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Alliance governance, knowledge spillovers and
opportunistic behaviour in small firm horizontal alliances:
matching governance mechanisms, alliance goals and
strategic/competitive groups
By
M.J. Houwing
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Alliance governance, knowledge spillovers and
opportunistic behaviour in small firm horizontal alliances:
matching governance mechanisms, alliance goals and
strategic/competitive groups
By
M.J. Houwing
University of Groningen
Faculty: Economics and Business
Master: Business Administration
Small Business & Entrepreneurship
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PREFACE
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ABSTRACT
Recent research about governance mechanisms focused on the complementary and substitution effects of governance mechanisms and the influence of alliance goals on the use of governance
mechanisms in small firm alliances. No research has been done about (1) what type of governance mechanisms small firm horizontal alliances use to stimulate knowledge spillover and
decrease opportunistic behaviour. (2) What type of governance mechanism(s), small firm horizontal alliances use if the alliance goal is exploration/exploitation. (3) How
strategic/competitive groups influence the choice of governance mechanisms. I did an in-depth case study in four small agricultural R&D firms. The case studies show that small firm horizontal
partners operating in the same strategic group with an exploration or an exploitation goal use informal governance mechanisms. Small firm horizontal partners operating in the same competitive group use both mechanisms to stimulate knowledge spillover and decrease
opportunistic behaviour.
Key words: Governance mechanisms, substitute/complements, horizontal alliance,
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TABLE OF CONTENT
1. INTRODUCTION ... 7
1.1 Introduction and research question ... 7
1.2 Relevance ... 7
1.3 Recent literature ... 8
1.4 Research goal and sub-questions: ... 9
2. THEORETICAL BACKGROUND ... 10
2.1 Theoretical discussion and propositions ... 10
2.1.1 Introducing small firm horizontal alliances ... 10
2.1.1.1 Horizontal alliances ... 10
2.1.1.2 Small firms ... 11
2.1.1.3 Knowledge spillover ... 11
2.1.1.4 Opportunistic behaviour ... 11
2.1.1.5 Risks of horizontal alliances ... 11
2.1.1.6 Strategic and competitive groups ... 12
2.1.1.7 Partners in the same competitive group or in the same strategic group ... 13
2.1.2 Alliance governance mechanisms ... 14
2.1.2.1 Introduction alliance governance mechanisms in small firms ... 14
2.1.2.2 Formal governance mechanisms ... 15
2.1.2.3 Informal governance mechanisms ... 16
2.1.3 Alliance goals and governance mechanisms ... 17
2.1.3.1 Exploration alliances ... 17
2.1.3.2 Exploration and the informal and formal governance mechanisms as complements ... 18
2.1.3.3 Exploitation alliance ... 19
2.1.3.4 Exploitation and the informal and formal governance mechanisms as substitutes ... 20
2.2 Conceptual model ... 21
3. RESEARCH DESIGN ... 22
3.1 Introduction ... 22
3.2 Research setting ... 22
3.3 Measuring key concepts ... 23
3.3.1 Requirements ... 23
3.3.2 Measuring background information ... 23
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3.3.4 Measuring strategic Group ... 24
3.3.5 Measuring competitive group ... 26
3.3.6 Measuring the alliance goal ... 26
3.3.7 Measuring knowledge spillover ... 27
3.3.8 Measuring opportunistic behaviour ... 27
3.3.9 Measuring formal governance mechanisms ... 27
3.3.10 Measuring informal governance mechanisms ... 28
3.3.11 Measuring complementarity/substitution ... 29
3.4 Research method ... 29
3.5 Data analysis ... 30
4. RESULTS ... 31
4.1 Small firm Horizontal alliance ... 31
4.2 Strategic group, competitive group and alliance goal ... 32
4.2.1 Alliance 1: Business Center Klazienaveen and Ontario Plant Propagation ... 32
4.2.2 Alliance 2: Nell Gerberas cultures B.V. and Verwer de Streek Gerberas ... 33
4.2.3 Alliance 3: HLB research & consultancy and Blgg AgroXpertus ... 35
4.2.4 Alliance 4: Dacom and Adcom Telemetry ... 36
4.2.5 Four different types of alliance ... 37
4.3 Governance mechanisms, knowledge spillover and opportunistic behaviour ... 37
4.3.1 Strategic group ... 38
4.3.1.1 Alliance 1: strategic group and exploration ... 38
4.3.1.2 Alliance 2: strategic group and exploitation ... 39
4.3.2 Competitive group ... 40
4.3.2.1 Alliance 3: competitive group and exploration ... 40
4.3.2.2 Alliance 4: competitive group and exploitation ... 40
4.3.3 Governance mechanisms substitution/complementarity ... 42
5. DISCUSSION AND CONCLUSION ... 43
5.1 Discussion ... 43
5.2 Limitations and further research ... 45
5.3 Conclusion ... 45
6. LITERATURE... 46
APPENDIX 1. ... 54
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1. INTRODUCTION
1.1 Introduction and research question
Alone a lion can hunt and do it well. But lions that collaborate within a group can do it extremely well. Hunting more and bigger preys requires; strategy, patience and getting along with each other. If there are no easy prey animals, the ‘lion alliance’ should be more creative. Without well-organized and inventive collaboration the survival of the group of lions will be in danger. This situation provides a parallel to horizontal alliances between companies. It is becoming harder for small firms to survive alone due to turbulent developments in the market. Like the situation with lions, collaboration with your horizontal partners provide a solution for this problem. Alliances improve a firm’s market position, rise to challenges, decreases costs and provide new knowledge to innovate. Thus, together these firms are able to survive (Smit, Kortstee, Jukema, Meijaard, Oudmaijer, Idema, & Staalduinen, 2009)
Dyer and Singh (1998) argue that governance mechanisms have a large impact on the success of alliances. Pittino and Mazzurana (2013), explain that the optimal combination of formal and/or informal governance mechanisms depends on the goal of alliances. This article gives answer on the question: How do small firm horizontal partners operating in the same
strategic/competitive group use formal and/or informal governance mechanisms in exploration or exploitation alliance to stimulate knowledge spillovers and decrease opportunistic behaviour?
The problem described above will be answered with an in-depth qualitative case study. First, the relevance of this research will be explained. Followed by the relevant literature about this topic and the purpose of this research. After that, the theoretical and practical sub-question will be defined.
1.2 Relevance
It is important to do research in the field of governance mechanisms and small firm R&D
collaboration. Innovative small firms are the drivers of economic growth and renewal1. There are many Dutch small firms forming alliances with external sources. In 2012, 33% of all the small firms in the Netherlands make use of external partners2. Small firms collaborate to compensate their lack of resources such as human capital, financial capital, and know-how. Forming alliances is important for small firms because it offers them opportunities for innovation and development. (Acs & Audretsch, 1987; Nooteboom, 1994). Small firms collaborate with universities, research institutes, suppliers, customers and competitors (Kelley, Peters, & O'Connor, 2009).
