Forming strategic alliances for asset development

Scand. J. Mgmt. Vol. 14, No. 3, pp. 151-165,1998

Pergamon

@ 1998ElsevierScienceLtd. All rights reserved Printed in Great Britain 0956-5221/98/$19.00+ 0.130 PII: S0956-5221 (98)00012-8

FORMING

STRATEGIC ALLIANCES DEVELOPMENT

FOR

ASSET

HENRIK B. SORENSEN* and TORGER REVEt

*Department of Management, University of Aarhus, Denmark t Norwegian School of Management, Norway Abstract - - This paper focuses on the formation stages of interfirm cooperation and adopts a processual approach. A four-step framework is suggested. The first step represents the decision of the focal company to cooperate or to protect its assets. The second step addresses the problem of choosing a development path. In the third step the focal company has to choose a partner or partners. The fourth step represents the decision about how companies should work together. The main idea underlying the four-step framework is to combine strategic, economic and social approaches when forming strategic alliances. More importantly, the study shows that cooperation between companies can comprise the unique assets of both parties and that ways can be found of protecting these assets while also including them in cooperative undertakings. © 1998 Elsevier Science Ltd. All rights reserved K e y words: Forming strategic alliances, cooperation process, protection, assets, development paths, partner selection.

PURPOSE

Strategic alliances are conceptualized as modes of organization that can be used by companies to prepare their companies for competitive positioning. They are long-term, purposeful arrangements among distinct but related business organizations allowing the component firms to gain sustained competitive advantage vis-h-vis their competitors outside the alliance (JariUo, 1988). Along with the conceptualization of strategic alliances it is important to define assets, which in the literature (Williamson, 1975, 1985) are defined in terms of site specificity, human asset specificity, physical asset specificity and dedicated asset specificity. We use the phrase unique assets in the same sense as assets of high specificity (Williamson, 1975, 1985). Technology may be the most important single factor in achieving a sustained competitive strategy (Ansoff and McDonnell, 1990). Thus, strategic alliances devoted to developing new assets (technology) represent an important target for research. To develop assets a company has to choose between a unilateral or a cooperative strategy. Unilateral strategies are a means whereby the organization can reduce the uncertainty and dependence which may threaten its existence by drawing on its own internal ingenuity. Cooperative strategies are a means whereby the organization combines its own assets and competences with those of other organizations. 151

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Important considerations include the asset specificity of the firms, asset separability, asset appropriation, temporal stability of pay-offs and reversibility of investments (Gupta and Singh, 1990). In this paper a processual approach to alliance formation is adopted, focusing on the initiation stages of interfirm cooperation. It is to this that much of managerial attention is directed, and the hypothesis is that the formation of an alliance largely determines its outputs and results. The purpose of this paper is to study the formation process when technology-based strategic alliances are being entered upon, using primary data from nine British and Danish R and D-oriented companies. After a brief overview of the literature on strategic alliances, we present a theoretical framework which defines the key steps in the alliance formation process. Methods and data are discussed, and some implications for management and research are indicated.

REVIEW OF LITERATURE

Research in the field of strategic alliances has moved in several directions. Today, six theoretical approaches are well documented. According to the resource-dependence approach (Pfeffer and Salancik, 1978), the company tries to control the assets which can minimize its dependence on the environment. Another theoretical approach appears in transaction-cost theory (Williamson, 1979, 1981, 1985, 1991). This theory determines the efficiency border of the firm and offers some insightful considerations for deciding whether the company should make or buy its assets, or whether it should rely on alliances. The third approach is the political economy approach (Benson, 1975; Stern and Reve, 1980) which comprises collectively an economic system (economy) and a socio°political system (polity) which jointly influence collective behaviour and performance. (Stem and Reve, 1980). The fourth approach is agency theory (Fama, 1980; Hart and Holmstrom, 1987), which is concerned with the basic organizational question of how to align principal and agent interests. The fifth approach, which has dominated much of the theoretical development in the field of strategic alliances, is relational contracting theory. Here trust plays a major part in the development of cooperative alliances, a point of view shared by the Scandinavian interaction approach (H/ikanson, 1982, 1989; Johanson and Mattson, 1987; Lundgren, 1991; Axelson and Easton, 1992). The interaction approach, which is the sixth approach, not only stresses the importance of trust and confidence between actors in a strategic alliance, but also focuses on the process of relationship formation. Important inputs into research in the field of strategic alliances have come from organizational sociology (Blau, 1964; Aldrich and Whetten, 1981). The development of the theory of strategic alliances has also been influenced by competitive positioning models (Porter, 1980). Some useful theoretical insights have also come from studying the way in which companies with unique assets enter into relationships with other companies with similar assets to improve their economic performance. A combination of Williamson's (1985) transaction-cost theory and Porter's (1980) positioning model has been suggested as a fruitful approach to such a theoretical development (cf. Reve 1990). Recent resource-based approaches to strategy (Itami, 1987, Wernerfelt, 1984, Barney, 1991) provide additional theoretical insights.

