International strategic alliancerelationships within the foreigninvestment decision process

Matthew J. Robson and Constantine S. KatsikeasCardiff Business School, Cardiff University, Cardiff, UK

Abstract

Purpose – The purpose of this study is to develop and test a theoretical model of internationalstrategic alliance (ISA) relationship development underpinned by the foreign investment decisionprocess.

Design/methodology/approach – The conceptual model demonstrates an ISA investment decisionprocess consisting of three ex ante formation aspects – parent firm top management’s general attitudetowards alliances, scope of parent’s cooperation analysis for the focal alliance, and interfirmcollaborative history – and two key ex post relational outcomes – parent’s willingness to invest in thealliance business and satisfaction with the relationship. The theoretical propositions were testedamong a sample of 94 ISAs using structural equation modelling.

Findings – The results show that top management attitude towards alliances is negativelyassociated with scope of cooperation analysis, but only where collaborative history exists. Scope ofcooperation analysis, in turn, positively influences willingness to invest. And together these factorsexert a positive influence on relationship satisfaction.

Originality/value – The ISA literature has devoted significant attention to partner characteristicsimportant in venture formation, as well as to post-formation partnership management issues.However, there is a dearth of empirical research explaining the role of venture formation aspects ininfluencing ISA relationship development and success. The study adds to the limited empiricalresearch work on the role of venture formation aspects in influencing ISA relationship developmentand success. It provides new and detailed insights for business practitioners and academic researchersconcerning the behavioural, decision process underlying ISA partnership progression.

Keywords Strategic alliances, Relationship marketing, International investments, Decision making

Paper type Research paper

IntroductionOwing to the accelerating pace of technological innovation and globalization,international strategic alliances (ISAs) have become increasingly important for thestability, growth, and long-term viability of modern business organizations (Beamishand Delios, 1997a). In today’s difficult business climate, alliances offer manifest utilityin a whole host of market and industry settings and represent an influentialmechanism for asserting corporate strategic control (Drucker, 2001). ISAs pertain torelatively enduring interfirm cooperative ventures, with cross-border flows andlinkages that utilize resources and/or governance structures from autonomousorganizations for the joint accomplishment of individual goals linked to the corporatemission of each (Hitt et al., 2000; Parkhe, 1993).

Over the past two decades, many studies have prescribed means of making ISAsmore effective. Yet there is consensus that the majority of these arrangements fail toachieve their set objectives, leading to premature dissolution (Beamish and Delios,

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Received October 2003Revised January 2004

Accepted February 2004

International Marketing ReviewVol. 22 No. 4, 2005

pp. 399-419q Emerald Group Publishing Limited

0265-1335DOI 10.1108/02651330510608433

1997b). Broadly, the emergence of managerial difficulties in ISAs corresponds with theextent to which alliance partners believe they should cooperate to produce mutualgains but also act competitively to maximize their individual benefits (Tiessen andLinton, 2000). In response to this cooperation-competition dilemma, an increasing flowof contemporary research (Aulakh et al., 1996; Cullen et al., 2000) has asserted thepragmatic value of achieving unconditional partner cooperation on the basis of stronginterfirm relational bonds.

Advocates of this behavioural perspective recognize that experienced collaboratorsmilitate against opportunities for partner dissension by prioritizing the foundation of ahighly committed and satisfactory working relationship. However, relatively fewempirical studies have examined antecedents of ISA relational advancement (Arinoand de la Torre, 1998). Furthermore, these relationship development studies haveconcentrated on the effects of ex post structural traits, such as partnership governanceand control mechanisms (Aulakh et al., 1996; Inkpen and Currall, 1997), whereasminimal attention has been paid to the role of sociological aspects of the allianceformation process. Crucially, ISA ventures are foreign investment activities thatinvolve a continuous process of business activity, with initial decisions shaping theensuing chain of socially embedded decisions (Aharoni, 1966). Although formativeissues pertaining to intrapartner characteristics and interpartner fit have receivedsignificant attention in the ISA field (Park and Ungson, 1997; Sim and Ali, 1998), thisbody of study has largely neglected to incorporate a process view of alliances toexamine relationship management and performance implications (Spekman et al.,1998).