8 While economists point to the positive effects of knowledge spillovers, alliances are not without risks. Knowledge leakages are a well known problem for small firms. Surprisingly, due to the large amount of risks small tech firms face, they are still able to innovate successfully. So, it is important to understand what strategies small firms use to overcome these barriers (Acs, Audretsch, & Feldman, 1994; Jaffe, 1986). As said before, governance mechanisms have a large impact on the success of alliances. Pittino and Mazzurana (2013) argue that managers of small firms should be aware what type of governance mechanisms they choose. Belderbos, Carree, Diederen, Lokshin & Veugelers (2004) argue that partners influence the alliance different, because several partner sources have different motives and competences to collaborate.
Belderbos, Gilsing and Lokshin (2012) explain that collaboration with competitors is more risky than forming alliances with customers and suppliers. These authors even discourage to form alliances with competitors.
Porter (1979) and Leask & Parker (2007) made clear that competition is not always tough between competitors. Horizontal partners are able to deliver complementary products (Amin & Thrift, 1992; Pouder & St. John, 1996). This type of collaboration is not unknown to small firms, as these firms have a lack of resources. When firms are related to each other in a reciprocal way, it seems likely that the risks for opportunistic behaviour are low. Lower risks may have influence on the safeguards that firms use to govern the alliance. So, it would be interesting to understand if these heterogeneities in horizontal partner relationships have influence on the governance
mechanisms firms choose.
This research focuses on R&D collaboration and governance mechanisms in small agricultural firms in the Netherlands. Small innovative agricultural firms have to deal with developments in the socio-economic, technological and social environment. This makes it difficult to survive. Alliances improve a firm’s market position, rise to challenges, decreases costs and provide new knowledge to innovate. Innovation in the agricultural sector is mostly aimed at durability, environment, animal welfare, mechanization, automation and creation of robots (Smit et al., 2009).
1.3
Recent literature
There is a lot of research done about types of governance mechanisms (e.g. Martinez & Jarillo, 1989; Dyer & Singh, 1998), complementary effects of governance mechanisms (e.g. Poppo & Zenger, 2000; Lee & Cavusgil, 2006), substitution effects of governance mechanisms (e.g. Dyer & Singh, 1998; Lyons & Mehta 1997; Malhotra & Murnighan, 2002), influence of alliance goals on the use of governance mechanisms (Pittino and Mazzurana, 2013) and so on.
9 between small firm horizontal partners who operate in the same strategic group or in the same competitive group. It adds value to the small firm governance mechanisms literature to
investigate these gaps.
1.4 Research goal and sub-questions:
The purpose of this research is to provide an in-depth qualitative case study of how small firms employ formal and informal governance mechanisms to positively affect knowledge spillovers and decrease opportunistic behavior in horizontal R&D exploration/exploitation alliances. I choose for a qualitative case study since the topic of this study is new. A case study is useful because it describes a case in detail which can lead to a starting point for theory
development about a particular topic (Eisenhardt, 1989).
In the article the author defined two theoretical sub-questions. These will be explained in the theoretical background and are defined as follows:
1. What is the risk of opportunistic behaviour when small firms collaborate with horizontal partners? This sub-question discusses what horizontal alliances are. It provides detailed
information about the risks of collaborating with horizontal partners. It explains the theory of strategic and competitive groups and how this influences the risks of opportunistic behaviour in alliances.
2. What does the theoretical concept of alliance governance mechanisms contain?
This question gives a review of the key governance mechanisms, paying particular attention to the dimensions of formal and relational safeguards. It explains the role of governance
mechanisms in small firms. Furthermore, it explains how governance mechanisms influence knowledge spillover and opportunistic behaviour. Last, this section provides information about the alliance goal and how this influences governance mechanisms.
The literature does not give answer on what type(s) of governance mechanisms are useful for small firm horizontal alliances to stimulate knowledge spillovers and to decrease
opportunistic behaviour. It also does not explain what type of governance mechanism(s), formal and/or informal, are helpful in small firm horizontal alliances with an exploration/exploitation goal. Last, the literature does not distinguish between small firm horizontal partners who operate in the same strategic group or in the same competitive group. To fill in these gaps, 8 different propositions are developed. Together these propositions answer the following practical sub-question:
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1. THEORETICAL BACKGROUND
2.1 Theoretical discussion and propositions
Qualitative research is about discovering new fields and exploring new areas in scientific
research. But it is rather naïve to think that no related literature can be found (Flick, 2006). That’s why this study starts with a theoretical background. In this part of the study the author describes the relevant literature about horizontal alliances, small firms, knowledge spillovers, opportunistic behaviour, governance mechanisms, exploitation and exploration. This part answers the
theoretical sub-questions. Based on this literature, 8 propositions are developed. These can be found in section 2.1.2 and 2.1.3.
2.1.1 Introducing small firm horizontal alliances
In 2012, 33% of all the small firms in the Netherlands make use of external partners3. Small firms collaborate to compensate their lack of resources, such as human capital, financial capital and know-how. Small firms form alliances with horizontal partners, vertical partners and research institutions. This study focuses on partnerships with horizontal partners. The advantages of collaboration with horizontal partners are that these alliances increase efficiency and market power of small firms. Furthermore, forming horizontal alliances is important for small firms, because it offers them opportunities for joint product innovation (Mesquita & Lazzarini, 2008). The following four paragraphs explain in detail what horizontal alliances, small firms, knowledge spillover and opportunistic behaviour are. Sections 2.1.1.5, 2.1.1.6 and 2.1.1.7 give answer on the first theoretical sub-question: What is the risk of opportunistic behaviour when small firms
collaborate with horizontal partners? 2.1.1.1 Horizontal alliances
Primarily, an horizontal alliance is an arrangement with your horizontal partner that is about creating new products. The European union defines horizontal alliances as follows: ‘Cooperation
is of a "horizontal nature" if an agreement or concerted practice is entered into between actual or potential competitors4.’ Moreover: Chan, Kensinger, Keown & Martin (1997) and Porter
(1980) explain that horizontal alliance partners operate in an industry with the same three-digit Standard Industrial Classification (SIC) codes. De Jong (1988) argues that horizontal alliances take place in the same industry. Mason (1957) defines the industry as follows: ‘The industry, so
conceived, is a grouping of firms on the basis of a similarity both to products and of production processes’ (p. 6). These horizontal arrangements have some advantages. They provide both firms
with new knowledge and ideas that can eventually lead to innovations. In particular, the
innovation process starts with the firm receiving information about new technologies. Using this
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11 information, the firm creates a prototype. In other words, it develops a product that is not known to the company. Some examples of horizontal linkages are; patents, joint R&D, joint ventures and technology transfers (George, Zahra, Wheatley & Khan, 2001).