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THEORETICAL F R A M E W O R K

Williamson's (1985) transaction-cost theory and Porter's (1980) positioning model are combined in the "Contracting Model of Strategi c Management" developed in Reve (1990), which also draws on resource-based theories. In this model, the company is conceptualized as a nexus of a strategic core and strategic alliances. The strategic core of a company is represented by internal unique assets which are necessary to attain the company's strategic goals, while strategic alliances with other companies bring in the joint contributions of complementary assets of other companies. The strategic core includes the core skills of specific availability of natural or technological assets, human assets, know-how, as well as skills contained in people's heads, in organizational routines and in culture (Reve, 1990). The strategic core should be governed internally, relying on organizational incentives. The aim of the incentives is to protect the core skills from being bid away by other organizations. The strategic alliances are classified into four development paths: downstream vertical integration, upstream vertical integration, horizontal integration and diversification. The strategic alliances combine complementary assets of medium-high specificity, and the incentives are bilateral. The strategic alliance incentives are mainly characterized by role integrity, trust, preservation of relations, conflict resolution and supracontractual norms (Macneil, 1980). Forming alliances is not only a question of assets and incentives, it is also a matter of the partners' ability and willingness to cooperate and the process of cooperation itself. Since this issue is not part of "The Contracting Model of Strategic Management" (Reve, 1990), "The Network Model" (H~kanson, 1989) has been incorporated into our framework to add the processual component in relationship formation. The network model presented in H~kanson (1989) consists of three characteristics: actors, resources (assets) and activities. The actors are the different organizations which form a strategic alliance. The actors are the dynamic element in the alliance, and they make every relation unique. According to H~kanson (1989), each actor alters activities or resource combinations, either directly through their own actions and/or indirectly by causing others to make changes (technological development) as a result of their mutual links. Actors are also characterized by their wish to increase their own control over the relation. Resources (assets) are characterized by their heterogeneity and by their mutual dependencies, and in this particular context, they are defined as assets of specificity. Finally, there are the activities in the relation. Activities include the act of transformation, the act of transaction, activity cycles and transaction chains (H~kanson, 1989). Coordination is needed between the activities of the different actors, and is determined by the dependency relationship between the activities. When "The Contracting Model of Strategic Management" (Reve, 1990) and "The Network Model" (H~ikanson, 1989) are combined, the question arises as to whether the two models should be seen as complementary or competing. For example "The Contracting Model of Strategic Management" is based on actors showing opportunistic behavior. The two major components represent a theory of the firm (WiUiamson, 1980, 1985) and a theory of competitive positioning (Porter, 1980, 1985), drawing also on the internal skills and competencies of the company (Barney, 1991). Hhkanson (1989) assumes interfirm behavior

