Alliance experience and its effect on firm performance

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Word count: 10.382

Rijksuniversiteit Groningen

Alliance experience

and its effect on firm

performance

To what degree do dyadic, multilateral, and general alliance experience impact the financial performance of a firm while it engages in a multilateral alliance?

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Abstract

In the field of alliances, multilateral alliances have received less attention than the usual dyadic alliances. Because multilateral alliances are gaining importance and the fact that there are major differences between multilateral and dyadic alliances (e.g. multilateral alliances are more difficult to manage, have a more complicated alliance design, and have increased transaction costs), this paper examines how alliance experience affects financial firm performance during a multilateral alliance. A sample of 71 firms that engaged in a multilateral alliance was selected from the SDC database, based on the timeframe, the SIC code of the alliance, and the availability of financial data. It was proven that increasing the number of partners of an alliance will decrease the performance of the focal firms in the alliance. Furthermore, the findings indicate that general alliance experience is likely to have a positive impact on firm performance, firms with multilateral alliance experience are probable to perform better during a multilateral alliance than firms with only dyadic alliance experience, and firms do not seem able to benefit from the multilateral alliance experience of their alliance partners.

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1. Introduction

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5 a group of firms that are collaborating is sometimes the best option. The strategic implications can be profound, as a firm's performance may crucially depend on which group it chooses to join (Lazzarini, 2007). This research will focus on how the focal firm performs when it has joined a multilateral alliance, thereby differentiating between firms without alliance experience, firms with only dyadic alliance experience and firms with multilateral alliance experience, in order to see whether the focal firm benefits from joining a multilateral alliance, and to what degree this depends on the alliance experience it has. Alliance experience is used in the most straightforward meaning of the term, indicating in how many alliances the firm was involved in the past. Next to looking at alliance experience and focal firm performance, this research also looks at the alliance experience of the partner-firms in the alliance, and the opportunities of vicarious learning from those firms. Inkpen (2005) argues that there is no question that many firms enter alliances with learning objectives and in a similar fashion Sampson (2007) argues that the goal of many firms engaging in alliances is to gain knowledge from partners. Alliances offer opportunities for firms to learn by providing access to scientific knowledge (Hagedoorn, 1993). It is very interesting to research if firms with different degrees of alliance experience that join a multilateral alliance are able to use the experience of the partner-firms, depending on whether those firms are more or less experienced.

Existing research on the focal firm level has mainly focused on alliance experience in combination with alliance capability (Draulans et al., 2003; Schreiner et al., 2009) or knowledge management (Meier, 2011). This study will however delve into less explored territory by combining degrees of alliance experience with multilateral alliances and the subsequent focal firm performance. It focuses on different degrees of alliance experience and the impact on focal firm performance while making a distinction between dyadic alliance experience and multilateral alliance experience. Because most research has been done concerning only dyadic alliances, it is noteworthy that this study will add to this subfield of the alliance theory, the less mature field of multilateral alliances, which is gaining more and more importance. The following main question will be answered through testing the hypotheses:

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6 To answer this research question, an empirical study was conducted with a sample of 71 firms that were engaging in a multilateral alliance between 2004 and 2010. The key findingof the research is the significant negative relationship between the number of partners in the alliance and the performance of the firm, as adding partners to an alliance has a negative impact on firm performance. Furthermore, while a firm is engaging in a multilateral alliance, general alliance experience is likely to have a positive impact on firm performance, firms with multilateral alliance experience are probable to perform better during a multilateral alliance than firms with only dyadic alliance experience. Also it is likely that firms have difficulties accessing and using the multilateral alliance experience of the partner-firms within the multilateral alliance they are engaging in, as the focal firms do not seem to significantly benefit from the multilateral alliance experience of the alliance partners. Therefore, the main contributions of the study are the fact that is was proven that adding partners to an alliance has a negative effect on firm performance, the indications that experience in fact does affect the performance of firms while they engage in multilateral alliances, and the indication that it is very difficult for firms to the access second-hand experience of partner-firms.

