Most strategic alliances are driven by research and development partnerships, technical exchanges, co-productions, technology transfer agreements, sale and distribution agreements and cross-distribution arrangements (Prevezer and Toker, 1996). Strategic alliances differ from the traditional interactions of organizations, that they combine particular strengths of both parties involved in an effort to overcome the weaknesses or deficiencies of each organization alone (Grant, 2005). Other drivers for alliances include gaining access to the talents of another country’s labor market, acquiring access to new technologies, controlling distribution channels, exploiting new opportunities created by government deregulation and privatization, and to facilitate rapid inter-organizational learning.
Environmental Based View
The "environment" of an organization consists of forces outside the company, which can affect the company’s attitudes, actions and outcomes (Kotler, 2001). Most bio-pharmaceutical companies operate in a (global) market environment that is often diverse, knowledge-oriented and turbulent in nature (Achrol, 1991). The relentless challenges of globalization mandate alliance formation and as such, it makes it an absolute essential part of a company's strategic options (Ohmae, 1989). Within the Environmental Based View:
1) Alliance formation is positively associated with environmental uncertainty.
2) The greater the market uncertainty, the greater the need to form alliances.
3) The larger the number of competitors and the higher the need for additional resources, the greater is the need for alliance formation.
Resource and Knowledge Based View
In this view, a company cannot generate all the resources and capabilities necessary to prosper and grow and alliances can be an option of combining resources in order to exploit new business opportunities. Approaching alliance formation from a resource-based perspective means a focus on existing competencies or lack of that (Gulati, 1999). The focus is on synergies of knowledge and knowledge compatibility (possession of skills and resources that match those of another company) and complementary knowledge (skills and resources that the other partner needs but does not have) (Geringer, 1988). Most companies focus on explicit knowledge that can be created through analytical skills and concrete forms of oral and visual presentations and incorporated in the parent company (Nonaka and Takeuchi, 1995; Inkpen and Dinur, 1998).
In sharing of explicit knowledge, most companies seek to identify visible, matching knowledge related capabilities that can be transferred and incorporated. Strategic alliances are more likely to succeed when partners possess complementary assets and thus a company will seek knowledge it considers lacking but vital for the fulfillment of its strategic objectives (Harrigan, 1985).
This interpretation has its roots in strategic alliance literature, identifying the possession of complementary knowledge as conducive to international strategic alliance formation (Beamish, 1988; Geringer, 1988; Parkhe, 1993). Hence, a joint venture can be defined as “a special mechanism for pooling complementary assets” (Balakrishnan and Koza, 1993).
In an information-oriented business environment, information/knowledge is an important contributor to form strategic alliances. Menon 1992; and Deshpande (1989), support this view and they indicate that companies cultivating learning as an organizational culture are more likely to have a higher propensity to form alliances. Through learning alliances, companies can increase their speed of product development and minimize uncertainty by acquiring and exploiting knowledge developed by others (Grant and Baden-Fuller, 1995; Lane and Lubatkin, 1998; Dussauge, Garrette, and Mitchell, 2000). In fact, the entire new product development process can be viewed as a process of embodying new knowledge in a product (Madhavan and Grover, 1998).
As a result, different stages of the product development process are leading to different types of alliances and for biotechnology companies to collaborate in the market for "know-how". In "learning alliances ", the objective is to learn and acquire from each other products, skills, and knowledge (Lei and Slocum, 1992).
Exploration-Exploitation Based View
The type of alliance a biotechnology company chooses is determined by its motivation to either explore for new opportunities or exploit an existing opportunity (Koza and Lewin, 1998). Exploration generates discovery of new opportunities and, at the same time, the potential for exploitation. Exploitation concerns increasing productivity and efficiency of capital and assets through standardization, systematic cost reductions, and improvement of existing technologies, skills, and capabilities (Koza and Lewin, 1998).
The exploration-exploitation framework developed by March (1991) and refined by Levinthal and March (1993) provides a framework for understanding the needs of technology ventures at different stages of the product development process. March (1991) described exploration as ‘experimentation with new alternatives’ having returns that ‘ are uncertain, distant, and often negative’ and exploitation as ‘the refinement and extension of existing competencies, technologies, and paradigms’. In exploration-alliances, the focus is on the desire, to discover something new. In exploitation-alliances, the focus is on the existence of an exploitable set of resources, assets, or capabilities.
Most biotechnology companies are engaged in both activities simultaneously; once valuable knowledge and skills are acquired through exploration, they turn to exploitation activities. Suggesting that exploitation cannot, by definition take place without prior exploration. As such most common grounds for strategic alliances are a mixture of the environmental reasons, resource or knowledge based needs and exploration or exploitation motivations (Koza and Lewin, 1998).