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based on trust, and more attention is given to the processual nature of relationship formation, making the model dynamic. Until now the research literature has looked upon these models as competing models, without any attempt to combine them. This is because developments in the transaction-cost approach have been concerned solely with the economic rationales for making strategic alliances. On the other hand, "The Network Model" supports a different view by stressing social activities and non-economic rationales as the more important issues when forming strategic alliances. An integration of the two models into a common theoretical framework, however, would offer several advantages. Looking at strategic alliances in practice, the formation process is based on both economic and social factors. The study of interfirm behavior reveals elements of trust and opportunism, as well as various dimensions of interaction. The theoretical framework used to specify the formation process is based on the integration of the theoretical frameworks "The Contracting Model of Strategic Management" (Reve, 1990) and "The Network Model" (Hiikanson, 1989) discussed above. The theoretical framework takes account of a combination of the company's unique assets, its relationships with an ever-changing environment and the importance of interfirm trust in the context of an overall economic rationality. According to the theoretical framework presented here, the forming of strategic alliances can be described in four steps: Step 1 represents the decision of a focal company to cooperate or to protect its unique assets. Here the different modes of protecting such unique assets are considered. Step 2 consists of choosing the development path for the strategic alliance, while step 3 involves choosing the most suitable partner. Step 4 represents the decision of the two companies to create the type of cooperation they want to have, and how, as actors, they will link the unique assets and activities of the two companies. In the two last steps the importance of trust and confidence between actors in a strategic alliance is obvious.

M E T H O D S AND DATA

The study is based on nine cases involving British and Danish R and D managers (unit of analysis) who have formed strategic alliances to develop the unique assets of their companies. The methods used for this study of the formation process is a deductive case study, consistent with the methodology described by Yin (1989). Case studies are empirical inquiries which (1) investigate a contemporary phenomenon within its real-life context, where (2) the boundaries between phenomenon and context are not clearly evident, and (3) in which multiple sources are used. Due to its context this study ranks as a qualitative study. It tries to obtain information about how companies form strategic alliances. The question "how" indicates that a qualitative study is appropriate because it is possible to obtain primary information direct from the people involved. Some people claim that it is not possible to generalize from a few cases, but according to Yin (1989, p. 38) a distinction must be made between statistical and analytical

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generalizations. In statistical generalizations an inference is made about a population on the basis of empirical data collected about a sample. Cases are not "sampling units" and should not be chosen for this reason. Rather, individual case studies should be selected as a laboratory researcher selects the topic of a new experiment. The questions asked in this research are especially concerned with the subject of "how" companies form and cooperate with each other in strategic alliances. To exemplify and measure this in qualitative terms, all the questions asked were centered around the following five questions: (1) How can a company identify and separate unique assets from other asset specificity levels (i.e. medium and low asset specificities)? (2) How can a company protect and/or cooperate with respect to its unique assets? (3) How does a company choose between different development paths (i.e. different strategic alliances)? (4) On what criteria does the company choose between different partners? (5) What does the process of cooperation in strategic alliance between two or more companies look like? These five questions explain the four steps in the framework for forming strategic alliances (Fig. 1). The next step was then the selection of cases and the design of a data collection protocol. The companies involved in this study are basically high-tech companies, in the sense that they are very dependent on the continuous development of new processes and products. They are leading companies in their fields of business, and their position is based on a profound knowledge of their asset specificities. Many developments in new products and new processes occur in strategic alliances. These alliances are formed to maintain the strong position of the asset specificity of the companies involved. Thus the companies work closely together in strategic alliances. The results of each of the nine cases were compared with one another and with the theoretical developments studied at the beginning of the research process. The aim of this step was to make a cross-case analysis consisting of several sub-steps. First, we need to draw some cross-case conclusions. Then we need to modify the theoretical developments made at the beginning of the process. After this the researcher is ready to develop some policy implications and to write the final cross-case report. It is important to mention that the study concentrates on individual companies. The point of view is that of the individual companies participating in a strategic alliance, and the research strategy is what Fombrun (1982) called a nodal strategy. The strategy does not include dyadic pairs or a triadic strategy where three companies influence each other. The nodal strategy has been Chosen because it is always the focal company which decides whether or not to protect its unique assets and what development paths it wants. A dyadic strategy is more appropriate in research concerning the behavioral relationship and interactions between two partners, such as the interaction approach (H/tkanson, 1989).

