Thanks to the Ford Foundation and Digital Media Forum for funding and to Anne Genereux, Song Yang, and Francisco J. Granados for research assistance. Dynamics of Strategic Alliance Networks in the Global Information Sector David Knoke University of Minnesota University of Tilburg June 20, 2003

PROLIFERATING ALLIANCES Business press annually reports hundreds of intercorporate collaborations, creating intricately interconnected “partners of partners” networks Helsinki to Seattle via Tokyo April 22, 2001: Nokia, Ericsson and Motorola announced a joint corporate effort to create a universal standard to allow cell phone, pagers, and PDAs to send real-time instant messages to each other, regardless of equipment brand or the software. April 25, 2001: Ericsson and Sony confirmed they would combine their mobile phone businesses in an attempt to create the definitive next-generation handsets for consumers. June 13, 2001: More than 10 Japanese companies, including Sony and NEC, will set up a consortium to jointly develop next-generation semiconductor- manufacturing equipment. Oct 21, 2001: NEC and Microsoft announced they will form a strategic alliance for developing platform products, system integration and Internet services for corporate users.

STRATEGIC ALLIANCES Between market relations & org’l hierarchies reside several short-lived, hybrid forms of interorganizational relationships Strategic alliance : at least two partner firms that (1) remain legally independent; (2) share benefits, managerial control over performance of assigned tasks; (3) make contributions in strategic areas, e.g., technology or products (Yoshino & Rangan 1995) SA governance forms vary in the types of legal & social mechanisms to coordinate & safeguard alliance partners’ resource contributions, administrative responsibilities, divide rewards from their collaboration (Todeva & Knoke 2003) Hierarchical Relations JOINT VENTURES COOPERATIVES EQUITY INVESTMENTS R&D CONSORTIA STRATEGIC COOP. AGREEMENTS CARTELS FRANCHISING LICENSING SUBCONTRACTOR NETWORKS INDUSTRY STANDARDS GROUPS ACTION SETS Market Relations

ALLIANCE FORMATION Many alliance-formation explanations focus on dyads Org’l & environ’l attributes & motives explaining who allies with whom? ( Baker & Faulkner; Ebers) Impact of past alliances on future ties: “Does familiarity breed trust?” (Gulati; Gulati & Gargiulo) Orgs brokering deals among partners (Fernandez & Gould) Fewer analyses examine complete-network structures MERIT-CATI multi-industry (Hagedoorn & Schakenraad) Biotech-pharmaceutical industry (Powell et al.) Impact of formal org’l field-net properties on alliance formation rates (Kenis & Knoke)

ALLIANCE CONSEQUENCES Others investigate strategic alliance outcomes and impacts Implementation stage (Larson 1992) Managing conflicts among autonomous partners Success/failure in reaching a venture’s goals R&D innovations, org’l learning, market penetration Impact on the partners’ performances (Stuart 2000) Profits, sales growth, patents, mergers/takeovers Societal consequences Innovation rates and product proliferation Market competition or collusion?

The GLOBAL INFO SECTOR GIS project on the formation, change, & outcomes of strategic alliances among world’s largest info firms  Five NAIC information subsectors (publishing; motion pictures & sound recording; broadcasting & telecomms; info services & data processing) plus computer, telecomm, semiconductor manufacturing industries  145 core orgs: 66% USA, 16% Europe, 15% Asia  Alliance & venture announcements in general and business news media from 1989 to 2000  Total of 3,569 alliances involving two or more core orgs (some collaborations also include noncore partners)

TWO RESEARCH QUESTIONS What are the interorganizational structures of the alliance network among the core GIS orgs? Alliance Network : a set of organizations connected through overlapping partnerships in different strategic alliances (Knoke 2001) Analyze complete-network proximities among orgs to plot spatial locations of alliance blocks: UCINET hierarchical clustering & multidimensional scaling on matrices of interorg’l similarities (# partnerships) Globalization H 0 : The search for competitive advantages through strategic partnering increases corporate integration across national & industry boundaries, creating a stable alliance network structure dominated by a few core MNCs

How does the GIS network structure evolve? Effects of previous network structural relations on later changes in complete-network connections Use longitudinal, stochastic simulation model to estimate network effects (reciprocity, transitivity, balance, etc.) among organizational partners’ choices: SIENA analysis of annual matrices of nondirected, binarized alliance network (dichotomized at varied levels) Positive Preference H 0 : Organizations choose partners, using their knowledge of the current network structure, in efforts to create a “positively evaluated” configuration

RISING ALLIANCE RATES

DIVERSE PURPOSES

CLOSENESS CENTRALITY CLOSENESS 1991: AT&T 1995: IBM; Sun; Intel 2000: Microsoft; IBM; Sun; HP CENTRALITY : ORGS INVOLVED WITH MANY PARTNERS DEGREE = Number of ties directly connecting focal org to other orgs (in- or out-degrees) CLOSENESS = Inverse of sum of distances to other orgs (geodesics = shortest paths) NETWORK CENTRALIZATION : Extent to which one actor has high centrality and others low

BETWEENNESS CENTRALITY BETWEENESS 1991: AT&T; Time Warner 1995: AT&T; Intel; IBM 2000: Microsoft; IBM CENTRALITY : ORGS INVOLVED WITH MANY PARTNERS BETWEENNESS = Number of times an org occurs on a geodesic between other pairs of orgs NETWORK CENTRALIZATION : Extent to which one actor has high centrality and others low

