Determinants of alliance portfolio complexity and its effect on innovative performance of companies

Alliance formation is often described as a mechanism used by firms to increase voluntary knowledge transfers. Access to external knowledge has been increasingly recognized as a main source of a firm's innovativeness. In this paper we examine decisions to form alliance portfolios of foreign and domestic partners by three groups of firms: innovators (firms that are successful in introducing new products to the market), imitators (firms that are successful at introducing new products, which are not new to the market) and product non-innovators. We consider an alliance portfolio that includes different partnership types (competitor, customer, supplier, university/research center). We develop a measure of portfolio complexity which we define as the number and diversity of elements of the alliance portfolio with which a firm must interact. We then estimate models that explain portfolio complexity and its impact on firm's innovative performance. Using panel data on more than 1800 firms in the Netherlands we find that foremost innovators have a strong propensity to form portfolios consisting of international alliances. Being an innovator or imitator also increases the propensity to form a portfolio of domestic alliances, relative to non-innovators; but this propensity is not stronger for innovators. Innovators appear to derive benefit from both intensive (exploitative) and broad (explorative) use of external information sources. The former sourcing is more important for innovators, while the latter for imitators. Finally, alliance complexity is found to have an inverse U-shape relationship to innovative performance.

Keywords: Innovation, R&D cooperation, Alliance portfolio

UNU-MERIT Working Papers ISSN 1871-9872