FINDINGS

Step 1. Protection (internalizing) or cooperation (externalizing) of unique assets. The protection of assets is not a question of protection only; it is also a question of cooperation. It is important to note that the companies are caught in a dilemma, whereby

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on the one hand they need to protect their own specific assets, and on the other they wish to share their assets in the strategic alliances. Thus, a company may want to protect some assets which are essential to an alliance. In line with transaction cost theory, our empirical findings show that the companies protect their unique assets and include assets of medium-high specificity in the cooperation. However, it is interesting to observe that the protection of the strategic core was the exception rather than the rule. Some of the companies adopt a completely open form (type A), which means that having found the right partner, they do not deliberately protect their unique assets. Externalization (type A) and internalization (type G) are extreme forms of governance. Between these extremes there are five intermediate forms (types B-F), which highlight the dilemma referred to above. The first of the five intermediate types of cooperation - - type B - - is probably the most widely used among Danish firms. It stresses the importance of protecting the assets of the company while the alliance is still young and the partners do not yet know each other well. Gradually, as the partners come to know each other better and the alliance succeeds, the companies open the way to cooperation with respect to their unique assets. The other four intermediate types are very similar, albeit distinctive in their constructs. They are supported by the common idea that assets can be divided according to the strategic business units (SBU) of the company. Type E suggests that the company cooperates in full with respect to the integrated unique assets in one field of business, but protects its assets in others. Type F suggests the same as Type E, except that after a while the company cooperates with respect to the unique assets in the "open" business unit. Types C and D are distinct from Types E and F in that a close relationship exists between the open business units and the "closed" ones. This may apply when different business units in the company are based on the same technology. Where the different strategic business units of a company cannot be separated as regards their assets, cooperation with the assets in one strategic business unit will also mean cooperation with those in other business units. In other words, such companies cannot use the same protection mode as companies which are able to separate their different business units. Apart from identifying the seven types of protection or cooperation, the study also leads to two important conclusions, The first is that a company can participate in many strategic alliances at the same time, and in such alliances it typically uses different models for protection/cooperation with regard to its unique assets. The intermediate forms also express the crucial point that unique assets can be separated and used simultaneously in a cooperative arrangement. The second conclusion is that the seven types of cooperation can be divided in three ways. First we have type A which is a case apart, since here the company cooperates with respect to its total assets. No protection is warranted. Secondly there is type G according to which the focal company excludes its unique assets altogether and cooperates only with respect to its remaining assets. In between we have a third grouping, which differ from each other but all involve some combination of protecting some assets and cooperating with respect to others. Several conditions determine which of the different types of cooperation the company will choose in the end. The six most important factors are as follows.

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(1) Type of alliance and partner. Is the partner a supplier, a customer or a competitor? If the partner is a competitor, the focal company prefers to protect its assets rather than including them in the cooperation. If the partner is either a supplier or a customer, then the company opens the way to including its unique assets. (2) Organizational structure. Is the company organized as a simple structure or as a diversified company (Mintzberg, 1983)? Companies organized as simple structures have to adopt the simpler types of cooperation, i.e. they have to make a clear-cut decision between protection or cooperation, whereas companies with a divisionalized organization can use the more sophisticated models separating some unique assets and cooperating with respect to others. (3) Knowledge of and confidence in the partner. If considerable knowledge and confidence exist between the partners, then the more open models are often used, since it is unnecessary to protect the assets as much as when there is little or no knowledge and confidence between the partners. (4) Necessity and the importance of the alliance. In alliances where it is very important that two partners work closely together, they will often use one of the types of cooperation which allows for openness between their assets. This may be the case when the survival of both companies is connected with the degree of success or failure of the alliance. (5) Development phase of the alliance. Alliances in which the partners have been working together for a short while only, will often be based on one of the types of cooperation allowing assets to be protected until the partners and the alliance itself have proven their legitimacy. Once the alliance and the partners have passed this stage, then arrangements involving more openness will be used. These considerations are very similar to those in (3) above. (6) Previous experience of alliances. If the company has tried some of the types of cooperation in former alliances and their experience has been positive, they will often be prepared to use the same type again. If their experience has been negative, they will have learned a lesson and will try to transform the negative experience into a positive one, usually by choosing another type of arrangement. Thus, path dependencies are critical in alliances, as in so many other aspects of organizational practices. The general conclusion from these six considerations is that the focal company will adopt different modes of cooperation in different alliances. Once the company has decided whether it wants to cooperate with respect to its unique assets or to protect them, the time has come to find the most appropriate development path. Several possibilities are available here. Contrary to the suggestions in "The Contracting Model of Strategic Management" (Reve, 1990), our combined theoretical framework accepts the possibility of unique assets being part of the strategic alliance and not, as suggested by Williamson (1985) and others, as exclusively an internal matter. This distinction is very important because it touches on the problems associated with a closed strategic core. If a company chooses to cooperate with respect to assets of medium specificity and to develop its unique assets on its own, it may have to accept that the unique assets become assets of medium specificity, and vice versa. This situation will occur because the speed of development and the knowledge gained from the developments will be much better and much faster when two companies work together than if they had been developing independently on their own.

