Skip to main content
SpringerLink
Log in

Embedding strategic alliances in networks to govern transaction hazards: Evidence from an emerging economy

  • Original Article
  • Published:
Asian Business & Management Aims and scope Submit manuscript

Abstract

While researchers have realized the crucial impact of embeddedness on governance structures of strategic alliances in the past two decades, most research has focused on relational embeddedness, ignoring the effects of structural embeddedness on governance design. Using data from strategic alliances among semiconductor firms in Taiwan, this study investigates how network structural embeddedness influences the design of alliance governance. Networks may disseminate information and develop norms, reputations and collective sanctions that mitigate opportunistic behavior. The study investigates three kinds of network: social, hierarchical and market (technology) networks. We find that the degree to which firms are embedded in social or hierarchical networks negatively moderates the positive relationship between transaction hazards and formal contract complexity, suggesting that network structural embeddedness mitigates concerns about transaction hazards. When firms entering alliances are simultaneously embedded in social and hierarchical networks, the negative moderating effects are even stronger, suggesting that these networks complement each other. However, the effects of market network embeddedness are not significant. Overall, this study finds that in an emerging economy where market-supporting institutions are weak and transaction hazards tremendous, network structural embeddedness mitigates concerns over opportunistic behavior and negatively moderates the relationship between transaction hazards and formal contract complexity.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Market-supporting institutions in Taiwan are weak and underdeveloped: ‘[In Taiwan, c]ompared with the speedy changes in deregulation, the establishment of market infrastructures was fragmented and slow .…[T]here was still substantial information asymmetry in late 1990s. For example, the requirement for group firms to file consolidated reports was not implemented until 2001. Further, there were no independent bodies to ratify the financial information submitted. The first independent credit rating agency in Taiwan, Taiwan Rating, was launched only in 1997. Until 2004, only 72 financial institutions and 28 companies were rated and had their reports available online. There is also a shortage of professional analysts. According to Nelson’s Directory of Investment Research, there were only 138 equity analysts in Taiwan in 1998. When Moody’s and Fitch Ratings joined the credit-assessment market in Taiwan in 2002, they could not find qualified analysts and had to draw on their analysts in Hong Kong and Singapore to support their business’ (Luo and Chung, 2005, pp. 408–409).

  2. In an alliance, formal contract design usually includes contract provisions and mutual equity holding. Contract provisions may be categorized as simple and complicated, and equity-holding distinguished as no equity, minor equity or major equity. Therefore, the contract provisions dimension and equity dimension construct a 2 × 3 matrix. However, we need to integrate the two dimensions into one to construct our dependent variable, formal contract complexity. We employ Pisano et al's classification and categorize formal contract complexity into four ordinal categories along one dimension. Reuer and Arino (2007) also integrated eight types of contract provisions into one-dimension contract complexity. Additionally, according to Argyres and Mayer (2007) and Chi (1994), formal contracts specify how to distribute residual claim and residual control between alliance partners, which is largely determined by equity holding. Therefore, we must integrate equity holding into formal contract complexity.

References

  • Adler, P.S. and Kwon, S. (2002) Social capital: Prospects for a new concept. Academy of Management Review 27 (1): 17–40.

    Google Scholar 

  • Ahuja, G., Polidoro Jr, F. and Mitchell, W. (2009) Structural homophily or social asymmetry? Strategic Management Journal 30 (9): 941–958.

    Article  Google Scholar 

  • Almeida, P., Song, J. and Grant, R.M. (2002) Are firms superior to alliances and market? Organization Science 13 (2): 147–161.

    Article  Google Scholar 

  • Argyres, N. and Mayer, K.J. (2007) Contract design as a firm capability. Academy of Management Review 32 (4): 1060–1077.

    Article  Google Scholar 

  • Burt, R.S. (1992) The social structure of competition. In: N. Nohria and R.G. Eccles (eds.) Networks and Organizations: Structure, Form, and Action. Boston, MA: Harvard Business School Press, pp. 57–91.