Horizontal relationships have some essential characteristics. Most alliances are informal and invisible. Next to this, knowledge and social exchanges are important contributions in horizontal alliances (Easton & Araujo, 1992). In addition, partners can be simultaneously involved in several different horizontal relationships. Due to the fact that horizontal partners operate in a dynamic business context, relationships between these partners change from time to time (Bengtsson & Kock, 1999). Horizontal alliances are attractive to creativity and development of innovative products (March 1991; Vanhaverbeke, Duysters & Noorderhaven, 2002; Belderbos et al., 2004)
2.1.1.2 Small firms
In this study the author focuses on innovative small firms that operate in the agricultural sector. Scholars discuss several ways to define small firms. In this study we use the definition of the European Union: A small firm is ‘an enterprise which employs fewer than 50 persons and whose
annual turnover and/or annual balance sheet total does not exceed EUR 10 million5’. 2.1.1.3 Knowledge spillover
In this study I measure how governance mechanisms influence knowledge spillovers. Ko, Kirsch and King (2005) define knowledge spillover as follows: ‘the communication of knowledge from a
source so that it is learned and applied by a recipient’ (p.61). Two different types of knowledge
can be distinguished. These are tacit and explicit knowledge. Tacit knowledge is complex, hard to articulate, and difficult to transfer (Nonaka & Takeuchi, 1995). The same authors argue that explicit knowledge is codifiable and can be transmitted without loss of integrity. It is important to make this distinction because it influences the ease and effectiveness of knowledge spillover (Inkpen, 2000). This becomes clearer in section 2.1.2 and 2.1.3.
2.1.1.4 Opportunistic behaviour
The literature argues that formal and informal governance mechanisms both have a positive influence on opportunistic behaviour in an alliance. Opportunistic behaviour is about ‘cheating,
shirking, distorting information, misleading partners, providing substandard products/services and appropriating partners' critical resources’ (Das & Teng, 1998, p. 492).
2.1.1.5 Risks of horizontal alliances
It is more risky to collaborate with competitors than with customers. The chances of unfavorable knowledge spillovers caused by competitors are higher because they have comparable knowledge bases and competences, so it is easier for competitors to absorb knowledge. Governance
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12 mechanisms reduce the risks of leakage of knowledge (Belderbos et al., 2012). These authors explain the high risks of collaboration with horizontal partners. Besides, these authors even discourage to form alliances with horizontal partners. Based on previous literature they clarify this statement. According to the governance view, the risk of unwanted knowledge transfer and free-ridership is high in horizontal alliances (Ahuja, 2000). Furthermore, the governance view throws light upon the issue of opportunistic behaviour. This issue explains that the risks of imitation and opportunistic behaviour increase when firms collaborate with competitors. This type of alliance makes proper control and coordination difficult (Dhanarag & Parkhe, 2006; Gulati & Singh, 1998; Nooteboom, 2004a; Teece, 1986).
Horizontal alliances offer opportunities to act opportunistic. For example, a partner can find a loophole in the contractual terms and use this loophole in a way that the partner gains a huge advantage over the other. It is also possible that a partner can withhold, distort or even steal information from the other competitor. The reason it is risky to collaborate with competitors, is that they have similar knowledge bases and competences. These similarities make it easier for competitors to absorb knowledge (Khanna, Gulati, & Nohria, 1998; Nooteboom, 2004b; Park & Russo, 1996).
In addition Khanna et al., (1998) and Ritala & Hurmelina-Laukkanen (2009) explain the concept of knowledge spillovers between competitors in more detail. The authors introduce the idea of coopetition in alliances. Coopetition consists of tension between collaboration and competition in horizontal alliances. The cooperative idea of coopetition is the creation of
common knowledge; this knowledge is shared between the different partners. On the other hand, the competitive idea of coopetition is to make private gains. In other words, partners outperform each other to make use of the common knowledge and gain a huge advantage over the other competitor.
For these reasons, Belderbos et al., (2012) do not encourage forming horizontal alliances. However, the following paragraph has some comments on their statement about the high risks of collaborating with horizontal partners.
2.1.1.6 Strategic and competitive groups
According to Porter (1980), industry analysis is a tool that is essential for the formulation of competitive strategies. One important part of this industry analysis is the possibility to
comprehend and forecast rivalry behaviour between competitors in a particular industry. Boari, Odorici and Zamarian (2003) demonstrate that rivalry is the behaviour of a firm towards its competitor. The main purpose of this effort is to establish total domination in this particular industry. During this process of achieving commercial domination, rivalrous behaviour appears. In other words, firms keep the actions and characteristics of competitors in mind during this process (Porac, Thomas & Baden-Fuller, 1995).
In 1972, Hunt proposed the concept of strategic groups. This theory makes it possible to distinguish differences that exist within an industry. Several studies use strategic groups as an instrument to investigate the differences in competition, behaviour and performance of
13 Porter (1980) defined strategic groups as ’a subset of industry competitors that have similar
characteristics’ (p.129). ‘ A firm within a strategic group makes strategic decisions which cannot readily be imitated by firms outside the group without substantial costs, significant elapsed time, or uncertainty about the outcome of those decisions’ (McGee, 1986, p. 150). Porter (1979) and
Leask and Parker (2007) introduce competitive groups into the strategic group literature. Leask and Parker (2007) argue that ‘competitive groups are seen as distinct from strategic groups and
are made up of firms that compete in the same market segments and that offer direct substitutes for one another. In consequence, the fortunes of one firm directly impact upon other members of the same competitive group’ (p. 726). Firms that are in the same competitive group but not in the
same strategic group operate in the same sub-market segments but do not have a similar strategy. Companies that are in the same strategic group but not in the same competitive group have similar strategies but operate in different market segments. It is also possible that firms operate in the same strategic group and competitive group. These firms operate in the same market and have the same strategy (Leask & Parker, 2007).
Caves and Porter (1977) argue that within a strategic group firms will be better able to recognize their mutual dependence, and collaborate with each other (Caves & Porter, 1977). Strategic groups connect firms on the supply side. Firms who only operate in the same strategic group and not in the same competitive group may produce complementary or non-competitive products to common target customers. These companies may collaborate to mutual benefit and operate in a different, complementary or non-competitive market (Leask & Parker, 2007). Thus, it is important to delineate between strategic and competitive groups. Strategic groups are about how to compete in other words; do firms have the same strategy? Competitive groups are about where to compete that is, do firms offer substitutes to common customers? Firms who operate in the same competitive group are expected to compete as true rivals (Leask & Parker, 2007).
Thus, this article disagrees with the issue of Belderbos et al., (2012) that it is not a good idea to collaborate with horizontal partners. These authors only focus on the high risks firms face when they collaborate in horizontal alliances. But what Porter (1979) and Leask and Parker (2007) made clear in their article is that there can be different types of relationships between horizontal firms. Firms who operate in the same strategic group understand their mutual
dependence. Therefore rivalrous behaviour between these partners is low. Leask & Parker (2007) also argue that firms who collaborate in the same competitive group collaborate, although they are competitors.
Horizontal collaboration is not unknown to small firms, as these firms have a lack of resources to innovate. Horizontal partners are able to deliver them complementary products (Amin & Thrift, 1992; Pouder & St. John, 1996).
2.1.1.7 Partners in the same competitive group or in the same strategic group
As mentioned by Leask & Parker (2007) it is important to make a difference between firms who are horizontal partners and operate in the same competitive group and horizontal partners
14 form alliances with firms in the same competitive group because these firms produce each other’s substitutes. On the other hand, when firms form alliances with firms operating in the same
strategic group rivalrous behaviour may be low. This can be explained as follows: these firms are related to each other in a reciprocal way. Moreover, these firms do not produce substitutes but complementary or non competitive products and these firms are not competitors. The risk of opportunistic behaviour may be low. Lower risk of opportunistic behaviour may have influence on the governance mechanisms that firms use to protect their resources. Thus, I distinguish two different types of horizontal partners: (1) horizontal partners operating in the same strategic group and (2) horizontal partners operating in the same competitive group. In the following sections I investigate how these two different types of partners use governance mechanisms to stimulate knowledge spillover and decrease opportunistic behaviour.
