Informal Interfirm Relations and Alliance Formation
15
1998). Finally, prior research on alliances has focused primarily on firm- and
industry-level factors that impel firms to enter alliances. In his seminal book,
Andrews (1971 in: Gulati, 1998) claimed that the strategic actions of firms
are the outcome of a match between firm’s existing competence and the
availability of new opportunities. For the study of alliances, scholars have
primarily focused on the existing competence -or lack thereof- that may
propel firms to enter into new alliances, but they have generally paid less
attention to factors that may lead to the availability of and access to alliance
opportunities in the first place (Gulati, 1998).
The focus on the firm or alliance as the unit of analysis and the description of
external context in competitive terms, has typically assumed an atomistic
notion of firms evaluating alternative courses of action and does not take into
account the actions of other firms or the relationships in which they
themselves are already embedded. It is important to recognize, as Gulati
(1998) concludes, that although alliances are essentially dyadic exchanges,
key precursors, processes, and outcomes associated with them can be
defined and shaped by the social networks within which most firms are
embedded. The role of these networks in shaping economic life has been
widely acknowledged. Industrial sociologists (Roy, 1954; Dalton, 1959 all in:
Powell & Smith-Doerr, 1994) have long stressed the role of informal
networks as an antidote to formal organization practices and structures. A
lack of sustained attention caused these ideas to be largely ignored for a long
time. Over the past decade, however, there has been an increasing interest
in the role of social networks in the economy. This change occurred in the
worlds of both practice and theory. Especially Mark Granovetter added much-
needed substance to these methodological developments in his influential
1985 paper, thereby reinvigorating and older tradition of economic sociology
and making networks a critical component of this enterprise (Powell & Smith-
Doerr, 1994). Sophisticated methods to study the structure of social
networks were developed. But as the concept of network is in vogue, its
popularity is accompanied by a general vagueness about exactly what the
idea entails. More importantly the powerful analytical tools of network
analysis have often been honed without parallel attention to substance.
White (1992, p. 65f cited in: Powell & Smith-Doerr, 1994) laments the
sterility of network analysis, with its ‘misleading overtones of nodes being
monads and of ties as lines in physical space with Cartesian dimensionality’.
The remedy for the apparent primacy of method over substance is to bring
the content of ties, rather than merely the structure formed by these ties,
back in. The more process-oriented, field-based research on network forms
of governance can generate insight into how ties are created, why they are
maintained, what resources flow across these linkages, with what
consequences (Powell & Smith-Doerr, 1994).
Informal Interfirm Relations and Alliance Formation
16
1.3 Research Problem and Questions
1.3.1 Research Problem
The objective of this study is to explore the role that informal interfirm
relations play in alliance formation of young SMEs in the computer
programming services sector in Amsterdam. This should provide better
insight into to what extent and how these relations influence the alliance
formation process.
1.3.2 Main Question
Bringing the content of informal ties between firms back in, as advocated, in
the case of alliances means paying more attention to the economic
inducements of these partnerships again. Yet the interplay between social
and economic factors is what the ultimate focal point of research should be.
The social explanation offered by various studies that highlight the role of
networks does in fact not contradict the economic motivations of alliances.
Firms don’t form alliances as symbolic social affirmations of their social
networks but, rather, base alliances on concrete strategic complementarities
that they have to offer each other. It does suggest that the conditions of
mutual economic advantage are necessary but not sufficient conditions for
the formation of an alliance between two firms. While considerations of
individual quest for resources and complementarity are relevant, it is a firm’s
social connections that help it identify new alliance opportunities and choose
specific partners that possess such complementary assets (Gulati, 1998).
Some of the key facets of the behaviour of firms as it relates to alliances, can
be understood by looking at the sequence of events in alliances. While not all
alliances may progress trough the same sequence of events, key decisions,
which are part of the alliance formation process, are made in every firm that
enters into an alliance. The notion that a firm’s social connections guide its
interest in new alliances, and provides it with opportunities to realize that
interest, is closely rooted in the process of alliance formation (Gulati, 1998).
Alliance formation and the role that social connections play are therefore
central to this thesis, in order to gain insight into the interplay between social
networks and economic motivations.
Following the research problem and objective detailed above, this main
question was derived:
To what extent and how do informal interfirm relations affect
alliance formation of young SMEs in the computer programming
services sector in Amsterdam?
Activities of companies in the computer programming services sector are
knowledge-based, which increases the chance of alliance formation:
cooperation is an important means of acquiring knowledge. In relatively
young SMEs the chance is bigger that the founders are still active in the
company. Combined with their small management structure this aided the
Informal Interfirm Relations and Alliance Formation
17
identification and investigation of key decisions in the alliance formation
process.
Firms can be interconnected with other firms trough a wide array of social
and economic relationships, each of which can constitute a social network.
