04/10/2023 Akshay S Bhat, XLRI Jamshedpur 1

BEHIND ACQUISITIONS OF

ALLIANCE PARTNERS:EXPLORATORY

LEARNING AND NETWORK

EMBEDDEDNESS Paper Review by Akshay S. Bhat, XLRI

Academy of Management Journal

2011, Vol. 54, No. 5, 1069–1080.

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Abstract

• Acquisition Literature dominated by economistic and atomistic assumptions

• This study extends acquisition research by integrating behavioral learning and social network perspectives to examine acquisitions of alliance partners

• At dyadic level, how learning's from one acquisition can drive subsequent acquisitions

• US industry empirical support to theory

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Again

• Exploration v ExploitationLearning

• Joint brokerage positions and relative uncertainityNetworks

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Intro

Alliances and Networks important for

external resources (Wang & Zajac, 2007)

Albeit literature treats them as

parallel, firms often ACQUIRE alliance

partners

What drives acquisitions of

alliance partners?

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Prior Research

Economic Financial Explanations

Transaction Costs

Agency conflicts

Real Options

Paid less attention

on Behavior

al and Network Drivers

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Rece

nt

Wor

k

Behavioral Decisions

Important in AQD

Firms embedded in network

relationships

This paper bridges these two theories (Motivation)

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This

Pape

r

Critical but unexplored drivers for

acquisitions to be explored

Alliance attributes and networks will be considered

Link the segmented literature together

Synthesis type of research

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Research Question

How do firms’ learning in alliances

and embeddedness in their alliance networks

drive their subsequent

acquisitions of alliance partners?

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Moti

vation

s

Why they did it ?

• Firms rely on part experience

• Prior studies focused on direct experience

• Role of firms from alliance networks

• Role of learning was explored by the authors

• Exploration v exploitation alliance

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Expl

orati

on

• Opportunity seeking vehicles

• Experiment with new knowledge

• Access Partners tacit knowledge

• Evaluate intrinsic sources• Build new competancies

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Schumpeterian Rents is the

focusFocus is not to discover new

knowledge but refine existing

one

Authors argue : exploration

better

Expl

oita

tion

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Authors argue..

• Firms are not atomistic players (disparate elements)

• Firms rather are relational entities• Subject to opportunities and constraints• Exploratory learning thrives in an open network• Although previous work talks a bit about

network embeddness it has focused on imitation mechanisms

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ALLIANCE LEARNING, NETWORKEMBEDDEDNESS, AND ACQUISITIONS

• Alliances and Networks external resources• Alliance Partial Control

• Acquisition Full Control (Complete ownership)

• Alliance involves piecemeal decision making• Acquisition Sunk cost/irreversible

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Commonalities

/Differ

ence

s

• Both to access external resources• Common motivations (Synergy)• One may inform the other• Both developed independently• No cross fertilization between the two

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Authors argue…

• Firms are adaptively “learning”• March (1991) provided a ex-exp framework to

deal with alliance heterogeneity• Both exploratory and exploitation lead to

evaluation of the partners tacit knowledge however exploratory has an advantage

• In addition to learning, acquisitions do not take place in vacuum

• They are embedded in a broad social context

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Authors propose.. (with help from other scholars)

• Important to integrate the behavioral learning perspective and social network perspective

• Learning thru awareness increases partners value, such learning takes place in network embeddness

• Actual awareness contingent upon a firms motivation and capability

• Two constructs for network embeddedness– Joint Brokerage Positions– Relative Centrality

• Acquisitions don’t take place in vacuum but wrt embeddedness in a social and economic context

• But important to integrate behavioral context

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Constructs

• Joint Brokerage refers to the collective network openness enjoyed by two firms in an alliance

• Relative centrality refers to the asymmetry in network positions between two alliance partner firms

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Effects of Alliance Learning

Exploration alliances

Firm risk taking

Understand partners resources

Increases understanding of true value

Knowledge search and creation

Close interaction and shared value creation

More dynamic

Understanding partners is more important

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Effects of Alliance Learning

• Maximize value of existing resources

• No interactive • More focus on

status quo• Easy for managers

to describe roles and relationships

• Less ambiguity

Exploitation

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Therefore

Hypothesis 1. Compared with exploitation alliances, exploration

alliances are more likely

to result in acquisitions of alliance partners.

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Moderating Roles of Network Embeddedness

• McFadyen and Cannella : Resources in Exploration may turn into liabilities in Exploitation if tasks at hand do not match with its network structure

• How partners leverage their network embeddedness is important as scope is not only for network embeddedness but also induce potential power conflicts

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Two important Dimensions of Network Embeddedness

Network Embeddedness

Joint Brokerage positions

Relative Centrality

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Joint Brokerage PositionsHigh Degree of Joint Brokerage

fosters access to new and diverse

channels thru structural holes

Structural Holes: Disconnect

between non redundant contacts

in a networkMay provide

increased value for

exploration alliancesSuch a dynamic process may force

a firm to acquire its alliance

partners in two ways

•First, the increased value of exploration alliances can alleviate firms’ qualms about the true value of partner firms and increase their confidence and motivation regarding internalizing the alliance activities through acquisition (Baum & Ingram, 2003). •Second, interpartner conflicts may provide more incentives to initiate acquisition of partner firms, which can resolve these conflicts and also yield more benefits through internalization and hierarchical control (Dussauge et al., 2000).

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And therefore they hypothesize

Hypothesis 2. A high degree of joint brokerage

occupied by alliance firms strengthens the positive relationship between exploration

alliances and subsequent acquisitions of alliance

partners.

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Relative Centrality

• We are interested in degree centrality• Degree Centrality :Extent to which a firm occupies a key

position with direct ties to other network members )• Therefore Relative Centrality is difference between two

firms degree centrality

• Central firms have greater access to various resources in the network

• More likely to receive information, conduits for assets, more power et al.

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And therefore they hypothesize

Hypothesis 3. A high level of relative centrality

between alliance firms strengthens the positive

relationship between exploration alliances and subsequent acquisitions

of alliance partners.

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Methods

• Sample– US Computer Industry– SW/Hardware– Industry alliance network using two decision rules• Types of relationship between alliances et al.• Attributes of those actors

– (at least one alliance)

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Dependent Variables

• Acquisition of Alliance partners

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Independent Variables

• Exploration Alliance Index• Joint Brokerage Positions• Relative Centrality

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Control Variables

• Equity Alliance Index• Strategic Interdependence• Asymmetry in firm size• Combined Financial Resources• Competitor Alliance Index

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Analysis

• Dependent variable is dichotomous• Logistic Regression Analysis was run• Multiple observations for a dyaid of several

years

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Contributions (1)

New way of looking at acquisition

research by looking at behavioral and

rational perspectives

Finding that learning, behaviour and acquisition are

interlinked

Findings that firms are interlinked, embedded in

networks

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Contributions (2)

Bridges two separate streams

Learning affects

acquisitions

Extends prior social network

literature

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Limitations + Future Research

• Only one industry studied for the sake of simplicity and accuracy

• Aspiring scholars can extend and generalize based on their findings

• Isolated researches on acquisitions, alliances and learning

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My Critique

• Tautological• They have shown behavior and learning

impacts but how exactly has not been covered in detail, but I appreciate that they have acknowledged it

• How learning happens (Dominant v Servile)