    Google Scholar 

  • Burt, R. (2004) Structural holes and good ideas. American Journal of Sociology 110 (2): 349–399.

    Article  Google Scholar 

  • Chi, T. (1994) Trading in strategic resources. Strategic Management Journal 15: 271–290.

    Article  Google Scholar 

  • Chua, R.Y.J., Morris, M.W. and Ingram, P. (2009) Guanxi vs networking: Distinctive configurations of affect- and cognition-based trust in the networks of Chinese vs American managers. Journal of International Business Studies 40 (3): 490–508.

    Article  Google Scholar 

  • Chuang, C.-M. and Lin, C.-P. (2008) Social capital and cross-selling within financial holding companies in an emerging economy. Asia Pacific Journal of Management 25 (1): 71–91.

    Article  Google Scholar 

  • Chung, S., Singh, H. and Lee, K. (2000) Complementarity, status similarity, and social capital as drivers of alliance formation. Strategic Management Journal 21 : 1–22.

    Article  Google Scholar 

  • Coleman, J. (1988) Social capital in creation of human capital. American Journal of Sociology 94 (supplement): S95–S120.

    Article  Google Scholar 

  • Combs, G. and Ketchen Jr, D. (1999) Explaining inter-firm cooperation and performance. Strategic Management Journal 20: 867–888.

    Article  Google Scholar 

  • Dixit, A. (2004) Lawlessness and Economics. Princeton, NJ: Princeton University Press.

    Google Scholar 

  • Dyer, J. (1997) Effective inter-firm collaboration. Strategic Management Journal 18: 553–566.

    Article  Google Scholar 

  • Dyer, J. and Chu, W. (2003) The role of trustworthiness in reducing transaction costs and improving performance. Organization Science 14 (1): 57–68.

    Article  Google Scholar 

  • Dyer, J. and Singh, H. (1998) The relational view: Cooperative strategy and resources of interorganizational competitive advantage. Academy of Management Review 23: 660–679.

    Google Scholar 

  • Faems, D., Janssens, M., Madhok, A. and Van Looy, B. (2008) Toward an integrative perspective on alliance governance. Academy of Management Journal 51 (6): 1053–1078.

    Article  Google Scholar 

  • Freeman, L.C. (1979) Centrality in social network. Social Network 1: 215–239.

    Article  Google Scholar 

  • Geyskens, I., Steenkamp, J.E.M. and Kumar, N. (2006) Make, buy, or ally. Academy of Management Journal 49 (3): 519–543.

    Article  Google Scholar 

  • Granovetter, M. (1985) Economic action and social structure: The problem of embeddedness. American Journal of Sociology 91: 481–510.

    Article  Google Scholar 

  • Granovetter, M. (1992) Problems of explanation in economic sociology. In: N. Nohria and R.G. Eccles (eds.) Networks and Organizations: Structure, Forms, and Action. Boston, MA: Harvard Business School, pp. 25–56.

    Google Scholar 

  • Greene, W. (2000) Econometric Analysis. New Jersey: Prentice-Hall.

    Google Scholar 

  • Gulati, R. (1995) Social structure and alliance formation pattern. Administrative Science Quarterly 40: 619–652.

    Article  Google Scholar 

  • Gulati, R. (1998) Alliance and networks. Strategic Management Journal 19 (4): 293–317.

    Article  Google Scholar 

  • Gulati, R. (1999) Network location and learning: The influence of network resources and firm capabilities on alliance formation. Strategic Management Journal 20: 397–420.

    Article  Google Scholar 

  • Gulati, R. and Gargiulo, M. (1999) Where do interorganizational networks come from? American Journal of Sociology 104 (5): 1439–1493.

    Article  Google Scholar 

  • Gulati, R. and Singh, H. (1998) The architecture of cooperation. Administrative Science Quarterly 43: 781–814.

    Article  Google Scholar 

  • Gulati, R. and Westphal, J. (1999) The dark side of embeddedness. Administrative Science Quarterly 44 (3): 34.

