An empirical examination of the role of social exchanges in alliance performance.

Strategic alliances have become a major corporate strategy in many high-tech industries such as electronics, telecommunication, pharmaceutical, and machine tools industries (Gulati et al., 2000; Yoshino and Rangan, 1995). Strategic alliances allow firms to develop new competencies quickly, and rapidly expand in geographically disperse locations offering the greatest levels of opportunity and flexibility (Dyer and Singh, 1998; Gulati et al., 2000). While alliances are becoming an attractive option, many strategic alliances have been unstable, ineffective and poorly performing (Arino and Doz, 2000). The potential for conflict and a clash of interest between alliance partners is inherent, because either party can opportunistically use the alliance to learn the other's business or technological secrets (Doz, 1996; Khanna et al., 1998).

Previous alliance research has focused on this issue of partner opportunism and has adopted a transaction cost economics view (Pisano, 1989; Williamson, 1991) to argue that high transaction costs resulting from opportunistic behavior can be alleviated through appropriate contractual controls or equity-based ownership controls (Kogut, 1988; Pisano, 1989). These views, however, neglect the fact that the cost of deterring opportunism is very high and excessive controls may increase coordination costs (Ring and Van de Ven, 1994) and intensify power conflicts between alliance partners (Provan and Skinner, 1989; Steensma and Lyles, 2000; Yan and Gray, 1994). The challenges posed by alliances have encouraged scholars to look beyond the issue of partner opportunism and explore the evolutionary collaborative processes (Arino and Doz, 2000) and, specifically, the role of social ties such as trust in enhancing alliance performance (Doz, 1996; Lazaric, 1998; Ring and Van de Ven, 1994).

While some researchers have examined the relationship between interfirm trust and alliance performance (Inkpen and Curall, 1998; Luo, 2002; Sako, 2000; Zaheer et al., 1998), others have argued that several factors such as risk and uncertainty, cultural diversity of partners, and resource dependence (Elangovan and Shapiro, 1998; Luo, 2002) affect the relationship between trust and alliance performance. Thus, there is a need for research into the role of other social exchanges such as reciprocal resource commitments and relational influence between partners that will ensure collaboration and alliance success (Das and Teng, 1998; Gundlach et al., 1995; Steensma and Lyles, 2000; Subramani and Venkatraman, 2003). Because reciprocity and mutual influence between partners are tangible norms and manifest as mutual control and power sharing or joint decision making, they can very well supplement trust in collaboration (Das and Teng, 1998; Dekker, 2004; Provan and Gassenheimer, 1994; Steensma and Lyles, 2000). In addition, there is a need to understand why a partner will have a greater or lesser amount of trust for another party. That is, what are the specific attributes of the partners that enhance trust in the alliance? In this study, we conceptualize trust in terms of trustworthiness based on skills, integrity, and benevolent attitudes of the partner as perceived by the focal firm, and examine the managerial perceptions related to all significant ongoing social exchanges between alliance partners. Since most conflicts occur in the routine aspects of the interaction, successful alliance management is essentially a social process. From the focal firms' perspective, we examine the relationships between social exchanges (reciprocity, trust, and mutual influence) and alliance success in terms of perceived alliance performance and partner's propensity to continue the alliance.

THEORY AND HYPOTHESES

Social Exchanges and Alliance Coordination

"Social exchange" is a condition in which the actions of one party provide the rewards and incentives for the actions of another party and vice versa in repeated interactions (Blau, 1964; Homans, 1961). A mere onetime exchange in the marketplace, where a buyer is able to choose a seller depending on the price offered by the seller, is not considered a social relationship. But, if there are repeated interactions between the buyer and the supplier, the relationship grows and develops as a consequence of an unfolding social exchange and coordination process, which may be conceived as a bartering of rewards and costs between the partners (Dyer and Singh, 1998; Ring and Van de Ven, 1994). The importance of social exchanges in various business and economic transactions has been underscored by various socio-economic perspectives such as relational contracting (Macneil, 1980), social embeddedness (Granovetter, 1985), and game theory (Axelrod, 1984). From the viewpoint of social exchange theory, the interfirm exchange and coordination processes should enhance relational ties and promote norms of fair exchange (Dyer and Singh, 1998). Benefits are likely to be greater for both parties if there is reciprocity (mutual commitment), trust, and some give-and-take between them. If the coordination is successful, the process may lead to better alliance performance and further extension of the alliance relationship. Based upon the social exchange view, we propose that reciprocal commitment, trust, and mutual influence between partners are positively related to alliance outcomes. A model that depicts the proposed relationships between social exchanges and perceived alliance performance and propensity to continue the alliance is presented in Figure I.

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Reciprocal Commitment

Reciprocal commitment in an exchange is a principled obligation (Blau, 1964; Homans, 1961) and it accrues in a relationship because partners in a social exchange are never sure about how much they are obligated to each other. Therefore, strong feelings of reciprocity are continually being reinforced. A partner can demonstrate reciprocity by committing additional resources; this would constitute a reward to the party that is over-giving. Such reciprocal behaviors augment the range of resources being exchanged, and facilitate the transfer of new information, skills, and expertise (Anderson and Weitz, 1991; Dyer and Nobeoka, 2000).

Mutual commitment of resources reduces the uncertainty for the alliance partners, and enhances the scope for adjustments and understanding in the relationship. Reciprocal commitment can amplify the contributions made by individual partners. For example, Browning et al. (1995) captured, in their study of the SEMATECH consortium, how the unconditional contributions by Texas Instruments and Intel in terms of allocating research talents to the venture enlarged the contributions of other firms. Committing time, resources, personnel and physical assets can foster active involvement between managers across firms in the alliance, and in turn result in better alliance outcomes. Reciprocity operates as a social base for meaningful communication between independent business entities and encourages joint decision making. Reciprocal commitment of resources by the partners will also facilitate a high degree of information exchange. Reciprocal commitments in terms of personnel and assets enhance the knowledge connections between partners, which facilitate sharing and communicating firm-specific knowledge with partners for the creation of new knowledge in the alliance (Inkpen and Beamish, 1997). When both parties commit their resources, they not only learn about each other, but also develop new skills and competencies (Dyer and Nobeoka, 2000; Gundlach et al., 1995). Such collaborative learning and knowledge transfer enhances the outcomes and continuity of the alliance.

Hypotheses: The reciprocal commitment between alliance partners will be positively related to perceived alliance performance (Hypothesis 1a) and the propensity of a partner to continue the alliance (Hypothesis 1b).

Interfirm Trust

Trust in an interfirm relational context is often defined as reliance on another party under conditions of risk (Nooteboom, 1996). Reliance specifically means confidence in a party's expectations about another's behavior, fairness or goodwill (Ring and Van de Ven, 1994). The "risk" condition in a business relationship means that the greater the risk, the higher the confidence threshold required to engage in trusting action (Browning et al., 1995; Nooteboom, 1996). There is a greater risk in many alliance relationships, because of the exchange of technological and proprietary knowledge between the parties. A partner may appropriate the knowledge of the other party to reduce the dependence and gain more bargaining power in the relationship (Hamel, 1991; Khanna et al., 1998). Partners may lose the value of relation-specific assets in the event of termination of a business relationship (Williamson, 1991). In this context, we argue that trust is a socio-psychological property of a relationship based on the experience and interaction of boundary-spanning managers (Ring and Van de Ven, 1994).