These include memberships of various associations (Gulati, 1998). Special
attention was therefore paid to this subdivision of the institutional context in
which informal interfirm relations develop. Linkages between organisational
practices of firms and the institutional infrastructure of a region could be
studied in more detail because of this emphasis. Companies located in the
municipality of Amsterdam were selected in order to study the institutional
context of informal interfirm relations against the background of a single
institutional environment.
Specific choices that were made during operationalization of the research
problem, resulting in this main question, are reviewed in section 3.3.3.
1.3.3 Research Questions
Five research questions were formulated to help answer the main question.
The first three of these questions, as stated below, were distilled from the
main question mainly to help guide the fieldwork. The remaining two
research questions were coined in order to help direct the analysis and
subsequent connection to existing theory.
1) Do young SMEs maintain informal interfirm relations, and in what
institutional context do these relations develop? What is the
nature of these relations?
2) Do young SMEs enter into alliances with firms they previously
maintained an informal relation with?
3) What are the objectives of alliances that young SMEs enter into?
4) Do young SMEs have a ‘philosophy of partnership’, and do they
couple a motive to form an alliance to their ‘philosophy of
partnership’?
5) How does the ‘philosophy of partnership’ relate to the institutional
context and nature of the informal interfirm relations that young
SMEs maintain?
In the following three paragraphs the rationale and assumptions behind the
questions will be discussed. The conceptual model is shown in Figure 1.
Existence of informal interfirm relations, the latter defined as regular face-to-
face contacts –excluding those primarily involving formal exchange- between
individuals representing different firms, is the most important variable in
exploring to what extent and how these relations affect alliance formation.
Linked to the occurrence of alliances between firms that previously
Informal Interfirm Relations and Alliance Formation
18
maintained informal relations, the extent to which these informal relations
affect alliance formation can be examined. The first two research questions
will deal with these subjects.
The institutional context in which informal interfirm relations develop, and
their nature, provide insight in their function, and help to explore how these
relations affect alliance formation. Informal interfirm relations may affect
alliance formation in two ways: directly, as they may affect the objective of
the alliances firms enter, or indirectly, as they influence companies’ view on
the value of cooperation with other companies. This ‘philosophy of
partnership’ can consequently affect their inclination to cooperate with other
companies, and be the basis for the reason to form alliances in preference to
alternative means to achieve the desired objectives. This possible influence
on the motive to form alliances is of special importance to this study, since it
can shed light on the relationship between the institutional infrastructure of
environments in which companies are situated and their attitudes to alliance
formation. The second, third and fourth research questions will focus on
these themes.
The indirect relationship described above may be two-way however:
companies’ attitudes to cooperation may (also) affect the context and nature
of the informal interfirm relations they maintain, and consequently affect
alliance formation. The influence of firms’ ‘philosophy of partnership’ on the
context of the informal interfirm relations is important here. The institutional
infrastructure of a region offers companies both restrictions and choices,
which ultimately determine the environment in which companies operate.
Firms’ ‘philosophy of partnership’ may influence the choices companies make
regarding informal interfirm relations, and the context in which these
relations develop. The fifth research question will take on this topic.
In light of answering the first research question close attention is being paid
to the institutional context in which the informal interfirm relations develop.
This allows for the closer look at associations, a subdivision of this
institutional context. Generally an association is defined as a formal
organization of people or -more specific- a group of persons banded together
for a specific purpose
1
. In this study this broad definition is adopted yet with
the addition that an association is non-profit organization. Most business-,
trade- and professional associations are non-profit associations. A well-
known example is the New York New Media Association (NYNMA). The
NYNMA was a non-profit industry association founded in 1994 to support and
promote the new media industry in New York City
2
. Associations like the
NYNMA are believed to support, stimulate and regulate informal interfirm
relations. Linkages between organisational practices of firms and the
1
For definition see: http://www.irs.gov/charities/article/0,,id=96120,00.html
2
The NYNMA was discontinued; for information see:
http://www.newyorkangels.com/history.htm
Informal Interfirm Relations and Alliance Formation
19
institutional infrastructure of a region can be studied in more detail because
of the focus on associations.
(4)
< (5) >
INSTITUTIONAL
CONTEXT
Figure 1. Conceptual model of the influence of informal interfirm relations
on alliance formation of young SMEs. The numbers between
parentheses refer to the related research questions.
1.4 Outline
The following chapter reviews all relevant theories concerning the most
important concepts used in this study. This review will function as a
theoretical framework. Chapter three elaborates on the operationalization of
the research problem, and on the research methods employed to answer the
main question. The empirical findings are presented and analyzed in the
fourth chapter, with the research questions serving as a foundation. In the
fifth and final chapter the concluding arguments and recommendations for
future research on this subject are presented.
Philosophy of
Partnership
(4)
Informal Interfirm
Relations
(1)
Alliance Formation:
- motive
- objective
(2,3)
associations
(1)
(4)
(2,3)