    Article  Google Scholar 

  • Hamilton, G.G. (1997) Organization and market processes in Taiwan’s capitalist economy. In: M. Orrù, N.W. Biggart and G.G. Hamilton (eds.) The economic organization of East Asian capitalism. Thousand Oaks, CA: Sage.

    Google Scholar 

  • Hamilton, G.G. and Biggart, N.W. (1988) Market, culture, and authority. American Journal of Sociology 94 (supplement): S52–S94.

    Article  Google Scholar 

  • Higgins, M.C. and Gulati, R. (2006) Stacking the deck: The effects of top management backgrounds on investor decisions. Strategic Management Journal 27 (1): 1–25.

    Article  Google Scholar 

  • Hoetker, G. and Mellewigt, T. (2009) Choice and performance of governance mechanisms. Strategic Management Journal 30 (10): 1025–1044.

    Article  Google Scholar 

  • Inkpen, A. and Tsang, E. (2005) Social capital, networks and knowledge transfer. Academy of Management Review 30 (1): 146–165.

    Article  Google Scholar 

  • Jensen, M. (2003) The role of network resources in market entry. Administrative Science Quarterly 48: 466–497.

    Article  Google Scholar 

  • Jensen, M. and Roy, A. (2008) Staging exchange partner choices: When do status and reputation matter? Academy of Management Journal 51 (3): 495–516.

    Article  Google Scholar 

  • Jones, C., Hesterly, W.S. and Borgatti, S.P. (1997) A general theory of network governance. Academy of Management Review 22 (4): 911–945.

    Google Scholar 

  • Kachra, A. and White, R. (2008) Know-how transfer: The role of social, economic/competitive and firm boundary factors. Strategic Management Journal 29 (4): 425–445.

    Article  Google Scholar 

  • Kale, P., Singh, H. and Perlmutter, H. (2000) Learning and protection of proprietary assets in strategic alliances. Strategic Management Journal 21: 217–238.

    Article  Google Scholar 

  • Khanna, T. and Palepu, K. (2000) The future of business groups in emerging economies. Academy of Management Journal 43: 268–285.

    Article  Google Scholar 

  • Knoke, D. (1994) Networks of elite structure and decision-making. In: S. Wasserman and J. Galaskiewicz (eds.) Advances in Social Network Analysis. Thousand Oaks, CA: Sage, pp. 274–299.

    Google Scholar 

  • Kogut, B. and Zander, U. (1993) Knowledge of the firm and the evolutionary theory of the multinational corporation. Journal of International Business Studies 4: 625–645.

    Article  Google Scholar 

  • Koka, B.R. and Prescott, J.E. (2008) Design alliance networks: The influence of network position, environmental change and strategy on firm performance. Strategic Management Journal 29: 639–661.

    Article  Google Scholar 

  • Lee, K. and He, X. (2009) The capability of the Samsung group in project execution and vertical integration: Created in Korea, replicated in China. Asian Business and Management 8 (3): 277–299.

    Article  Google Scholar 

  • Leiblein, M.J., Reuer, J.J. and Dalsace, F. (2002) Do make-or-buy decisions matter? Strategic Management Journal 23: 817–833.

    Article  Google Scholar 

  • Lin, C.-P. and Lin, H.-M. (2010) Maker-buyer strategic alliances: An integrated framework. Journal of Business and Industrial Marketing 25 (1): 43–56.

    Article  Google Scholar 

  • Luo, X. and Chung, C.-N. (2005) Keeping it all in the family: The role of particularistic relationships in business group performance during institutional transition. Administrative Science Quarterly 50: 404–439.

    Article  Google Scholar 

  • Luo, X., Chung, C.-N. and Sobczak, M. (2009) How do corporate governance model differences affect foreign direct investment in emerging economies? Journal of International Business Studies 40 (3): 444–467.

    Article  Google Scholar 

  • Luo, Y. (2002) Contract, cooperation, and performance in international joint ventures. Strategic Management Journal 23: 903–919.

    Article  Google Scholar 

  • Marsden, P.V. (1988) Network data and measurements. Annual Review of Sociology 16: 435–463.