The purpose of this study is to investigate the behavioural process linking exante formation aspects to ex post relationship development in ISAs[1]. We maketwo main contributions to the literature. First, we enhance understanding of theISA decision process, together with the social system in which it takes place.Drawing from Aharoni’s (1966, 1999) theory of the foreign investment decisionprocess, we explore the complex nexus between ISA partnership creation andrelationship success. Primordial forces (i.e. parent firm top management attitudetowards alliances and scope of cooperation analysis) in this ISA decision processhave yet to receive emphasis in the collaborative strategy literature. Second, unlikeother empirical ISA studies we focus on explaining the occurrence of relationshipsatisfaction. This relational outcome captures a parent firm’s affective appraisal ofall aspects of the ISA working relationship and is crucial to enhancing venturestability and effectiveness (Anderson and Narus, 1990; Baker et al., 1999).Relationship satisfaction provides this study with a socially informed account ofcollaborative consequences.

In the section that follows we explain the theoretical model and hypotheses. Next,after reviewing the research method used in the study, we report the results of theempirical tests. The last section discusses the implications of the findings along withthe study’s limitations and directions for future research.

Conceptual model and hypothesesDuring the past two decades, significant research attention has been devoted to theformation and performance of ISAs. Traditionally, such research work has taken an

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economic view of firm behaviour (e.g. Buckley and Casson, 1996; Hennart, 1988),featuring a parent firm’s need to acquire the complementary resources necessary topursue a particular product market venture. Firms turn to the strategic alliance as themost efficient organizational form when compared with either an arm’s length markettransaction, de novo investment, or acquisition (Kogut, 1988). Whilst this stream ofstudy has generated valuable insights into the behaviour of firms in alliances and theirperformance consequences from such partnerships, it has nevertheless promoted anundersocialized account of alliance activity and fallen short of capturing thetransitional nature of the ISA process (Doz, 1996; Gulati, 1998).

In this article we focus on assessing how the ISA development process is impactedby the social system in which it takes place, drawing primarily from Aharoni’s (1966;1999) theory of the foreign investment decision process. Aharoni (1966) concluded thatdecisions to commit to particular foreign investment opportunities are not governedpurely by the postulates of economic rationality. Rather, these decisions emerge via adynamic social process of mutual influences amongst various members of anorganization, constrained by the organization’s strategy, its resources, and the limitedcapacity, goals, and needs of its members. Foreign investment activities involve acontinuous stream of business activity, with the initial decision to invest being the firstlink in a chain of socially embedded decisions (Aharoni, 1966).

Aharoni (1966) asserted that two sequential forces shape strategy formation inforeign investment decisions:

(1) Strength of the initiating force behind the investment, denoting that the mainelement providing impetus in a firm’s investment process is internal consensusas to the need, acceptance, and ex ante approval of such an investment.

(2) Scope of the investigation of the investment, which reflects gatheringinformation to make a strategic assessment to ensure the specific project’sacceptability.

The initiating force dictates the path the investigation takes, whilst the scope ofinvestigation impacts subsequent decision-making within the business process(Fornell et al., 1990).

In line with this conception of the foreign investment decision process, ourconceptual model (Figure 1) posits that parent firm top management’s attitudetowards alliances (initiating force) influences scope of the cooperation analysis(scope of investigation). We resolved to use these proxies following exploratorydiscussions with knowledgeable alliance managers and a comprehensive review ofthe alliance literature. Top management attitude towards alliances concerns theparent senior management’s attitude towards collaborative strategy in general,vis-a-vis other means of pursuing identified business opportunities (Eroglu andYavas, 1996; Varadarajan and Rajaratnam, 1986). Firms tend to exhibit a relativelystable predisposition to respond to the alliance, as a mode of business, in aconsistently positive or negative way and this provides strong or weakorganizational drive, respectively, in their ISA ventures. Scope of cooperationanalysis captures the breadth and depth of analysis of partner-related criteria inselecting the partner for the focal alliance venture. These varied characteristics (e.g.the partner’s reputation, compatibility of the partner’s goals for the alliance,

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similarity of the partner’s culture) concern the ability of the focal firm to workefficiently and effectively with the partner, and are thus of particular concern toparent company managers keen to create a cooperative mindset within theprospective ISA venture and ensure its viability (Geringer, 1988). In addition, wesuggest that a parent’s scope of cooperation analysis will impact its subsequentwillingness to put more effort and investment into the ISA venture.