The article is structured in the following way. First, the theory section and the hypotheses will be discussed. Second, the methodology of the paper will be covered. Third, the results of the research are discussed. After this, the discussion will follow. Next, the implications for further research and for managers are paid attention to. Then the limitations and directions for future research are covered. Finally, the conclusion is given.

2. Theory, Hypotheses and Conceptual Model

2.1. Theory

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2.2. Hypotheses

Firms can enter a multilateral alliance with different degrees of alliance experience, or even without any alliance experience whatsoever. A distinction can be made between four different degrees of alliance experience; no alliance experience; only experience with dyadic alliances; only experience with multilateral alliances; or experience with both dyadic and multilateral alliances. As explained before, alliance experience is considered to be an important antecedent of alliance performance (Heimeriks & Duysters, 2007). As discussed earlier, alliance performance is in its turn important on the focal firm's performance (Lavie, 2007). In general, firms that have alliance experience, have build on their alliance capability. Kale and Singh (1999) link alliance experience with alliance capability by arguing that organizational processes facilitating the accumulation, codification and sharing of alliance know-how embedded in the firm’s alliance experience, are central to its alliance capability and success. Alliance capability can be best described as the skill to manage alliances, and this capability enables firms to leverage alliance knowledge inside the company (Draulans et al., 2003). Kale et al (2002) suggest that firms that invest in a capability at managing alliances (i.e. dedicated alliances function) are able to enhance the probability of success - both in the short run and in the long run, because of several reasons. The most important reasons why alliance capability enables firms to have greater alliance success are the following; (1) the firm is able to capture, share, and disseminate the alliance management know-how associated with prior experience (2) the alliance function will act as a focal point for learning and leveraging both explicit and tacit lessons from prior and ongoing alliances, (3) the improvement of internal coordination and resource support of alliances, and (4) the ability to monitor and evaluate alliance performance.

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9 without alliance experience, and will therefore perform better during (and after) the alliance. Therefore, the following is hypothesized.

Hypothesis 1: While engaging in a multilateral alliance, firms with more prior alliance experience will perform better than firms with less prior alliance experience.

Firms with alliance experience in general are expected to perform better after a multilateral alliance than firms that entered without prior alliance experience. However, there are multiple degrees of alliance experience. As described earlier, there are some significant differences between dyadic and multilateral alliances (Doz & Hamel, 1998; Dyer & Singh, 1998; Hwang & Burgers, 1997). Doz and Hamel (1998) identify major difficulties in maintaining multilateral alliances. They identified that norms of reciprocity, conflict resolution, and coordination are in particular far more complex in multilateral alliances compared to dyadic alliances. Das and Teng (2002) argue that reciprocity can be problematic in multilateral alliances, because member firms often do not reciprocate with one another directly. Conflict resolution is also more difficult, because the actors in social exchanges need to resolve conflicts and restore equity through collective sanctions, in which all members (not only those denied reciprocation) punish those who violate group norms. The last difficulty in managing multilateral alliances that Das and Teng (2002) discuss, is coordinating multiple partners. While interfirm cooperation would not take place without such coordination, this coordination can be difficult and costly. This clearly indicates that multilateral alliances are complex and more difficult to manage than dyadic alliances. Because prior alliance experience leads to alliance capability (Kale & Singh, 1999), which in its turn leads to higher alliance success rates (Kale et al., 2002), prior multilateral alliance experience will enable firms to manage multilateral alliances better than firms that do not have this experience. Since alliance performance is in its turn important on the focal firm's performance (Lavie, 2007), the following can be hypothesized:

Hypothesis 2: While engaging in a multilateral alliance, firms with prior multilateral alliance experience perform better than firms with only dyadic alliance experience.

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Hypothesis 3: While engaging in a multilateral alliance, firms can complement first-hand experience with second-first-hand experience to increase firm performance.