2.1.2 Alliance governance mechanisms
Dyer and Singh (1998) explain that the success of alliances largely depends on the type of governance mechanisms. They explain that these governance mechanisms decrease transaction costs and provide incentives for value creation initiatives, such as investment in relational specific investments.
Dyer and Singh (1998) explain that there are two different governance mechanisms: formal and informal governance mechanisms. Formal governance mechanisms include ‘the use of
a formalized, legally binding agreement or a contract to govern the interfirm partnership’ (Lee
& Cavusgil, 2006, p. 899). Informal governance mechanisms include ‘mutual trust, commitment,
and relational capital in the governance process’ (Lee & Cavusgil, 2006, p. 901). In addition,
there are different opinions in the literature about the optimal combination of formal and
relational safeguards. For instance, Poppo and Zenger (2002) and Lee and Cavusgil (2006), argue that there is a complementary effect between these two mechanisms. Other authors explain that there is a substitution effect between governance mechanisms (Dyer & Singh, 1998; Lyons & Mehta, 1997; Malhotra & Murnighan, 2002). In the following sections these important topics will be discussed in more detail. These sections answer the second theoretical sub-question: what does the theoretical concept of alliance governance mechanisms contain? Based on the literature, eight propositions were developed. Together these propositions will answer the main research
question.
2.1.2.1 Introduction alliance governance mechanisms in small firms
Economists point to the positive effects of knowledge spillovers in alliances although these knowledge transfers are not without risks. It is well known that small firms face difficulties with knowledge leakages. Surprisingly, due to the large amount of risks small tech firms face, they are still able to innovate successfully. So it would be interesting to understand what strategies small firms use to overcome these barriers (Acs et al., 1994; Jaffe, 1986).
15 resources (experts, money, and knowledge) to develop extensive contracts. Furthermore, large companies have more power and resources to influence the content of the contract than small firms have. In addition, small firms mostly do not have time to understand and check the content of the contract that is provided by the other firm (Dickson, Weaver and Hoy, 2006; Gaur, Gaur, Mukherjee & Schmid, 2011).
In the following four sections, the different governance mechanisms will be described, as well as the effects of governance mechanisms on knowledge spillover and opportunistic
behaviour.
2.1.2.2 Formal governance mechanisms
A situation where important knowledge is shared among partners is a sensitive issue. An example of such a situation is an innovation project. During these types of situations, partners mostly have conflict with each other about the amount of information they should share. Also, it is difficult to forecast what the results of the alliance will be (Oerlemans & Meeus, 2000). Formal mechanisms implement guidelines that make it possible to manage and control the strategic alliance (Poppo & Zenger 2002; Lee & Cavusgil 2006).
Macneil (1977) encourages using formal governance mechanisms. He stated that these types of mechanisms are: contracts that are formalized, legally binding or agreements to monitor and control the other partner. These formal arrangements may be helpful to decrease the
opportunistic risks that an alliance may cause. Formal safeguards such as rules and procedures stimulate and guide explicit knowledge between partners (Nonaka & Takeuchi, 1995).
Williamson (1985) argues that small firms use formal governance mechanisms to avoid opportunistic behaviour. But formal contracts do not always guarantee that there will be no opportunistic behaviour in the alliance in every situation. One important condition for the successful functioning of formal mechanisms is that the company should be situated in a developed country with strong institutions (North, 1990; Stone, Levy, & Paredes, 1996).
Generally speaking, developed countries have a better legal system. Moreover, the governments of these countries develop public goods; these goods may be helpful to protect firms against opportunistic behaviour. Therefore, it seems likely that firms in developed countries use formal governance mechanisms. On the contrary, firms who are situated in emerging countries do not have these strong legal institutions. That is why these firms enhance more alliance performance with informal governance mechanisms (Peng & Heath, 1996).
Recent scholars are suggesting that small firms should make use of formal governance mechanisms. For instance, when a small firm collaborates with a large company. In this type of alliance asymmetric power may occur. Contractual specifications and property-rights can be helpful to overcome this alliance asymmetry between companies (O’Dwyer & O’Flynn, 2005).
16 market is low. Making use of formal governance mechanisms will help these small firms to control the alliance (Williamson, 1975; Dickson & Weaver, 2011).
Amin and Thrift (1992) and Pouder and St. John (1996) found out that small firms who collaborate horizontally, exploit complementary competencies and solve common production problems. This is also the case among horizontal partners who operate in the same strategic group. Because both firms are not competitors and are related to each other in a reciprocal way, it seems likely that the risks of opportunistic behaviour is low between partners who operate in the same strategic group. Although, the risk of opportunistic behaviour is low, formal contracts can still be helpful to manage the alliance. These formal mechanisms systemize the rights, duties, obligations and responsibilities of each partner (Reuer & Ariňo, 2007). Moreover, formal
governance mechanisms can be helpful to support explicit knowledge spillovers. Thus, I propose:
Proposition 1: formal governance mechanisms stimulate knowledge spillovers and decrease
opportunistic behaviour between partners operating in the same strategic group.
Contrary, the risks of opportunistic behaviour between partners operating in the same competitive group is high. These partners are competitors and offer direct substitute for one another. Consequently, the fortunes of one company directly impact upon one or more of the other competitive group members. Thus, the risks of unwanted knowledge transfer and free-ridership in this type of horizontal alliance is high. Formal arrangements may reduce this
opportunistic behaviour, because partners are able to monitor and control each other. Moreover, it stimulates and guides explicit knowledge transfers. Thus I propose:
Proposition 2: formal governance mechanisms stimulate knowledge spillovers and decrease
opportunistic behaviour between partners operating in the same competitive group. 2.1.2.3 Informal governance mechanisms
Baker, Gibbons and Murphy (2002) define informal governance mechanisms as follows:
’Informal governance mechanisms are cooperative arrangements based on informal rules and unwritten codes of conduct that affect the behaviour of firms when they are dealing with others’
(p.40). Trust is an essential element of informal governance mechanisms. Mutual trust has a positive effect on knowledge spillovers and also stimulates learning in a strategic alliance (Kale, Singh & Perlmutter, 2000).
17 behaviour. Trust stimulates transparency and openness between partners. Thus, trust positively affects the willingness to share information (Doz & Hamel, 1998). Third, Dyer and Singh (1998) explain that trust has a positive influence on knowledge spillovers; due to the fact that trust creates idiosyncratic knowledge-sharing routines. These routines assist with knowledge transfers. Fourth, Macneil (1980) explained that mutual assistances are an important factor when building trust in alliances. For example, drawing the partner’s attention to new or better products/services that emerge on the market. Last, Mesquita and Lazzarini (2008) explain the importance of the rule: ‘you get what you give’. This means that each firm receives a fair return of the contribution and resources it has brought into the alliance.