This application of Aharoni’s (1966) basic framework focuses on a parent firm’sinvestment process for a particular ISA business as the unit of analysis. To considerthe interactional nature of ISA work – that key venture precursors and outcomescan be shaped by the social network within which partner firms are embedded –we also included the variables, collaborative history and relationship satisfaction.Interfirm collaborative history is important in any study of pre-alliance initiatoryforces, as social networks enable firms to channel new alliance opportunities andcan thus influence how often and with whom those firms enter into ISA ventures(Gulati, 1995). When two firms have previously worked together within relationalties, their relative proximity can play a key role in moderating future ISAinvestment processes (Gulati, 1998). Relationship satisfaction, the outcome of theprocess variables in our model, captures the venturing firm’s economic andpsychosocial response to the overall working relationship with the partner(Geyskens et al., 1999). This broad-based measure of partnership success is not onlya close proxy for objective summary assessments of outcomes such as perceivedeffectiveness, but also may be more predictive of future interactions betweenpartner firms (Anderson and Narus, 1990).

Top management attitude towards alliances and scope of cooperation analysisWhilst some investment decisions result from hard economic reasoning, others areinduced by circumstantial concerns, such as one or more senior managers pushing theintended project (Aharoni, 1966). Indeed, a crucial element guiding the formation ofexpectations for a company’s investment process is the project’s acceptance andapproval by top management (Carter, 1971). A strong support base is important intriggering new business opportunities and steering them down the path to formal

Figure 1.Conceptual model

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commitment (Aharoni, 1966). Many firms acknowledge that certain ventures can bemore effectively (or only be) pursued through strategic partnerships, and this leads tothe formation of a positive general attitude towards collaboration vis-a-vis other meansof pursuing identified opportunities (Eroglu and Yavas, 1996). We assert that in thecase of emerging ISA ventures, high-level parent firm managers holding the belief thatalliances are a key aspect of their business often trigger and push the organizationalong the project investment path.

Organizations carry out investigations in a way that upholds, or is in the region of,existing policy rule (Cyert and March, 1963). The investigation of a new businessopportunity would thus aim to avoid areas of possible friction with senior managementand prior policies and commitments (Aharoni, 1966). A firm contemplating thesuitability of an alliance project is likely to examine the relational potential of the tie-upmore rigorously when following a strategy of competing on the basis of the alliancetypes that produce meaningful strategic gains. Its investigation of prospectiveco-collaborators would place significant emphasis on gathering information on a broadrange of selection criteria germane to the development of a high quality workingrelationship. We expect alliance investigators will attempt to shape the context of theexchange to attain an equilibrium between prevailing corporate attitudes on allianceadvantages and their level of certainty pertaining to the prospective partner’s abilityand intention to cooperate and deliver fully in the shared business. Therefore:

H1. The more positive the parent firm’s top management attitude towardsalliances, the greater its scope of cooperation analysis.

The influence of collaborative historyThe existence of collaborative history between the firms involved in the proposed ISAventure may moderate the relationship between parent top management attitudetowards alliances and scope of cooperation analysis. Collaborative history transpireswhen the alliance partners have previously worked together within relational ties (e.g.licensing arrangements, joint ventures, supply partnerships) established before thecurrent, focal ISA concern (Inkpen and Currall, 1997). Previous research (Gulati, 1998;Parkhe, 1993) has observed that traditional strategic partners often pursue additionalopportunities to work together. According to Aharoni (1966), strength of the initiatingforce dictates the path the subsequent investigation takes in new, unfamiliar foreigninvestment opportunities. Where interfirm cooperative history exists, the current ISAproject represents the cumulation of previous strategic actions and is unlikely to beviewed as a step into the unknown.