2.3. Conceptual model (H3) + (H1) + (H2) + +

3. Methodology

Although the multilateral alliance field is relatively immature, the alliance literature in general is quite extensive. Therefore a theory testing approach is adopted where the existing alliance theory is used to develop hypotheses that can be tested through using data from different databases. Therefore a quantitative research method is used in this study, because the necessary data is gathered from databases and the research questions aims to indicate to what degree alliance experience, with a distinction between dyadic, multilateral, and general alliance experience, can influence financial firm performance. Statistical analyses are used in order to find out whether there are significant relationships between alliance experience and firm performance. Below, the data collection, the forming of the final sample, the measures that are taken into account, and the variables are discussed in more detail.

General Alliance Experience Multilateral Dyadic Alliance > Alliance Experience Experience Financial Firm Performance Average Multilateral Alliance Experience of the Partner-firms Control Variables:  Industry Classification  Firm Size

 Number of partners in the alliance

 Size of the alliance portfolio

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3.1. Data collection

The data on alliances are drawn from the Strategic Alliance data base of the Securities Data Company (SDC). This is a large database created using information from the Securities and Exchange Commission filings and their international counterparts, trade publications, and wire and news sources. This database currently represents one of the most comprehensive sources of information on alliances (Li, Boulding & Staelin, 2010). By drawing from the SDC database, a rather comprehensive sample can be extracted and used. However, the SDC Database system is rather limited in its functions and extracting a sample based on multiple criteria is not possible. Luckily it is possible to convert SDC data sheets to Microsoft Excel, in which it is much easier to apply filters in order to reduce the amount of data, based on the necessary criteria that can be selected, such as the number of partners in the alliance (i.e. more than two) the timeframe, and the industry classifications for example. Next to the alliances data that are drawn from the SDC Database, also financial data is required in order to measure the financial performance of the focal firms during the time of the multilateral alliance. For this purpose, Orbis is used. Orbis offers financial, market, and other information on companies worldwide. Unfortunately, Orbis does not offer an easy copy or extraction option, therefore the financial data for each year of the alliance had to be entered manually in Excel, and then coupled with the existing data about the alliance from the SDC Database. Creating the final data sheets with the final sample in Excel was therefore quite time consuming. In the following section is explained in more detail how the final sample was formed.

3.2. Sample

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13 firms in these industries need to keep up with technology and use for example alliances as a means to do this. Eventually, this lead to a sample of 274 firms. This sample was then cross-referenced with financial data of the firms from Orbis, the database that tracks financial firm data. Eventually this lead to a total sample of 71 firms of which the necessary financial data of each year was available. The firms in the sample do not necessarily have to be active in the chemicals and allied products industry. The industries those firms are active in varies. Most are active in the chemicals and allied products industry, but some are active in the Petroleum Refining, Motor Vehicle Parts and Accessories or Wholesale-Petroleum and Petroleum industries for example.

The size of the firms, based on the number of employees it has, varies between rather small firms with only 7 employees to very large firms with more than 370.000 employees. These are the extremes however, and the average number of employees is a little under 17.000, which indicates that the sample consists of rather large firms. The firms in the sample also quite differ in both their dyadic, multilateral, and general (i.e. both dyadic and multilateral) alliance experience, which enables statistical analyses between the different groups. Some firms have no dyadic alliance experience whatsoever, whilst others have had as much as 24 dyadic alliances in the past. This variety in experience also holds for multilateral alliances, where some firms had no multilateral alliance experience, and others as much as 48 past multilateral alliances. Consequently, the general alliance experience is also quite dispersed over the sample.

3.3. Variables and measures

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14 Sampson (2005). For example, if the focal alliance was initiated in 2007, the alliance experience of the participating firms is measured by looking at the amount of previous alliances between 2002 and 2007.

Next to the alliance experience of the focal firms, the average multilateral alliance experience of the other firms within the alliance acts as an independent variable that is used to test the third hypothesis. First, the multilateral alliance experience of the alliance partners (also of the previous 5 years) was collected using the SDC Database. Then the average experience was calculated by dividing the total number of multilateral alliances of the partner-firms by the total number of partner-firms in the alliance.