Small firms have experience in using informal governance mechanisms. Contact with their employees, for example, is often informal. So, replication and implementation of these informal mechanisms into the alliance is easier than using the ‘unknown’ formal mechanisms (Uhlaner, Flören & Geerlings, 2007; Pittino & Visintin, 2011). Informal mechanisms that operate as self-enforcing safeguards fill in this gap. These mechanisms help partners to interact not only in a more flexible way but these mechanisms are also less costly.
Thus, I assume that both partners who operate in the same strategic group and in the same competitive group may benefit from informal governance mechanisms. The high risk on opportunistic behaviour is the main problem of partners who operate in the same competitive group. As said before, trust can be helpful to reduce this opportunistic behaviour between
partners. Partners who operate in the same strategic group are related to each other in a reciprocal way and these firms are not competitors. Thus, the chances of opportunistic behaviour are low. Due to the advantage of informal governance mechanisms, I have developed the following propositions:
Proposition 3: informal governance mechanisms stimulate knowledge spillovers and decrease
opportunistic behaviour between partners operating in the same strategic group.
Proposition 4: informal governance mechanisms stimulate knowledge spillovers and decrease
opportunistic behaviour between partners operating in the same competitive group.
2.1.3 Alliance goals and governance mechanisms
According to the resource based view (Barney, 1991) firms have two different alliance goals. These are exploration and exploitation. These alliance goals may act as a moderator between the governance mechanisms and knowledge spillover and opportunistic behaviour. This means that the choice of governance mechanisms depends on the alliance goal. In this section the meaning of exploration and exploitation will be explained and their link with formal and/or informal
governance mechanisms. Moreover, this section also explains if the use of governance mechanisms is different in alliances that operate in the same strategic group or in the same competitive group. In this section propositions 5, 6, 7 and 8 will be defined.
2.1.3.1 Exploration alliances
18 exploration. Pittino and Mazzurana (2013) explain that exploring alliances ‘aim at jointly
creating a new valuable pool of resources through processes of searching and learning’ (p.69).
These are for instance, joint R&D projects and technology development relationships.
Exploration is about the early phases of a product, it is about discovering something new. This process includes doing research, discovery and taking risks. It also includes creating new
competencies that help with finding new knowledge and capabilities to invent a valuable product (Cohen & Levinthal, 1990).
When the company has developed a valuable product, the exploitation phase will start. This phase will be explained in more detail in the following section. Several scholars have argued that exploration and exploitation can be a motivation to form strategic alliances (Koza & Lewin, 1998; Rothaermel, 2001). Exploration alliances support the discovery and research process (March 1991; Vanhaverbeke et al., 2002).
2.1.3.2 Exploration and the informal and formal governance mechanisms as complements
Several authors suggest that informal and formal governance mechanisms support each other to enhance alliance performance (Poppo & Zenger, 2002; Lee & Cavusgil, 2006; Faems, Janssens, Madhok & Van Looy, 2008). In short, informal and formal mechanisms function as
complements.
Informal safeguards are needed in exploration alliances to stimulate the discovery and research processes. To make knowledge spillovers possible it is important that both companies are transparent in knowledge sharing. Likewise, firms should have personal contact with each other plenty of times. Furthermore, they should create a mutual language (Pittino & Mazzurana, 2013). Informal mechanisms promote the acquisition of tacit knowledge. This type of knowledge is essential for a firm’s innovation capability (Cavusgil, Calantone & Zhao, 2003). Thus, this is an important aspect of exploration alliances. Relational governance mechanisms positively affect exchange performance between firms (Saxton, 1997; Zaheer et al., 1998).
Still there is uncertainty and risk of opportunistic behaviour when companies only use informal mechanisms. Formal governance mechanisms mitigate these hazards by providing detailed contracts. These contracts include the rights, duties and responsibilities of each partner (Reuer & Ariňo, 2007). Formal safeguards include formal operating procedures. These
procedures stimulate communication of explicit knowledge. Formal mechanisms, such as rules and procedures, transfer this explicit knowledge between partners (Nonaka & Takeuchi, 1995). Li, Poppo & Zhou (2010) stated that ‘Contracts provide formal assurance that complements the
informal assurance of trust’ (p. 356). This assurance stimulates knowledge spillovers between
partners. It sets boundaries for knowledge spillovers. Informal safeguards in combinations with contracts encourage more tacit knowledge transfer than informal safeguards alone (Li et al., 2010).
19 et al., 2010). Some examples of these informal governance mechanisms are; feeling responsible to provide correct and accurate knowledge and norms of reciprocity (McEvily, Perrone & Zaheer, 2003). Informal governance mechanisms make the transfer of tacit knowledge possible. Thus, to enhance performance in exploration alliances, both informal and formal mechanisms should serve as complements.
In the case of SMEs, the use of formal mechanisms positively contributes to the
achievement of alliance goals; however, if the goal is predictable and not complex, it may be too costly to design detailed contracts (Pittino & Mazzurana, 2013). Exploration alliances are not predictable and are complex. That makes formal governance mechanisms useful.
This synergy between formal and informal governance mechanisms may be useful for horizontal partners who operate in the same strategic group and horizontal partners who operate in the same competitive group. Although, the first group does not have to deal a lot with rivalrous behaviour it may still be useful to understand each other’s rights, duties, obligations, responsibilities and to specify the goals of the alliance. Partners who operate in the same competitive group are each other’s competitors. Formal mechanism and informal mechanisms together can be helpful to establish a formal basis for trust and stimulate explicit and tacit knowledge spillovers, this increases the chance for future cooperation. So, I propose the following:
Proposition 5: Horizontal partners operating in the same strategic group and in an exploration
alliance use informal and formal governance mechanisms as complements to stimulate knowledge spillovers and decrease opportunistic behaviour
Proposition 6: Horizontal partners operating in the same competitive group and in an
exploration alliance use informal and formal governance mechanisms as complements to stimulate knowledge spillovers and decrease opportunistic behaviour
2.1.3.3 Exploitation alliance
The exploitation phase turns after the exploration phase. In this phase the knowledge and skills that are developed in the exploration phase are valuable in the exploitation phase. Pittino and Mazzurana (2013) define exploitation alliances as follows: ‘this type of alliance aims at creating
value through the joint use of a set of resources, assets or capabilities already under the control of the companies involved.’(p.69).Some examples of this type of alliance are licensing alliances,
marketing alliances, and supplying alliances.
Exploitation motivates firms to collaborate with partners (Koza & Lewin, 1998;
20 A company acquires this type of information through close linkages (Uzzi, 1996). Thus, this type of alliance goal is more based on explicit information.
2.1.3.4 Exploitation and the informal and formal governance mechanisms as substitutes
It is impossible to write a detailed contract, simply because the rules change too often and there are too many regulations. On the other hand, informal safeguards decrease transactions costs, as these informal safeguards do not have a fixed duration and positively influence trust (Gulati, 1995). Furthermore, firms are not able to pay the expensive third parties to judge contract fulfilment (Dyer and Singh, 1998).