    Article  Google Scholar 

  • McEvily, B. and Marcus, A. (2005) Embedded ties and the acquisition of competitive capabilities. Strategic Management Journal 26: 1033–1055.

    Article  Google Scholar 

  • Mesquita, L.F. and Brush, T.H. (2008) Untangling safeguard and production effects in long-term buyer-supplier relationships. Academy of Management Journal 51 (4): 785–807.

    Google Scholar 

  • Meyer, K.E., Estrin, S., Bhaumik, S.K. and Peng, M.W. (2009) Institutions, resources, and entry strategies in emerging economies. Strategic Management Journal 30 (1): 61–80.

    Article  Google Scholar 

  • Miller, D. (2004) Firms’ technological resources and the performance effects of diversification. Strategic Management Journal 25: 1097–1119.

    Article  Google Scholar 

  • Nahapiet, J. and Ghoshal, S. (1998) Social capital, intellectual capital and organizational advantage. Academy of Management Review 23 (2): 242–266.

    Google Scholar 

  • Ogasavara, M.H. and Hoshino, Y. (2008) The effects of entry strategy and inter-firm trust on the survival of Japanese manufacturing subsidiaries in Brazil. Asian Business and Management 7 (3): 353–380.

    Article  Google Scholar 

  • Oxley, J.E. (1997) Appropriability hazards and governance in strategic alliances. Journal of Law, Economics and Organization 13: 387–409.

    Article  Google Scholar 

  • Peng, M.W. and Heath, P. (1996) The growth of the firm in planned economies in transition. Academy of Management Review 21 (2): 492–528.

    Google Scholar 

  • Peng, M.W., Lee, S. and Wang, D. (2005) What determines the scope of the firm over time? Academy of Management Review 30 (3): 622–633.

    Article  Google Scholar 

  • Peng, M.W. and Luo, Y. (2000) Managerial ties and firm performance in a transition economy. Academy of Management Journal 43: 486–501.

    Article  Google Scholar 

  • Peng, M.W., Wang, D. and Jiang, Y. (2008) An institutional-based view of international business strategy. Journal of International Business Studies 39 (5): 920–936.

    Article  Google Scholar 

  • Pfeffer, J. and Salancik, G. (1978) The External Control of Organizations: A Resource Dependence Perspective. New York: Harper & Row.

    Google Scholar 

  • Pisano, G.P., Russo, M.V. and Teece, D. (1988) Joint venture and collaborative agreement in the telecommunication equipment industry. In: D. Mowery (ed.) International Collaborative Venture in US Manufacturing. Cambridge, MA: Ballinger.

    Google Scholar 

  • Podsakoff, P.M., Mackenzie, S.B., Podsakoff, N.P. and Lee, J.Y. (2003) Common method biases in behavioral research. Journal of Applied Psychology (5): 879–903.

  • Poppo, L. and Zenger, T. (2002) Do formal contracts and relational governance function as substitutes or complements? Strategic Management Journal 23: 707–725.

    Article  Google Scholar 

  • Reuer, J.J. and Arino, A. (2007) Strategic alliance contracts. Strategic Management Journal 28 (3): 313–330.

    Article  Google Scholar 

  • Rhee, J.-H. (2008) International expansion strategies of Korean venture firms. Asian Business and Management 7: 95–114.

    Article  Google Scholar 

  • Rowley, T., Behrens, D. and Krackhardt, D. (2000) Redundant governance structures: An analysis of structural and relational embeddedness in the steel and semiconductor industries. Strategic Management Journal 21: 369–386.

    Article  Google Scholar 

  • Shipilov, A.V. (2006) Network strategies and performance of Canadian investment banks. Academy of Management Journal 49 (3): 590–604.

    Article  Google Scholar 

  • Shipilov, A.V. and Li, S.X. (2008) ‘Can you have your cake and eat it too? Structural holes’ influence on status accumulation and market performance in collaborative networks. Administrative Science Quarterly 53: 73–108.