The dependent variable is financial performance. In order to test the hypotheses, for financial performance three different measures were used, in order to find out whether there were differences in the results. The first is Net Income, where the example of Lahiri and Narayanan (2013) is followed, who argue that this method is based on past accounting literature, which suggests net income as a reliable indicator of the performance of the firm. The second is Return on Equity (ROE), where the example of Karahanna and Preston (2013) is followed, who argue that this measure is widely used to assess performance. The last measure is the Profit Margin (PM) which can also be used to indicate performance, as done by for example Boone and Ivanov (2012). Finally, after testing those three measures in all the analyses as dependent variables, ROE showed to yield the most significant results. That measure is therefore used as dependent variable, and thus as indicator for firm performance.

Variables differing from alliance experience can directly influence the performance of the focal firm, or indirectly influence the performance of the focal firm by influencing the alliance performance. Therefore the industry classification, the firm size, the number of partners in the alliance, the size of the alliance portfolio, and the fact whether there are cross-border participants are controlled for. In the following section for each control variable is explained why and how it is measured.

Industry classification: The industry classification of the firms can be related to their alliance

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Firm size. The size of the firm is likely to influence the impact the alliance has on the total

performance of the firm. The size of the firms is measured using the focal firm's number of employees, as preceded by Lavie (2007), Heimeriks and Duysters (2007), and Lahiri and Narayanan (2013). In order to enhance the calculations, firm size has been transformed using a logarithmic function, as for example Cloodt et al. (2006) have done in their paper.

Number of partners in the alliance. As argued earlier, when more partners engage in an

alliance it becomes more difficult to successfully manage the alliance, since the alliance design will be more complicated (Doz & Hamel, 1998), and it is likely to erode the connectedness of venture activities and to make performance measurement and monitoring difficult (Gong et al., 2007) for example. This will decrease the chance of reaping the benefits from the alliance and thus it influences the firm performance. The numbers of partners in the alliance is measured as the total number of firms that engage in the multilateral alliance.

Size of the alliance portfolio. According to Lavie (2007), an increasing alliance portfolio size

positively affects firm performance. Prominent partners that can endorse the focal firm and endow valuable resources, may enhance its market performance. Furthermore, it enhances the structural and relational embeddedness in networks which allows access to network resources. The size of the alliance portfolio is measured as the number of alliances the focal firm is engaging in at the time of the multilateral alliance. It is assumed that an average alliance lasts for five years, thus alliances that were initiated in the five years prior to the multilateral alliance were taken into account.

Cross-border participants. Alliance partners from different countries will encounter more

difficulties during the alliance due to the cultural differences. Culture related management impediments refer to potential cross-cultural interaction problems. Such problems may arise from differences in partners’ national and corporate culture, partners’ objectives and Human Resource Management (HRM) systems, alliance managers’ attitudes, behavior and practices and language barrier (Dong and Glaister, 2009). Whether there were cross-border participants in the multilateral alliance was measured using the SDC database, which indicated the nation of each participant.

Table 1 gives an overview of the variables that are used for the analyses. It offers the types,

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16 Table 1. Dependent Variables, Independent Variables, and Control Variables.

Variable Measure Description Source References

Independent variable: General alliance experience

General Alliance Experience

The degree of alliance experience of the firm, measured as the number of previous alliances.

SDC Database Lambe et al. (2002); Anand & Khanna (2000); Li et al. (2010); Heimeriks & Duysters (2007)

Independent variable:

Multilateral alliance experience

Multilateral Alliance Experience

The degree of multilateral alliance experience of the firm measured as the number of previous multilateral alliances.

SDC Database Lambe et al. (2002); Anand & Khanna (2000); Li et al. (2010)

Independent variable: Dyadic alliance experience

Dyadic Alliance Experience

The degree of dyadic alliance experience of the firm measured as the number of previous dyadic alliances.

SDC Database Lambe et al. (2002); Anand & Khanna (2000); Li et al.(2010)

Independent variable: Average multilateral alliance exp. of the partner-firms

Alliance Experience of the Partner-firms

The degree of multilateral alliance experience of the partner-firms within the alliance, measured as the average number of previous multilateral alliances of the partner-firms.

SDC Database

Dependent variable: Firm performance

Firm Performance The financial performance of the focal firm measured using the Return on Equity (ROE).