MAPPING the GIS CORE Hierarchical cluster & multidimensional scaling analyses to identify positions and spatial proximities among 30 most-active GIS firms (1991, 1995, 2000). Similarity = N of partnerships per dyad. OrganizationPrimary SIC America Online AOLInfo retrieval AppleComputer AT&TTelecomm BellSouth BSTelecomm CiscoCommunic equip CompaqComputer Hewlett-Packard HPComputer IBMComputer IntelSemiconductor MicrosoftSoftware MotorolaTV equip NovellSoftware OracleSoftware Sun MicrosystemsComputer Texas Instruments TISemiconductor OrganizationPrimary SIC British Telecomm BTTelecomm EricssonTelecomm equip France Telecomm FTTelecomm PhilipsTV equip SiemensComputer periph FujitsuComputer HitachiComputer MatsushitaAV equip MitsubishiAV equip NECComputer NTTTelecomm SonyAV equip ToshibaAV equip Bell Canada BCETelecomm Samsung (Korea)Semiconductor

CHANGING CENTRAL GIS FIRMS Top-ranked orgs by degree, closeness, or betweenness measures* (red underline in figures) Fujitsu IBM AT&T Hitachi Sun IBM AT&T Motorola NEC Mitsubishi IBM Microsoft Sun Toshiba

SAMSUNG

EVOLUTION ANALYSIS The macro-evolution of GIS alliance structures, under dynamic constraints of network properties and assumption of methodological individualism SIENA (Simulation Investigation for Empirical Network Analysis; Snijders 2001) models the changing network connections as outcomes of org’l decisions to add or drop ties, assuming that orgs seek to maximize various “objective function” elements (e.g., preferences for increased network transitivity, reciprocity, balance, alliances with popular and active partners, etc.) SIENA estimates effects using two or more observed matrices of dichotomous ties. It applies the method of moments, implemented as a continuous-time Markov chain Monte Carlo simulation (MCMC) [i.e., actors know network’s current structure, but not its earlier states].

EVOLUTION of the GIS CORE SIENA analysis of changing alliance ties among the 30 most-active GIS firms in 1991, 1995, and *p <.05 ** p <.01 ***p <.001 OBJECTIVE FUNCTION Rate 63.26*** Density 1.65***-0.27 Balance 1.77***1.21** Indirect ties 1.29**1.02* Reciprocity U.S. dissimilarity -0.40**-0.12 Japan dissimilarity Europe dissimilarity -- Dichotomized at 0 vs. 1+ partnerships per dyad Density fell over time: 0.74  0.56  0.50

EVOL. Cont. Rate: average # changes (incl. unobserved two-ways that cancel) Density: control for orgs’ number of partners (out-degrees) Reciprocity: all GIS alliances are mutual choices Balance: Similarity between org’s out-ties to partners’ choices; orgs with many partners choose new partners that also have many partners Indirect tries: N of orgs connected via one-step intermediaries; orgs prefer “open” networks that connect them to many partners-of-partners Nation dissimilarity: Negative sign means orgs choose partners from same nation No evidence that partner selection reflects organizational preferences for transitivity, alter popularity, or alter activity.

NEXT DIRECTIONS? Construct and test a comprehensive, macro-level theoretical explanation of strategic alliance network formation & consequences Reconstruct historical narrative of Global Information Sector, to understand better the emergence of this trans-national & -industrial system with its markedly mutable internal structures Uncover structural details of GIS strategic alliances amng all organizations in complete networks across two decades Model the dynamics of alliance network evolution, emphasizing contingencies of nation & industry Examine block- and dyad-level partnerships, as functions of organizational & network factors Analyze strategic alliance consequences for organizational performances: growth, profits, innovation

References Baker, Wayne E. and Robert R. Faulkner “Interorganizational Networks.” Pp in Companion to Organizations, edited by Joel A.C. Baum. Oxford, UK: Blackwell Business. Ebers, Mark “Explaining Inter-organizational Network Formation.” Pp in The Formation of Inter-Organizational Networks, edited by Mark Ebers. Oxford: Oxford University Press. Fernandez, Roberto M. and Roger V. Gould “A Dilemma of State Power: Brokerage and Influence in the National Health Policy Domain.” American Journal of Sociology 99: Gulati, Ranjay “Does Familiarity Breed Trust? The Implications of Repeated Ties for Contractual Choices in Alliances.” Academy of Management Journal 38: Gulati, Ranjay and Martin Gargiulo “Where Do Networks Come From?” American Journal of Sociology 104: Hagedoorn, John and Jos Schakenraad “Leading Companies and Networks of Strategic Alliances in Information Technologies.” Research Policy 21: Kenis, Patrick and David Knoke “How Organizational Field Networks Shape Interorganizational Tie-Formation Rates.” Academy of Management Review (April). Knoke, David Changing Organizations: Business Networks in the New Political Economy. Boulder, CO: Westview Press.

References, cont. Larson, Andrea “Network Dyads in Entrepreneurial Settings: A Study of the Governance of Exchange Relationships.” Administrative Science Quarterly 37: Powell, Walter W., Kenneth W. Koput, and Laurel Smith-Doerr “Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology.” Administrative Science Quarterly 41: Snijders, Tom A.B “The Statistical Evaluation of Social Network Dynamics.” Sociological Methodology 31: Stuart, Toby E “Interorganizational Alliances and the Performance of Firms: A Study of Growth and Innovation Rates in a High-Technology Industry.” Strategic Management Journal 21: Todeva, Emanuela and David Knoke “Strategic Alliances and Corporate Social Capital.” Kölner Zeitschrift für Sociologie und Socialpsychologie (Forthcoming) Yoshino, Michael Y. and U. Srinivasa Rangan Strategic Alliances: An Entrepreneurial Approach to Globalization. Cambridge, MA: Harvard University Press.