    Article  Google Scholar 

  • Smith-Doerr, L. and Powell, W.W. (2003) Networks and economic life. In: N. Smelser and R. Swedberg (eds.) Handbook of Economic Sociology, 2nd edn. New York and Princeton, NJ: Russell Sage Foundation and Princeton University Press, pp. 379–402.

    Google Scholar 

  • Stuart, T.E. (1998) Network positions and propensities to collaborate. Administrative Science Quarterly 43: 668–698.

    Article  Google Scholar 

  • Teece, D. (1982) Towards an economic theory of multiproduct firm. Journal of Economic Behavior and Organization 3: 39–63.

    Article  Google Scholar 

  • Teece, D.J. (1986) Transactions cost economics and the multinational enterprise: An assessment. Journal of Economic Behavior and Organization 7 (1): 21–45.

    Article  Google Scholar 

  • Tsai, W. (2001) Knowledge transfer in intra-organizational networks. Academy of Management Journal 44 (5): 996–1004.

    Article  Google Scholar 

  • Tsai, W. (2002) Social structure of “co-opetition” within a multi-unit organization. Organization Science 13 (2): 179–190.

    Article  Google Scholar 

  • Uzzi, B. (1996) The sources and consequences of embeddedness for the economic performance of organization. American Sociological Review 61: 674–698.

    Article  Google Scholar 

  • Uzzi, B. (1997) Social structure and competition in inter-firm networks: The paradox of embeddedness. Administrative Science Quarterly 42: 35–67.

    Article  Google Scholar 

  • Uzzi, B. (1999) Embeddedness in the making of financial capital. American Sociological Review 64: 481–505.

    Article  Google Scholar 

  • Wang, Y. (2007) Managerial choice between equity joint ventures and contractual joint venture in China. Asian Business and Management 6: 355–375.

    Article  Google Scholar 

  • Wasserman, S. and Faust, K. (1994) Social Network Analysis. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Westphal, J., Boivie, S. and Chng, D.H.M. (2006) The strategic impetus for social network ties. Strategic Management Journal 27 (5): 425–445.

    Article  Google Scholar 

  • Williamson, O.E. (1975) Market and hierarchies. New York: Free Press.

    Google Scholar 

  • Williamson, O.E. (1985) The Economic Institutions of Capitalism. New York: Free Press.

    Google Scholar 

  • Williamson, O.E. (2002) The lens of contract. American Economic Review 92 (2): 438–443.

    Article  Google Scholar 

  • Williamson, O.E. (2005) The economics of governance. American Economic Review 95 (2): 1–18.

    Article  Google Scholar 

  • Zaheer, A. and Bell, G.G. (2005) Benefiting from network position. Strategic Management Journal 26: 809–825.

    Article  Google Scholar 

  • Zaheer, A. and Venkatraman, N. (1995) Relational governance as an interorganizational strategy. Strategic Management Journal 16 (5): 373–392.

    Article  Google Scholar 

  • Zavoina, R. and McElvey, W. (1975) A statistical model for the analysis of ordinal level dependent variables. Journal of Mathematical Sociology 4: 103–120.

    Article  Google Scholar 

Download references

Acknowledgements

We are grateful to the two anonymous reviewers for their helpful comments on earlier versions of this article.

Author information

Authors and Affiliations

  1. Department of International Business Studies, National ChiNan University, 1, University Road, Puli, 545, Nantou, Taiwan

    Hsin-Mei Lin

  2. Department of Business Administration, Aletheia University, 32, Chin Li Street, Tamshui, 251, Taipei, Taiwan

    Chih-Pin Lin

  3. Department of International Business, National Taiwan University, 1, Sec. 4, Roosevelt Road, Taipei, 106, Taiwan

    Heng-Chiang Huang

Authors
  1. Hsin-Mei Lin
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Chih-Pin Lin
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Heng-Chiang Huang
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Lin, HM., Lin, CP. & Huang, HC. Embedding strategic alliances in networks to govern transaction hazards: Evidence from an emerging economy. Asian Bus Manage 10, 183–208 (2011). https://doi.org/10.1057/abm.2010.8

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/abm.2010.8

Keywords

Search

Navigation