Orbis Lahiri & Narayanan (2013)

Control variables: Industry

Classification Firm Size Number of Partners in Alliance Alliance Portfolio Size Cross-border Alliance

Based on the SIC Code of the firm.

Firm's number of employees.

Number of partner-firms in the alliance

Number of firm's current alliances.

Participants are from different countries.

SDC Database Orbis SDC Database SDC Database SDC Database Lavie et al. (2007)

Lavie (2007); Heimeriks & Duysters (2007); Lahiri & Narayanan (2013)

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3.4. Methods of analysis

In order to statistically test the hypotheses, the statistical computer program SPSS is used. To statistically test Hypothesis 1, first a regression analysis was performed of the dependent variable Firm Performance, with only the control variables, to explore the relationship between the control variables and Firm Performance (Model 1). Then the variable General Alliance Experience was added, to test whether it has a significant effect on Firm Performance (Model 2).

To test Hypothesis 2, a different approach was needed. Because this hypothesis needs a comparison between two populations (i.e. firms with dyadic alliance experience vs. firms with multilateral alliance experience), two subsamples of the full sample had to be tested. The first subsample thus consists of 22 firms with only dyadic alliance experience (Models 3 & 4), where the other subsample consists of 22 firms with only multilateral alliance experience (Models 5 & 6). Because of the rather small size of the subsamples, getting significant results might proof to be difficult. Therefore additional analyses were performed. Cross-tabulation analyses were done in order to provide a basic picture of the interrelation between the sets of variables (i.e. dyadic alliance experience + firm performance, and multilateral alliance experience + firm performance) and find interactions between them. Furthermore, a Mann-Whitney U test was done in order to test whether there are significant differences between the two populations. The Mann-Whitney U test is a statistically correct test in this case, because there are two populations, the dependent variable is ordinal, the independent variable consist of two independent groups, there is independence of observations between the populations and these populations have a nonnormal distribution (a zvalue that does not lie between -1.96 and -1.96).

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4. Results

Table 2 contains the descriptive statistics for explanatory and control variables for the total

sample, thus for firms with all kinds of degrees and mixtures of dyadic and multilateral alliance experience. It also reflects the simple correlation matrix, which allows exploration of the relationships between the variables. The average firm performance, based on the ROE, was quite negative with -35,65%. The average firm has had around 4 dyadic alliances and around 2 multilateral alliances in the five years before the focal alliance. On average firms had a total of about 5 alliances in that timeframe. The average alliance portfolio at the time of the focal alliance lies around 6 alliances, which means that on average firms deal with 6 alliances at the same time. As a logarithm was used for firm size, this statistic does not reflect any relevant information. The industry classification number of 0.493 indicates that almost half (49%) of the firms in the sample active in the same industry as the industry where the alliance is in. The cross-border alliance number of 0.718 indicates that almost 72% of the alliances involve firms from different countries. Finally, the average number of partners in the multilateral alliance lies around 4.

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Table 2. Descriptive Statistics and Correlation Matrix on Full Sample

Mean/% S.D. Min. Max. (1) (2) (3) (4) (5) (6) (7) (8) (9)

(1) Firm Performance -35.65% 1.822 -822.3% 739.88% 1

(2) Dyadic Alliance Exp. 3.73 6.302 0 24 .044 1

(3) Multilateral Alliance Exp. 1.68 6.173 0 48 .033 .598*** 1

(4) Total Alliance Exp. 5.41 11.150 0 72 .043 .896*** .891*** 1

(5) Firm Size (Log) 3.639 0.917 0.85 5.57 .214* .506*** .268** .434*** 1

(6) Alliance Portfolio Size 6.183 10.270 1 58 .046 .931*** .704*** .916*** .472*** 1

(7) Industry Classification 0.493 0.5035 0 1 .196 -.138 -.228* -.204* -.223* -.203* 1

(8) Cross-border Alliance 0.718 0.4530 0 1 .043 .188 .079 .150 .023 .180 .116 1

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20 It is very interesting to see the significant relationship between firm performance and the number of firms in the alliance. The matrix shows that as the number of firms in the alliance increases, the performance of the firm will significantly decrease. This is in line with existing research which has shown that adding partners to an alliance will increase the difficulties of managing the alliance (Hoang & Rothaermel, 2005; Doz & Hamel, 1998; Dyer & Singh, 1998; Hwang and Burgers, 1997). As managing an alliance become more difficult, the alliance performance will suffer. This has a negative impact on firm performance.