We suggest that senior management attitude towards alliances provides thefoundation for a concerted effort to select a cooperative ISA partner at the outset of theinvestment process, when considerable uncertainty surrounds a proposed “newrelationship”. In the absence of an existing stock of relationship assets for the partnersto draw on, uncertainties prevail and require reducing to an acceptable level for the ISAto become a recognized investment opportunity. Corporate support for collaborativestrategy and pressure to remove the risk of moral hazard in the focal ISA venturewould lead to a thorough partner investigation to provide confidence the two sides cancooperate effectively. By contrast, sagacious scrutiny of the prospective partner wouldbe less likely where they have collaborated previously and formed already a basic

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understanding about each other’s skills, capabilities, and idiosyncracies. Under thesecircumstances, the relational risk involved in the investment opportunity is not such acheckpoint for parent firm top management and alliance investigators. Without aparent’s positive attitude towards alliance use generating serious investigativemomentum, partner selection is quicker and easier. Accordingly:

H2. Where interpartner cooperative history exists, the parent firm’s topmanagement attitude towards alliances will have a lesser impact on itsscope of cooperation analysis than where cooperative history does not exist.

Scope of cooperation analysis and willingness to investFollowing the actualisation of an investment the logical next move for the parent firm,given the momentum generated, would be to contemplate increasing its level ofcommitment over time (Aharoni, 1966). In the collaborative strategy sphere, this notionof continuous investment and behavioural commitment is captured by the conceptwillingness to invest, which is defined as a partner’s intention to become more involvedin the alliance relationship through investments of capital and effort (Kumar et al.,1995).

Aharoni (1966), in concurrence with economic theory, asserted that firms concernthemselves with the efficient allocation of scarce resources amongst competing ends.However, he also argued that the dominant managerial resource concern in foreigninvestment decisions (due to their complexity) is often management time, energy andattention, not money. Although managerial decision makers view quality of strategicassessment as a key driver of future investment success, detailed investigationsrequire substantial time and effort. Thus, managers utilize the stock of knowledgealready accumulated for the focal investment process in reaching a decision concerningfurther involvement. To this point, Aharoni (1966) observed that the decision tocommit additional investment may be more expeditious and casual than the initialinvestment decision. As such, we posit that parent firm managers investing significanttime and effort during the cooperation analysis of the partner firm, by these actions,commit themselves and their organizations to maintaining the alliance investmentprocess.

This said, a venturing firm may choose not to augment its investment under normalpartnership conditions due to the presence of investment risk (Aharoni, 1966). In thecollaborative strategy context, a conspicuous source of risk concerns the emergence ofa win-lose payoff situation in the business venture. Parent firms are less open and morereluctant to integrate strategically within ISA frameworks where they anticipate theeventual appearance of non-cooperative actions (Robson, 2002). Alliance arrangementsdeveloped with a mutual value creation perspective in mind – using deliberately abroad-based partner cooperation analysis – tend to be better able to anticipaterelational difficulties and control them at a level the parent firms deem acceptable(Inkpen and Li, 1999). Such ventures are highly likely to secure additionalcommitments from their parent firms. Hence:

H3. The greater the parent firm’s scope of cooperation analysis, the greater itswillingness to invest in the ISA.

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Willingness to invest and relationship satisfactionRelationship satisfaction is defined as a positive affective state resulting from theappraisal of all aspects of a firm’s working relationship with another firm (Andersonand Narus, 1990). This concept is distinct from a partner’s satisfaction with the overallresults of the ISA venture, a more rational and objective summary assessment ofventure outcomes which, since the early work of Killing (1983), has become one of themost frequently used procedures for measuring ISA performance (Arino, 2003).According to social exchange theory, relationship satisfaction is a focal consequence ofexchange partners’ relationship management behaviours (Smith, 1998). Relationalmanagement facilitates and signals commitment to making an inter-firm partnershipwork (Homans, 1961). It is imperative that parent firms achieve and sustain a high levelof involvement in their foreign market alliance ventures (Yip et al., 2000) in order to:

. better comprehend and respond to (often complicated) market realities; and

. update the knowledge that will be used for pursuing later market opportunities.