Exploitation alliances do not focus that much on knowledge transfer and this type of alliance has a low degree of complexity. Thus, I assume that these horizontal alliances do not use the expensive and complicated formal governance mechanisms. These firms use informal
governance mechanisms in this situation. Because they are familiar with these mechanisms, it saves costs and increases trust between the different partners. Moreover, horizontal partners who operate in same strategic group have similar characteristics and the risk of opportunistic
behaviour is low. Thus I propose:
Proposition 7: Horizontal partners operating in the same strategic group and in an exploitation
alliance use informal governance mechanisms as substitute for formal governance mechanisms to stimulate knowledge spillovers and decrease opportunistic behaviour
The chances of opportunistic behaviour are high when partners operate in the same competitive group. Williamson (1975) and Dickson and Weaver (2011) explain that contracts are the mechanisms to decrease opportunistic behaviour. Formal rules and guidelines decrease uncertainty about opportunistic behaviour. Both partners must adhere to the contract else they face legal and economic consequences (Jap & Ganesan, 2000). Dyer and Singh (1998) disagree that formal mechanisms are productive to decrease this type of behaviour. They stated that formal contracts are less effective than informal mechanisms. This is because it is impossible to expect what types of cheating may occur. As said before informal mechanisms have a positive effect on an exploitation alliance. Informal safeguards do not have a fixed duration, are less costly, there is room for experimentation and development and increase trust between partners. These are
important advantages for small firms because they lack resources to develop, pay and monitor contracts. Antia and Frazier (2001) argue that ‘social norms and trust conventions can undermine
the effectiveness of explicit contracts because they can stand in the way of effective enforcement of contractual detail’ (p.77). Moreover, exploitation alliances do not focus that much on complex
21
Proposition 8: Horizontal partners operating in the same competitive group and in an
exploitation alliance use informal governance mechanisms as substitute for formal governance mechanisms to stimulate knowledge spillovers and decrease opportunistic behaviour
2.2 Conceptual model
A conceptual model, figure 1, is developed, this model is based on the eight propositions. Together these eight propositions try to answer the main research question: How do small firm
horizontal partners operating in the same strategic/competitive group use formal and/or informal governance mechanisms in exploration or exploitation alliance to stimulate knowledge spillovers and decrease opportunistic behaviour?
This model proposes that small firm horizontal partners operating in the same strategic/competitive group make use of formal and informal governance mechanisms to stimulate knowledge spillover and decrease opportunistic behavior. Both governance mechanisms stimulate knowledge spillover and decrease opportunistic behaviour.
When the alliance goal is exploration, I propose that small firm horizontal partners who operate in the same strategic/competitive group use both formal and informal governance mechanisms. Thus, informal governance mechanisms substitute for formal governance mechanisms when the alliance goal is exploration.
When the alliance goal is exploitation, I propose that small firm horizontal partners who operate in the same strategic/competitive group make use of informal governance mechanisms. Thus, informal governance mechanisms substitute for formal governance mechanisms when the alliance goal is exploitation.
Figure 1. Conceptual model
TYPES OF FORMAL GOVERNANCE MECHANISMS - Formalized, legally binding agreement - Formalized, legally, binding contract TYPES OF INFORMAL GOVERNANCE MECHANISMS - Mutual trust - Commitment - Relational capital STRATEGIC GROUP/
COMPETITIVE GROUP STIMULATE KNOWLEDGE
SPILLOVERS & DECREASE OF OPPORTUNISTIC BEHAVIOUR
- Complements - Substitutes
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3. RESEARCH DESIGN
3.1 Introduction
In this part of the study the research design will be described. This study is aimed at exploring how horizontal alliance between small firms use governance mechanisms in
exploration/exploitation alliances to decrease opportunistic behaviour and stimulate knowledge transfer. I start with describing the research setting, followed by the measuring key concepts, research method and data analysis. This study does not intend to generalize and represent all small Dutch high technology firms. Rather, it attempts to provide a critical sense of the subject matter as well as in-depth insights.
3.2 Research setting
This qualitative study was carried out on horizontal alliances established among small
agricultural companies operating in the Netherlands. The Dutch agricultural sector is leading in Europe when it is about innovation. Developments in automation, robotics and mechanisation continue. Firms also develop innovations to reduce environmental pollution and improve animal welfare. Companies within this agricultural sector innovate due to the exchange of data and knowledge among various partners within the same sector, governmental institutions,
consultancy and audit companies (VROM, 2004; RPB, 2003). These innovations have a large technical and financial return that makes these innovations important to the Dutch economy (Lauwere, 2003). Four companies are interviewed these are: Dacom, Nell Gerberas Cultures B.V., HLB research & consultancy and Business Center Klazienaveen.
Business Center Klazienaveen: is founded in 2009 by Mr Peters. The company is situated
in Klazienaveen. The company is specialized in plant propagation of crops (tomatoes and cucumbers), flowers and drugs. The company makes use of propagation greenhouses. The company is always busy with innovation and optimizing the products. Business Center Klazienaveen has several alliances. The company has one horizontal partner: Ontario Plant Propagation. This company is situated in Canada. This company is also specialized in propagation of crops. Together these companies share knowledge to cultivate new and better tomato and cucumber plants.
Nell Gerberas Cultures B.V.: is already 34 years old. It is founded by Mr. Nell. The
23
HLB B.V.: is founded in 1999 in Wijster, a small village in the northern part of the
Netherlands. Mrs Peltjes is owner of the company. The company is specialized in research, recognition and advice of diseases, plagues and weeds that effect crops and flowers. The
company is active in the agriculture and horticulture sector. HLB B.V. has several alliances. One horizontal partner is Blgg AgroXpertus. Together these firms try to develop new soil and crop parameters.
Dacom is founded in 1987. Mrs Harders is owner of the company. The company is
located in Emmen. The Dacom system offers growers practical solutions for profitable and sustainable agriculture. By combining sensor technology and internet, growers can continuously monitor and fine-tune their production process throughout the growing season. Dacom has many alliances. One horizontal partner is Adcom Telemetry. Together these firms have developed a sensor.
3.3 Measuring key concepts
The data collecting method exists of 2 phases: A phone-call and a face-to-face interview. You can find the interview guide and the in-depth interview questions in appendix 1.
3.3.1 Requirements
Before the interview took place, I gave the CEO a call. It is important that companies meet the following criteria:
1. The company has fewer than 50 employees 2. Operate in the agricultural industry
3. Operates in an innovative horizontal alliance
4. Partners operate in the same strategic group or competitive group 5. The alliance has an exploration or exploitation goal
The measuring key concepts of this study will now be explained.
3.3.2 Measuring background information
The first question is about the background of the respondent. I considered that the respondent feels more comfortable after telling his own story. During this question I have to find the answers on how many employees are working at the respondents’ company. I have used the definition of the European Union to investigate if the company is small. A small company has fewer than 50 employees. Moreover, I have asked who the owners are, the age of the company, the company’s mission, what type of product the company produces and the production process.
3.3.3 Measuring horizontal alliance
SBI-24 code at the Chamber of Commerce. In this study I compare companies who have the same SBI-code. These numbers can be found on the website of the Chamber of Commerce.
The (SIC) codes alone, do not provide a good measure to understand if firms operate in the same industry. In fact, these (SIC) codes are not very specific. That’s why I have used the definition of De Jong (1985). He explains that horizontal alliances take place in the same industry. Mason (1957) defines the industry as following: ‘The industry, so conceived, is a
grouping of firms on the basis of a similarity both to products and of production processes’ (p.