4.1. Results concerning Hypothesis 1

The first hypothesis argues that firms with more alliance experience perform better during a multilateral alliance than firms with less alliance experience. Model 2 in Table 3 shows, in line with the hypothesis, that it was found that firms with more alliance experience indeed perform slightly better, although the results were not significant (b=.025; p>.10). This would have been in line with previous research which has shown that alliance experience helps firms better manage their alliances and enables them benefit from it more. Although the results are not significant, it is probable that alliance experience leads to better firm performance when firms engage in a multilateral alliance.

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Table 3. Results Linear Regression Analysis on Full Sample

Dependent Variable: Financial Firm Performance

Model 1 Model 2

R² / Adj. R² / Sign. of models .173/.109/.027 .176/.99/.046

Intercept -1.293 -1.216

Firm Size (Log) .595** .597**

Alliance Portfolio Size -.007 -.031

Industry Classification .764* .768*

Cross-border Alliance -.545 -.564

Number of Partners in Alliance -.306** -.319**

General Alliance Experience .025

Note: *Significant at 90% level; **Significant at 95% level.

Table 4. Results Linear Regression Analysis on Subsamples: Dyadic vs. Multilateral Alliance Experience Dependent Variable: Financial Firm Performance

Model 3 Model 4 Model 5 Model 6

R² / Adj. R² / Sign. of models .380/.187/.139 .408/.172/.183 .491 /.331/.039 .547/.366/.039

Intercept -2.622 -2.886 -1.626 -1.647

Firm Size (Log) .872*** .820** 1.379** 1.579**

Alliance Portfolio Size -.039 .211 -.007 -.037

Industry Classification .048 .082 .927 1.100

Cross-border Alliance -.225 -.175 -2.578* -3.014**

Number of Partners in Alliance -.130 -.076 -.671** -.761***

Dyadic Alliance Experience -.274

Multilateral Alliance Experience .055

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22 Another way to test if there is a significant interrelation between two variables is by cross-tabulation. Both populations (firms with only dyadic alliance experience and firms with multilateral alliance experience) were cross-tabbed with firm performance. Unfortunately, the Pearson Chi-Square was not significant at any level. Also the Lambda, which is a measure of association that shows the extent to which nominal variables are related, was not significant. Therefore no significant difference in the relation between dyadic alliance experience and firm performance and multilateral alliance experience and firm performance can be proven.

A Mann-Whitney U Test was performed in order to see if there are significant differences between the two populations. The results in Table 5 show that, although there is not much difference between the mean ranks, the performance of the firms in Group 1 are slightly better than the firms of Group 2. This means that according to this analysis, oddly, firms that have dyadic alliance experience perform slightly better during multilateral alliances than firms that have multilateral alliance experience. However, the results were not significant and the regression analysis showed that multilateral alliance experience is positively related to firm performance where dyadic alliance experience is negatively related to firm performance. Furthermore, in this analysis the difference is rather small, therefore not much informative results can be derived from this data.

Table 5. Results Mann-Whitney U Test on Subsamples: Dyadic vs. Multilateral Alliance Experience

Groups N Mean Rank Sum of Ranks

(1) 22 23,18 510

(2) 22 21,82 480

Total 44

Note: Test variable = Financial Performance; Grouping variable = Dyadic Alliance Experience (1) vs. Multilateral Alliance Experience (2)

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Table 6. Results Linear Regression Analysis on Full Sample

Dependent Variable: Financial Firm Performance

Model 7 Model 8 Model 9

R² / Adj. R² / Sign. of models .173/.109/.027 .180/.103/.041 .180/.090/.070

Intercept -1.293 -1.322 -1.253

Firm Size (Log) .595** .621** .602**

Alliance Portfolio Size -.007 -.023 -.023

Industry Classification .764* .802* .790*

Cross-border Alliance -.545 -.547 -.562

Number of Partners in Alliance -.306** -.317** -.339**

Multilateral Alliance Experience .037 .034

Multilateral Alliance

Experience of Partner-Firms .057

Note: *Significant at 90% level; **Significant at 95% level.