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On the other hand, it is also important for the focal company to cooperate with respect to unique assets. First, because these unique assets also need to be developed, and if medium asset specificity can acquire nourishment from two companies in a strategic alliance, then so can unique assets. Secondly, if the strategic core is closed, it will ultimately put the company in a position where it can can protect assets of medium specificity and cooperate with respect to unique assets because of the better opportunities for development in strategic alliances. Thirdly, it is very difficult to separate unique assets from assets at other levels of specificity, and the classification can also make problems for the company with regard to the unplanned transfer of assets. Fourthly, a problem arises when unique assets which are being protected by a company are necessary to the development of an alliance and to the assets of other specificity levels. These differences can also be explained by the static approach of the transaction cost theory (Williamson, 1980, 1985) and the more dynamic approach developed in the framework presented here. Porter (1991) includes some good arguments for the different approaches. Protecting unique assets and cooperating with respect to those of medium specificity is of course a very static stance, whereas our point of view is more dynamic. It includes cooperation with respect to medium asset specificity, and - - if the most convenient arrangement in step 2 is used - - also cooperation with respect to unique assets. In the development of the alliance the companies will face the problems mentioned above, and will tend to use more open types of arrangement as protection mechanisms. According to Porter (1991), it is also important that the relevant aspects of the companies, i.e. their unique assets, continuously evolve and improve. The advantage the companies can gain from the consistent refinement of their ability to implement a stable overall strategy through these aspects, their unique assets, cannot be underestimated and is also an empirical reality (Porter, 1991). We claim that the framework presented in Fig. 1 reflects the continuously evolving and improving processes which occur in strategic alliances cooperating with regard to unique assets. Apart from offering a discussion of dynamic processes, the framework presented here can also be seen as a single starting-point for protecting unique assets. The company has a real choice between several available modes of asset protection according to the specific conditions from which every strategic alliance starts. The dynamic processes can be expressed in such a way that it is possible to change the chosen protection form during the cooperation process. A change of protection forms can be explained by ex ante incentives to protect unique assets relative to ex post incentives (not) to protect the unique assets. This situation applies particularly if the partners do not know each other well at the beginning of the cooperative undertaking, and if there is a significant development during the period of cooperation. To begin with, the partners want to protect their unique assets, but later on they want to include them in the cooperation in order to exploit the potential of the cooperative undertaking. As we have noted, the protection of assets is not a question simply of protection but also of cooperation. A company may want to protect some assets which are necessary to an alliance. Hence, it is important to recognize that the companies are caught in a dilemma, where on the one hand they need to protect their assets while on the other wanting to include them in the cooperation in order to support the development of the assets in particular and of the strategic alliance in general. From this point of view both Williamson (1980) and the present article look at the incentive for a company to invest in assets when the returns on such assets will depend on the future actions of a partner company.