6). Based on this definition, I have developed question 2, 4 and 5 in the questionnaire.
The definition of the European Union about horizontal alliances stated that horizontal alliances are agreements and converted practice between (potential) competitors. As argued in section 2.1.1.5, horizontal alliances are also about firms who are (potential) competitors. Question 12 and 13 are based on this definition. Question 11 is adapted from Simonin (2004). However, as mentioned in section 2.1.1.6 not all horizontal alliances have a competitive nature. Thus, firms operate in a horizontal alliance when both firms:
have the same 3-digit Standard Industrial Classification (SIC) codes operate in the same industry
produce similar product
have a similar production process
(are potential competitors or competitors)
3.3.4 Measuring strategic Group
According to Porter (1980), three generic strategies cause a competitive advantage
overall low cost, differentiation and focus. Studies like Leask and Parker (2007) and Panayides (2003) used these strategies to develop strategic group analysis. Johnson, Johnson, Devadoss and Foltz (2011) argue that planning flexibility, perception of industry volatility (dynamism),
strategic emphasis on innovation and innovation are categories that can help to explain the competitive environment. These categories are used in Johnson’s et al., (2011) questionnaire that is about measuring strategic groups.
The interview questions are adapted from several authors. The questions about planning intensity (PLAN, question numbers 16a and 16b) are developed by Brews and Hunt (1999). The measures of the overall least cost (OLC question numbers 17e-g) and product differentiation (PROD question numbers 17a-d) are created by Davis, Dibrell and Janz (2002). Barringer and Bluedorn (1999) developed questions about strategic flexibility (FLEX question numbers 18a-d ). Question numbers 19a-c are about innovation (INOV) and these are adapted from Dess and Davis (1984). Miller and Friesen (1982) have created questions about strategic innovation (STINOV question numbers 20a-f). Johnson et al., (2011) use a 5-point Likert scale in their questionnaire.
25
Table 1. Cluster definitions
CLUSTER NUMBER
GROUP NAME AND DEFINITION CHARACTERISTICS
1 Differentiator group: the one that can match the
High Performers in some categories, but which lack the economies of scale usually associated with the High Performers.
- Product differentiation - Flexible
- Innovation
- Strategic innovation 2 Lifestyler group: companies focus on making a
modest ‘living, usually by focusing on a fringe market’ sector
- Overall growth,
performance and profit is low
- Depend on loyal customers
3 ’High performer group: companies tend to be larger and focus on multiple objectives.
- Focus on planning - Low cost products - Focus on growth - Innovation
- Strategic innovation
The outcomes of questions 16-20 (appendix 1) can be used to investigate in which cluster the respondent’s firm operates. Johnson et al., (2011) have developed table 2 with the mean and standard deviation of the several strategy variables. The answers of the respondent are compared with this table.
Table 2. Mean and standard deviation of strategy variables
CLUSTER 1 CLUSTER 2 CLUSTER 3
PLAN 2,97 (0,78) 2,72 (0,76) 3,30 (0,73) OLC 2,83 (0,87) 2,50 (0,79) 3,17 (0,92) PROD 3,67 (0,68) 3,02 (0,94) 3,40 (0,76) FLEX 3,66 (0,73) 3,44 (0,79) 3,75 (0,63) STINOV 3,24 (0,63) 2,73 (0,74) 3,15 (0,79) INOV 3,37 (0,94) 2,71 (0,94) 3,15 (1,01)
26 strategy of the partners. Next to that, I have created question number 22 which directly measures in which cluster the partner firm operates. This is a control question.
After analyzing the strategies of both partners, it is possible to conclude if both firms operate in the same strategic group.
Based on (McGee & Thomas, 1986 p. 150) definition of strategic group, question 9 is developed. This question measures how difficult it is for the horizontal partner to imitate the respondent’s strategy. Question 4 is a closed question and investigates the mobility barriers that the partner firm faces, when it tries to imitate the strategic decisions of the respondent’s company. McGee & Thomas, (1986) explain that ‘mobility barriers are a corollary to the existence of strategic
groups, mobility barriers reflect the decisions of firms and are a way of defining the set of key strategies available to a firm’ (p.153). In other words, firms that operate in the same strategic
group do not have a lot of difficulties with each other’s mobility barriers.
The article of Lutz, Kemp and Dijkstra (2010) is used to measure mobility barriers. These authors found that the sales volume, capital and financial risk, differentiation, cost disadvantage and costs of capital are essential mobility barriers for new entrants. This study focused on small firms but not on firms who are innovative or operate in the agricultural industry. It seems logical that these types of firms have trouble with mobility barriers, like R&D investments. In this article I have adopted questions from Lutz et al., (2010). These authors have used a 5-point Likert scale. When the outcomes of the barriers are below 2,5 the variable is not a serious barrier.
In short partners operate in the same strategic group when: they have similar strategies
hardly have any mobility barriers
3.3.5 Measuring competitive group
Horizontal partners who operate in the same competitive group are each other competitors. One criterion to distinguish competitors from non-competitors is product substitutability (Leask & Parker, 2007). This market criterion suggests that firms are competitors when they produce products that can substitute for one another in the satisfaction of customer needs (Porac, Thomas, Wilson, Paton & Kanfer, 1995). Based on this theory, question 13 is developed. Simonin (2004) developed a question that measures the intensity of competition between the partners (question 11). I have developed Question 12 to understand why the respondent sees his partner as a competitor.
In short, firms operate in the same strategic group when: the horizontal partner is a (potential) competitor the horizontal partner creates substitutes
3.3.6 Measuring the alliance goal
27
and development of new technology such as R&D alliances and technical alliances as well as those with new partners were considered exploratory in nature’ (Koza and Lewin, 1998, p. 257).
These alliances are younger than 5 years (March, 1991). ‘Those alliances that were focused on
marketing and resource mutilization, such as licensing alliances, marketing alliances, and supplying alliances and those with existing partners, were considered exploitative’ (Koza &
Lewin, 1998, p. 257). These alliances are older than 5 years (March, 1991). Pittino and
Mazzurana (2013) have used the variables out of the definitions to measure the alliance goal. I also took the different variables out of the definition and developed several questions. These are questions 23, 24 and 25. I have also developed an open question, question 3, which measures the alliance goal.
3.3.7 Measuring knowledge spillover
Simonin (1999a) developed 3 questions that measure the technological knowledge spillover between partners (question number 28). Simonin (1999b) developed 3 questions that measure marketing spillover between partners, (question number 29). These questions have a 5- point Likert scale. The averages of the three items explain the amount of technological and marketing knowledge spillover. Based on these questions I have developed question 26 which is an open question. Open questions give the respondents own opinion about the topic. I have adopted five questions from Li et al., (2010) to measure if the knowledge that was transferred is explicit or tacit. These questions have a 5-point Likert scale. The average of the five items explains if the knowledge spillover has an explicit or tacit nature. Is the average above 2,5 than the knowledge has a more explicit nature. Before these closed questions are asked, one open question should be answered by the respondent. This is question number 27 this question is based on the closed questions of Simonin (1999a) and Simonin (1999b).