In Table 7, an overview can be found of the hypotheses, their results, and whether they are accepted or rejected based on the empirical data.

Table 7. Overview of Hypotheses

Hypothesis 1: While engaging in a multilateral alliance, firms with more prior alliance experience will perform better than firms with less prior alliance experience.

Results: The results are non-significant, but there are indications that having general alliance experience is positively related to firm performance.

Accepted / Rejected: Rejected

Hypothesis 2: While engaging in a multilateral alliance, firms with prior multilateral alliance experience perform better than firms with only dyadic alliance experience.

Results: Non of the results were significant, but there are indications that firms with multilateral alliance experience perform better than firms with only dyadic alliance experience.

Accepted / Rejected: Rejected

Hypothesis 3: While engaging in a multilateral alliance, firms can complement first-hand experience with second-hand experience to increase firm performance.

Results: The results are non-significant, and don’t indicate that firms perform better by complementing their first-hand experience by the second-hand experience of partner-firms.

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5. Discussion

In line with most existing research was the indication the empirical data gave, that prior alliance experience has a positive effect on firm performance as firm performance is influenced by the performance of the alliance (Lavie, 2007; Sampson, 2007; Kale, Dyer, & Singh, 2002) and alliance performance on its turn is influenced by alliance experience (Heimeriks & Duysters, 2007; Hoang and Rothaermel, 2005). The notion that too much alliance experience could have a negative effect on the performance of a firm as it could fall into the overconfidence trap (Heimeriks, 2010), seems not to hold in this research.

Very interesting to see is the significant negative relationship between firm performance and the number of firms in the alliance. As the number of firms in the alliance increases, the performance of the firm will decrease. Since existing research from Hoang & Rothaermel (2005), Doz & Hamel (1998), Dyer & Singh (1998), and Hwang and Burgers (1997) has shown that adding partners to an alliance will increase the difficulties of managing the alliance, the difficulties within the alliance impede the possibility for firms to gain benefits from the alliance. This indicates that the costs of the alliance, and thus the costs for the firms engaging in it, increase as partners are added as transaction costs and investments in governance mechanisms increase (Dyer & Singh, 1998). However, the benefits for firms decrease at the same time. This raises the question when it is wise for firms to engage in multilateral alliances. Existing research recounts the benefits from engaging in alliances, such as developing a collection of value-creating resources that a firm cannot create independently (Ireland, Hitt, & Vaidyanath, 2002) and learning and internalizing new skills (Doz & Hamel, 1998) for example. However, it could be argued that creating value-creating resources that a firm cannot create independently can also be done with just one alliance partner in a dyadic alliance. And the fact that learning and internalizing new skills is likely to be very difficult in multilateral alliances, as the empirical data in this paper suggests, does also not direct firms to engage in multilateral alliances.

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25 experience of partner-firms and the performance of the focal firm. This could indicate that it is difficult for firms to access the experience of partner-firms in order to use this to their advantage. Perhaps (alliance) experience is too tacit and therefore rather difficult to transfer between the managers of both firms. Alliance experience can be described as know-how, and Dyer and Nobeoka (2000) argue that indeed know-how involves knowledge that is tacit, 'sticky,' complex, and difficult to codify. This means that sharing it will be more difficult. It could also be that partner-firms are reluctant to share their experiences in order to protect their knowledge. Dyer and Nobeoka (2000) state that the essence of the resource-based view explains this phenomenon; the natural tendency of individual firms is to protect know-how viewed as proprietary to prevent undesirable knowledge spillovers. Consequently, many firms will be reluctant to participate in interfirm knowledge-sharing activities. Thus although those firms are part of the alliance, this does not mean they are willing to share their (full) knowledge- or experience bases.