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Step 2. The selection of the most suitable development path The second step in alliance formation shows some similarities with the framework suggested by Reve (1990), which incorporates upstream alliances, downstream alliances, horizontal alliances and related diversification alliances as different strategic development paths. These development paths are closely linked to the competitive factors mentioned by Porter (1980, 1985), consisting of buyers, suppliers, competitors and new entrants or companies controlling substitute products. As shown in Fig. 1, this framework can be extended by two new types of alliance. The first includes alliances with research units. The importance of these last was expressed by one company as follows: "We are located close to the university, and they are very interested in a close relationship with us, and we enjoy good and constructive cooperation". There are more advantages to be derived from relationships with research units. Alliances with research units can help a company to ensure the continuous development of new products, new technology, etc. These continuous development processes can help the company to stay at the front of its industry, or they can help it to develop products, technology, etc. at a rate that other companies without alliances with research units cannot initiate. The second new development path suggested by the empirical findings refers to alliances in which the companies try to obtain completely new technologies or products, etc, differing on this score from the related diversification alliances, where the aim is to find technologies or products which are compatible with the organization's current business areas. This time it is a question of gaining access to technologies or products which are very different. This path is also recognized by Lorange and Roos (1993). The importance of alliances in which the companies try to acquire a completely new and unrelated technology is underlined in the following comment by a company which has had great success in joining alliances with this sort of development path: "Compared to the other types of strategic alliances, these alliances to acquire completely new and unrelated technologies are more demanding because the partners do not know each other very well, and they do not know the result of the development". This may cause special difficulties in both the technology-development process and in the cooperation process, so that joining such alliances is very much a learning process. Lorange and Roos (1993) have proposed what they call a formation process model, where the development paths which they call "strategic matches" are very similar to those presented here, whereby the paths or matches constitute the ways in which the individual companies' strategic plans are exploited in a strategic alliance. The different development paths have been described above as separate types of development among which the companies can choose. The empirical findings show that in fact many companies are involved in at least two or three alliances following different paths. One company represented in the empirical material talked about being part of an "infrastructure" of alliances comprising both commercial partners and research units. The conclusion is that the initiating company represents a central focus seeking connection with not one but with several partners and using different development paths. The importance of linking the strategy of the focal company with the strategy of the alliances is also very widely recognized. Step 3. The selection of the most suitable partners The selection of partners is one of the most important steps in forming strategic alliances. The process of selecting partners is closely linked to the earlier steps in the formation of the

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alliance. The most appropriate development path provides a good guide for deciding about the best partners. If a company decides on a strategic alliance with a research unit and is then unable to choose a supplier as a partner because it has already indirectly chosen another development path, the decision may not turn out to be a wise one in light of the general strategic goals of the company. Thus, the selection process is first determined by the strategic development path chosen by the focal company. This suggests that the most appropriate strategic alliance is one in which the company has chosen a development path that allows it to promote its general strategy and that moves it in a direction where good partners are available. Once the company has chosen the development path for the strategic alliance, it becomes more interesting to look at the factors to be considered in selecting partners. According to the Network model (Hgtkanson, 1989) the main considerations in selecting partners concern the activities, the resources (assets) and the cooperativeness of the potential partners. This is also confirmed by our empirical findings. Our framework suggests several ingredients in the selection process. First, there seems to be a close link between the development of assets on the one hand, and the assets that potential partners need to acquire on the other. The main types of resource (assets) are human capital, technology and financial strengths to reinforce the independence of the potential partners and to promote their survival. The activities of two companies, and the interdependence between them, also appear in our empirical findings, but they are not so strong as H~ikanson (1989) claims. Our framework shows that activities become linked after the alliances have been formed, but the company forming the alliance has ensured that a minimum of links with the activities of the potential partners does already exist. The cooperativeness of potential partners is just as important as their assets. An important factor is that the "chemistry" between the potential partners is right, that there is trust between them, but their commitment and pragmatism also play a significant role. Alongside the factors mentioned above, the framework identifies some other points which are important to the process of selecting suitable partners. These include the advantage of having a specific partner, earlier acquaintance with the partner, recommendations, strategic considerations, pressure from a third party and chance events. The most decisive step in our framework is step three. Before contacting the partner and signalling a strategic opportunity, the company needs to have passed through the three earlier steps consisting of an intensive internal analysis of the partner's suitability to the strategic alliance. Lorange and Roos (1993) even distinguish between an initial phase and a more intensive phase here, although in our opinion it is difficult to separate the two, because it will always be a question of a long intensive phase in "a gradual, complex and mixed political and analytical process" (Lorange and Roos, 1993, p. 28). Lorange and Roos point out the importance of ensuring that internal and external stakeholders have agreed to initiate the strategic alliance. This is no easy matter since different stakeholders have different aims. Despite any disagreement among stakeholders the company must make sure that its business strategy will be advanced by forming the alliance. This proposition has been incorporated into our framework specifically by the development paths and in general by the four steps together. Company executives will always have to cope with support for the strategic alliance and resistance to it. The point is that the resistance must not become so powerful as to threaten the obligations to the partner.