3.3.8 Measuring opportunistic behaviour
To measure opportunistic behaviour this study uses the interview questions of Provan and Skinner (1989) and Dickson et al., (2006). The items measure the respondent’s perceptions regarding the inappropriate or opportunistic behaviour of the horizontal partner. This is question number 32 in Appendix 1. A 5-point Likert type scale is used to find out the respondents
perception regarding opportunistic behaviour of the horizontal partner. The average of the five items shows the intensity of opportunistic behaviour in the alliance. If the average score is high, much opportunistic behaviour occurs. Before these closed questions were asked, one open question (31, 34) will be answered by the respondent, to receive detailed information about opportunistic that occurs in the alliance. This question is based on the definition of opportunistic behaviour.
3.3.9 Measuring formal governance mechanisms
28 33, which is an open question. I also would like to know if these formal governance mechanisms are used to stimulate knowledge transfer (Question 35 and 47) and decrease opportunistic
behaviour (question 38). Question 41a is a closed question and adopted by Faems et al., (2010). It measures if formal governance mechanisms decrease opportunistic behaviour.
Poppo and Zenger (2002), Lee and Cavusgil (2006) and Hoetker and Mellewigt (2009) measured the intensity of use of formal mechanisms by using the following categories: (1) formal obligational contracts; (2) specification of property rights; (3) detailed planning of goals and milestones; and (4) profit and loss accounts. The question numbers are 45a-d. The authors have used a 7-point scale. In this questionnaire I make only use of a 5-point Likert scale. Because it is confusing for the respondent to answer questions with different Likert scales. Chances on mistakes are higher when the scales are different. The average of the four items explains the intensity of use of formal mechanisms.
Faems et al., (2010) developed questions to investigate to which extent respondents have used the contract as a control and/or coordination mechanism. They have used a 7-point Likert scale, but I changed these into a 5-point Likert scale. The authors have developed two different statements (1) whether the contract functioned as a guarantee against opportunistic behaviour of the other partner(s) and/or (2) whether the contract functioned as a plan of action in order to streamline the collaboration. These statements investigate the importance of control and/or coordination function of formal mechanisms. The numbers of these questions are 41a and 41b.
Macneil (1978) developed questions to measure the complexity of contracts. Respondents have to give their opinion about how customized and how much legal work it took to develop the formal contract. This question is also based on a 7-point Likert scale, but I changed it into a 5-point scale. Question 41c is adapted from this article. Moreover, respondents also have to mention the amount of pages of the formal contract (Joskow, 1988).
3.3.10 Measuring informal governance mechanisms
Informal governance mechanisms include mutual trust, commitment, and relational capital in the governance process (Lee and Cavusgil, 2006). Poppo and Zenger (2002), Lee and Cavusgil (2006) and Hoetker and Mellewigt (2009) measured the intensity of use of informal mechanisms by using the following categories: (1) importance of mutual trust; (2) partners’ interaction based on group-based mechanisms; (3) partners’ interaction based on shared organizational units; and (4) importance of face-to-face meetings. They have used a 7-point scale and changed this into a 5-point Likert scale. The average of the four items explains the intensity of use of informal mechanisms. These are questions 45e-h in the questionnaire.
29 collaboration. Thus, how much the firm relied on informal governance mechanisms. Question 46 is based on this method.
Carson, Madhok and Wu (2006) created questions to measure trust. Five of those questions were suitable for this questionnaire. They have used a 5-point Likert scale and the average of the five items explains the importance of using trust as a governance mechanism. This is question 40a-e in appendix 1.
Question 39 is an open question and measures of informal governance decrease opportunistic behaviour. Question 42 is a closed question and also measures the same. These questions are newly developed. Question 37 (open question) and 44 (closed question) measure if informal governance mechanisms stimulate knowledge transfer.
In this article several reasons are summed up why firms use informal mechanisms. Based on these reasons I have developed question 52. With this question I try to find out if these
variables are reasons to use informal mechanisms. A 5-point Likert scale is used to develop this question.
3.3.11 Measuring complementarity/substitution
Pittino and Mazzurana (2013) developed 4 different categories adopted from the theory of Cassiman and Veugelers (2006) about complementarity of goverenance mechanisms. These categories are: (1) firms that rely mainly on formal mechanisms; (2) firms that rely mainly on informal mechanisms; (3) firms that exhibit a low degree of utilization of both formal and informal mechanisms; (4) firms that use extensively both informal and formal governance mechanisms. Based on these categories question 34, 48 and 51 are developed. These questions are newly developed. Question 34 is an open question and 48 and 51 are closed. Question 48 measures if formal and informal governance mechanisms are complements. Question 51 measures which governance mechanisms is most important or are the mechanisms similar important.
Question numbers 33, 35, 38, 41a-c, 45a-d, 47also measure the importance of formal governance mechanisms and Question numbers 37, 39, 40a-d, 42, 44a-c, 45e-h, also measures the importance of informal governance mechanisms. These questions can also be used to measure if governance mechanisms are substitutes or complements.
3.4 Research method
30 In this study I choose the following research method: in-depth interviews. Cooper and Schindler (2006) stated that this method is optimal for collecting data on individual’s personal histories, perspectives, and experiences, particularly when sensitive topics are being explored.The first interview was a pilot interview, to test if the respondent was able to test the newly developed questions. The interview was built by the author of the study. The interviews were taped. The interview includes closed and open questions. The advantages of open questions are that participants answer the question in their own words. These answers are more significant, have more details and are explanatory in nature. The researcher is also able to respond immediately on the answers and ask ‘why’ and ‘how’ questions.
I contacted a consultant of Triple E and an account manager of the government of
Emmen. These people are specialized in innovation and research management in the agricultural and horticultural branch. These people gave me some good suggestions to find the right
companies.
As said before, the alliances should meet some requirement. That’s why I called the company first to check out if they meet these requirements. I sent them a confirmation of the appointment by e-mail. After that I sent them a confirmation mail. I created an interview guide to make sure that everything is well prepared before the interview starts. In the questionnaire I make use of field coding. This makes it easy to mark the things I would like to know. I invited
respondents to focus on one of their horizontal partners. The whole questionnaire can be found in appendix 1. It is important that the respondent understand the questions and different terms. That’s why I explain every difficult term that is used in the interview. The interview questions were checked with the evaluation form that Flick (2005) described in his book ‘an introduction to qualitative research’ (p. 167).
The people who took part were the CEO’s of the companies. The interviews were conducted between the 15th of July and the 6th of August
3.5 Data analysis
After the interviews were conducted, the answers of the respondents were elaborated in detail. Next, an analysis was performed on the responses of the open and unstructured data. The content analysis techniques were used to analyze the interviews and the secondary data (Miles &
Huberman, 1994). ‘Content analysis is a technique designed to make
‘Inferences by systematically and objectively identifying special characteristics of messages’
(Holsti, 1968, p. 608). Kwalitan is used to carry out the analysis. This program allows for efficient storage of data and provides several tools to analyze the qualitative material such as coding and organizing codes. The data was analyzed inductively and deductively. The inductive process is moving from specific observations to some general conclusions and theories.
Deductively means that the data confirms/negates the propositions (Miles & Huberman, 1994). I have used kwalitan to evaluate the questions that were about governance mechanisms,