6. Implications

6.1. Theoretical implications

The findings endorse the existing literature that stated the importance alliance experience. Alliance experience in general, and especially multilateral alliance experience, seem to help firms to perform better while engaging in multilateral alliances. This could be expected as existing theory predicted this, and therefore this has no profound implications for existing theory. However, other findings might have implications for theories that favor engaging in (multilateral) alliances. There are many advantages that alliances bring, but the fact that increasing the number of alliance partners has a significant negative effect on firm performance, and that there are signs that accessing experience of partner-firms to learn is difficult, it appears that the more positive sides of allying have, perhaps unjustly, prevailed so far in theory.

6.2. Managerial implications

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26 the implications this can have. The own alliance experience of the firm is mainly responsible for the effect on firm performance, as the experience of the other firms in the alliance seems difficult to appropriate by the partner-firms. This implication is the most important for firms without (much) alliance experience. Those firms lack experience, and will likely be unable to complement or substitute the experience by trying to learn from other firms. This means that those firms have to find other ways to prepare for multilateral alliances, in order to fill the gap of multilateral alliance experience. Furthermore, managers must seriously weigh the advantages and disadvantages of engaging in multilateral alliances. As this study has indicated, more firms in an alliance complicate the alliance and can decrease firm performance, and it seems difficult to access experience and knowledge of partner-firms. These disadvantages must be considered.

7. Limitations and Directions for Future Research

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27 experience on firm performance, through alliance performance, are correct. Third, vicarious learning, or the ability of firms to use second-hand experience of partner-firms within the alliance, was not measured directly. In future research, researchers should find measures to directly measure the impact of second-hand alliance experience. Another interesting direction to research would be to look at why firms are unable to benefit from the experience of other firms within their alliance. Dyer and Nobeoka (2000) gave some insights in why firms would not want to share information, knowledge, skills, and experiences. Future research could look into this and try to unravel the secrets behind successful cooperation where the experience of partners is used by the others. Finally, as costs for firms increase when more partners are engaging in the alliance, but the benefits decrease, a very interesting venue for future research would be to investigate to what extent multilateral alliances are a viable option for firms.

8. Conclusion

This paper tries to find an answer to the question to what degree alliance experience impacts the financial performance of a focal firm, by looking at different kinds of alliance experience and their effects on financial firm performance. It is based on prior research on alliance experience and its direct and indirect influence on different performance measures, and on the empirical study that was conducted for this paper.

Earlier research into alliance experience and performance has mainly focused on dyadic alliance experience and alliance performance. In order to contribute to the existing research, this article has focused on different types of alliance experience including multilateral alliance experience, coupled with firm performance. This enabled the possibility to test the effects of different types of alliance experience on the financial performance of firms engaging in a multilateral alliance. Although no significant results directly concerning the hypotheses were found, a significant negative relationship between firm performance and the number of firms in the alliance was discovered. This has proven that adding firms to an alliance has a negative effect on performance, which is in line with findings of prior research.

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28 When necessary, a differentiation was made between dyadic alliance experience and multilateral alliance experience, as both sorts of alliances are quite different. Also the general alliance experience was tested by looking at the effect general alliance experience had on firm performance. Although the results were not significant, indications were found that this reasoning can be proved, as general alliance experience was positively related to firm performance during the multilateral alliance.

When the differentiation between dyadic and multilateral alliance experience came into play, it was tested whether firms with prior multilateral alliance experience performed better than firms with only dyadic alliance experience. Multiple statistical analyses were used in order to look at the performance differences of both groups of firms. Unfortunately, none showed significant differences between the performance of the two groups, or significant correlation between performance and the type of alliance experience. As expected, the firms in the group of multilateral experienced firms displayed higher performance than the firms that had only prior dyadic alliance experience. As this was also hypothesized, based on existing literature, the indications are there that multilateral alliance experience is an important prerequisite of firm performance as they engage in multilateral alliances.

Interestingly, it was found that it is likely that firms have difficulties accessing and using the multilateral alliance experience of the partner-firms within the multilateral alliance they are engaging in, as they do not seem to significantly benefit from their multilateral alliance experience.

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Alliance experience and its effect on firm performance