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Step 4. The process of cooperation The process of cooperation is determined first of all by the way the partners arrange their cooperation. The most important factor in deciding how two or more companies can work together in a strategic alliance consists of the way in which they want to arrange their cooperation. For instance, do they want to develop assets independently, exchanging and combining the results at the end of the process, or perhaps in the course of it? Or perhaps they are interested in developing assets jointly in a more reciprocal type of cooperation. This last kind of cooperation can assume one of two forms: either assets are developed in a common company outside the two "parents", or the companies visit each other in turn to develop their assets. Secondly, the process of cooperation is determined by the factors used by the initiating partner in judging the other partner(s). The empirical findings show a close link between the specific selection factors in choosing suitable partners and the cooperation processes. If the partners see the appropriate assets and the level of cooperativeness as the most important factors, the cooperation process itself will also highlight these aspects. Apart from the form of the arrangement and the factors which carry weight in the selection process, the cooperative process also includes such factors as: (1) interdependencies and coordinating mechanisms, (2) technical, time-related, knowledge-related, social, economic and legal bonds (Hammerquist et. al., 1982), (3) adjustment and adaptation processes, (4) the involvement of the participating companies, (5) the content of their cooperation, and (6) personal confidence and trust. Both Hakanson (1982, 1989) and Turnbulla and Valla (1985) recognize similar factors.

SOME IMPLICATIONS FOR MANAGEMENT AND RESEARCH

It is important to recognize that the success of the strategic alliances is determined right from the start - - in most cases so early that the preliminary analysis offers some indication of the alliances which the company will favor. This is because the preparations of the focal company define the context of the alliance, the cooperation process and even the development opportunities. This study provides some guidelines for managers when it comes to forming successful strategic alliances with a view to developing the unique assets of the companies involved. The suggestions are made in the shape of a framework, which is itself based on two other frameworks for forming and cooperating in strategic alliances. Based on a combination of "The Contracting Model of Strategic Management" (Reve, 1990) and "The Network Model" (H~ikanson, 1989), our theoretical framework presents a four-step procedure for forming alliances, consisting of (I) protection or cooperation o f unique assets, (2) the selection of the most suitable development paths, (3) the selection of the most suitable partner(s) and, (4) the cooperative process itself. The first step highlights the question of whether the cooperation or separation of unique assets means that they will, or will not, be part of the strategic alliance. Hence, it is important to develop models in which it is possible to cooperate with respect to unique assets. Among the reasons for such cooperation are: (1) the unique assets could be nourished by strategic alliances, (2) the unique assets are being denied more favorable

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development opportunities in strategic alliances, (3) it is difficult to separate assets of medium specificity, and their classification may create problems with the unplanned transfer of unique assets, and (4) unique assets separated by a company are necessary for developing the alliance and promoting the development of other assets, perhaps even new ones. The managerial implications of cooperating with respect to unique assets are that seven types of management are available, including the original one suggested by Reve (1990). This kind of cooperation emphasizes the protection aspect, while the six others emphasize either a fully cooperative arrangement or something in between. The completely open arrangement is relevant if a company has chosen its partner on a basis of prior knowledge, thus knowing the partner well from the beginning of the strategic alliance. According to our approach it is the types in between which are the most interesting ones, because they both protect the asssets and include them in a cooperative arrangement. The division into types is in line with the division of the company into different business areas, in some of which the unique assets are protected while in others (normally only one) they are included in a cooperative undertaking. Last but not least, companies can gradually open the way to cooperation with respect to unique assets as the partners come to know each other better. The second step in forming strategic alliances involves the most suitable development path. In much the same way as in the Reve (1990) framework, the framework presented here incorporates upstream alliances, downstream alliances, horizontal alliances and related diversification alliances. These directions for development are similar to the competitive forces mentioned by Porter (1980, 1985) and consist of buyers, suppliers, competitors and new entrants. ,Two more development paths are recognized in the present study, comprising alliances with research institutions and alliances in which completely new and unrelated technologies are developed. These alliances are also identified in the Lorange and Roos study (1993). The third step in forming strategic alliances concerns the selection of partners. The present study indicates that the selection of partners is determined first of all by the development path chosen by the focal company. "The Contracting Model of Strategic Management" (Reve, 1990) gives no answers to the question of which partners to choose, once the development path has been chosen. Here, however, we see an advantage in integrating the other model that constitutes our framework. "The Network Model" (H/ikanson, 1989) suggests three main factors, namely the existence of unique assets, activities a n d the willingness and the capability of the partners to cooperate with one another. We have adopted these criteria, but additional factors such as (1) the advantages of a specific partner, (2) earlier acquaintance with the partner, (3) recommendations, (4) strategic considerations, (5) "compulsion" on the part of a third partner and (6) chance events are all important in selecting partners. The fourth step is the cooperation process itself. The three steps mentioned above are mainly an internal matter, whereas this last step evolves in close contact with the partner. One of the main issues concerns how to organize the alliance. From our study we conclude that three possibilities are available. (1) The partners can decide to develop assets independently of each other combining their results at the end of the process. (2) They can choose a more reciprocal mode, whereby the assets are developed jointly. This type of cooperation can take one of two different forms: (1) the companies develop the assets in a joint venture outside the two "parents"; (2) the companies visit each other in turns to develop the assets in each of them.

