1.8

-1.5

-1.3

-1.0

-.8

-.5

-.3

NTT

.0

.3

SONY

.5

FT

.8

1.0

1.3

1.5

1.8

2.0

1.5

1.0

.5

0.0

-.5

-1.0

-1.5

-2.0

FT

-1.5

2000 GIS (MDS stress = 0.137)

BS BT TI ATT AOL ERICSSON MOTOROLA BCE PHILIPS SONY MITSUBISHI MATSUSHITA NTT TOSHIBA HITACHI FUJITSU NEC MICROSOFT IBM HP COMPAQ SUN INTEL CISCO ORACLE SIEMENS SAMSUNG

-1.0

-.5

0.0

.5

1.0

NOVELL

1.5

APPLE

2.0

EVOLUTION ANALYSIS

The macro-evolution of GIS alliance structures, under dynamic constraints of network properties and assumption of methodological individualism SIENA (Simulation Investigation for Empirical Network Analysis; Snijders 2001) models the changing network connections as outcomes of org’l decisions to add or drop ties, assuming that orgs seek to maximize various “objective function” elements (e.g., preferences for increased network transitivity, reciprocity, balance, alliances with popular and active partners, etc.)

SIENA estimates effects using two or more observed matrices of dichotomous ties. It applies the method of moments, implemented as a continuous-time Markov chain Monte Carlo simulation (MCMC) [i.e., actors know network’s current structure, but not its earlier states].

EVOLUTION of the GIS CORE SIENA analysis of changing alliance ties among the 30 most-active GIS firms in 1991, 1995, and 2000.

Dichotomized at 0 vs. 1+ partnerships per dyad Density fell over time: 0.74  0.56  0.50

OBJECTIVE FUNCTION Rate Density Balance Indirect ties Reciprocity U.S. dissimilarity Japan dissimilarity Europe dissimilarity 1991 1995 63.26*** 1.65*** 1.77*** 1.29** - -0.40** -0.22

- 1995 2000 116.50

-0.27

1.21** 1.02* 2.48

-0.12

-0.05

- *p < .05 ** p < .01 ***p < .001

EVOL. Cont.

Rate: average # changes (incl. unobserved two-ways that cancel) Density: control for orgs’ number of partners (out-degrees) Reciprocity: all GIS alliances are mutual choices Balance:

Similarity between org’s out-ties to partners’ choices; orgs with many partners choose new partners that also have many partners

Indirect tries:

N of orgs connected via one-step intermediaries; orgs prefer “open” networks that connect them to many partners-of-partners

Nation dissimilarity:

Negative sign means orgs choose partners from same nation

No evidence that partner selection reflects organizational preferences for transitivity, alter popularity, or alter activity.

NEXT DIRECTIONS?

Construct and test a comprehensive, macro-level theoretical explanation of strategic alliance network formation & consequences Reconstruct historical narrative of Global Information Sector, to understand better the emergence of this trans-national & -industrial system with its markedly mutable internal structures Uncover structural details of GIS strategic alliances amng all organizations in complete networks across two decades Model the dynamics of alliance network evolution, emphasizing contingencies of nation & industry Examine block- and dyad-level partnerships, as functions of organizational & network factors Analyze strategic alliance consequences for organizational performances: growth, profits, innovation

References

Baker, Wayne E. and Robert R. Faulkner. 2002. “Interorganizational Networks.” Pp. 520 540 in Companion to Organizations, edited by Joel A.C. Baum. Oxford, UK: Blackwell Business.

Ebers, Mark. 1997. “Explaining Inter-organizational Network Formation.” Pp. 3-40 in The Formation of Inter-Organizational Networks, edited by Mark Ebers. Oxford: Oxford University Press. Fernandez, Roberto M. and Roger V. Gould. 1994. “A Dilemma of State Power: Brokerage and Influence in the National Health Policy Domain.” American Journal of Sociology 99: 1455-1491.

Gulati, Ranjay. 1995. “Does Familiarity Breed Trust? The Implications of Repeated Ties for Contractual Choices in Alliances.” Academy of Management Journal 38:85-112. Gulati, Ranjay and Martin Gargiulo. 1999. “Where Do Networks Come From?” American Journal of Sociology 104:1439-1493.

Hagedoorn, John and Jos Schakenraad. 1992. “Leading Companies and Networks of Strategic Alliances in Information Technologies.” Research Policy 21:163-190.

Kenis, Patrick and David Knoke. 2002. “How Organizational Field Networks Shape Interorganizational Tie-Formation Rates.” Academy of Management Review (April).

Knoke, David. 2001. Changing Organizations: Business Networks in the New Political Economy. Boulder, CO: Westview Press.

References, cont.

Larson, Andrea. 1992. “Network Dyads in Entrepreneurial Settings: A Study of the Governance of Exchange Relationships.” Administrative Science Quarterly 37:76-104. Powell, Walter W., Kenneth W. Koput, and Laurel Smith-Doerr. 1996. “Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology.” Administrative Science Quarterly 41:116-45.

Snijders, Tom A.B. 2001. “The Statistical Evaluation of Social Network Dynamics.” Sociological Methodology 31:361-395. Stuart, Toby E. 2000. “Interorganizational Alliances and the Performance of Firms: A Study of Growth and Innovation Rates in a High-Technology Industry.” Strategic Management Journal 21:791-811. Todeva, Emanuela and David Knoke. 2003. “Strategic Alliances and Corporate Social Capital.” Kölner Zeitschrift für Sociologie und Socialpsychologie (Forthcoming) Yoshino, Michael Y. and U. Srinivasa Rangan. 1995. Strategic Alliances: An Entrepreneurial Approach to Globalization. Cambridge, MA: Harvard University Press.