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Finally, our framework indicates that the process of cooperation engenders interdependencies, bonds, processes of adjustment and adaptation, etc., between the partners. The managerial implications of this study relate to the manner of forming strategic alliances. Many important decisions have to be made before and during the formation process, many of which can be assembled in the four-step procedure described above. Every formation process and strategic alliance is unique, and some adjustments are necessary for every separate situation. But the framework makes valuable suggestions for avoiding serious pitfalls in the formation process as regards unique assets, development paths, the selection of partners and the forms of cooperation. The process of forming strategic alliances calls for more than check-list guidance. What is needed is a framework making it possible to ensure that the formation process is progressing along a systematic path, rather than by a series of chance moves, whereby some important problems may be overlooked. With the network model we have thus sought to introduce an element of rationality into the organic development process. More research into the formation process is needed, linking the frameworks for forming strategic alliances to the internal factors of the individual companies. Characteristically, frameworks for formation processes are concerned with companies looking ahead to find the right partner, rather than "backwards" into their own organizations. From a methodological point of view more research is needed in the field of strategic alliances in the shape of longitudinal studies, in order to identify changes over time in the types of arrangement suggested. This should also generate valuable information about the reJationships and interactions and interaction processes between two or more partners. Finally, the interorganizational learning processes between partners should be studied in greater detail. We are not referring here to organizational learning processes as there is a wide difference between internal learning processes and the learning processes that evolve among partners.

CONCLUSION Forming strategic alliances for asset development in technologically oriented comapanies is a process which needs to be considered very carefully by the participating companies. Important considerations include (1) the decision as to whether the companies should protect or cooperate with respect to their unique assets, (2) the selection of the most suitable development paths, (3) the selection of the most suitable partner(s), and (4) the process of cooperation itself.

Step 1 deals with the question of protecting or cooperating with unique assets offering seven possibilities ranging from full protection of unique assets to a fully cooperative mode. Step 2 involves the selection of the most suitable development path among the following options: upstream alliances, downstream alliances, horizontal alliances, related diversification alliances with research units, and alliances where completely new and unrelated technologies are developed. Step 3 in the formation of strategic alliances concerns the selection of partners, which will be determined primarily by the development path chosen by the focal company (step 2), and taking particular account of three main factors: the unique assets, activities and the willingness and capability of the partners to cooperate.

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Step 4 comprises the cooperation process itself. The companies can decide (1) to develop assets independently and to combine the results at the end of the process, or (2) to choose a process whereby the assets are developed jointly. The last type of cooperation can assume one of two forms: (1) the companies can develop the assets in a joint venture outside the two "parents"; (2) the companies can take turns to visit each other, to develop the assets in each of them. The four steps in the framework provide a processual structure for forming strategic alliances and emphasize the importance of integrating various elements of opportunism and trust in strategic, economic and social dimensions.

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