Aharoni (1966, p. 302) stated “Changes of policies, roles, and patterns of interactioninvolve a very high cost, both in measurable monetary terms and in immeasurablepsychic factors”. Parent firms that deny their ISA ventures additional investments riskdisrupting the stream of business activities supporting the overall decision process.This would entail significant perceived costs in terms of the managerial time andenergy already spent evolving the alliance strategy. A firm’s commitment to aninvestment path is entwined with social investments made by the relational actors (i.e.parent executives involved) (Aharoni, 1966). Thus, a venturing firm’s refusal toreinvest would be seen as socially undesirable by the relevant managers. Thisdiscussion suggests parent firm satisfaction, in both economic and psychosocial terms,stems from the resources, effort, and attention it devotes to the ISA. Therefore:

H4. The greater the parent firm’s willingness to invest in the ISA, the greater itslevel of relationship satisfaction.

Top management attitude towards alliances and relationship satisfactionFirms develop preferences for certain types of strategy, commercial practice, andinvestment, and these may inhibit, in relative terms, their mastery of other types ofassignment (Leonard-Barton, 1992). Eroglu and Yavas (1996) found that alliancepartners with a more positive outlook on alliance relationships prove to be moresatisfied partners. If a parent firm believes collaboration is vital to the achievement ofits strategic goals, its managers will be more focused in, and satisfied with, their effortsto formulate and implement what is, after all, a viable long-term foreign market entrystrategy. Alternatively, if an ISA entity is not the type of business problem to whichthe parent is generally content to devote resources, its managers are likely to believetheir time would have been more usefully devoted to the completion of other tasks notinvolving dealing with the needs of a foreign partner. Thus:

H5. The more positive the parent firm’s top management attitude towardsalliances, the greater its level of relationship satisfaction.

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Scope of cooperation analysis and relationship satisfactionBusiness managers are sceptical of cross-border alliance opportunities because of theperceived nuisance factor of having to deal with a foreign partner (Aharoni, 1966). Inresponse to uncertainties associated with such investment problems, firms strive toidentify points of leverage by which to control overall investment progression(Aharoni, 1966). Indeed, collaborating firms frequently give prominence to the partnerselection process, insofar as it can be used to prevent or minimize ongoingdisagreements concerning a broad range of strategic and operational issues (Luo, 1997;Robson, 2002). Parent firm managers are happier to bear the consequences of an ISAbusiness when they have purposely selected a partner they like and understand, basedon its ability and intention to cooperate (Harrigan, 1988). These partnerships find iteasier to generate relational slack, or goodwill (Arino and de la Torre, 1998), which inturn produces a better performing and more comfortable working relationship.Therefore:

H6. The greater the parent firm’s scope of cooperation analysis, the greater itslevel of relationship satisfaction.

MethodologyThe studyWe employed survey methodology and collected data from a subset of the populationof ISAs in UK business. A sampling frame was generated on the basis of threecomplementary sources which afford attention to ISA activities: FT Discovery; FTMcCarthy; and the UK DTI’s international business news web site. The focus was onISAs cited since the beginning of 1996, because of the often short life-span of thesebusinesses. Moreover, the following ISA inclusion criteria (Lyles and Baird, 1994) wereemployed:

. meet the ISA definition offered previously;

. involve just two parent companies; and

. have an operating duration of greater than one year, for ISA performance aspectsto stabilize.

A first-cut list of 625 sampling units was achieved. However, upon contactingmanagers knowledgeable about the sample ISAs to identify whether the reportedventures were still active and actually fitted our qualification criteria, the total wasdown to 386.

Prospective informants were identified and telephoned for pre-notificationpurposes. Without fail, these were:

. knowledgeable about partner selection for the ISA;

. intimately involved with the venture during and since its formation; and

. confident about answering the questions.

Also, they represented a focal parent’s dominant ISA decision-making coalition(Aulakh et al., 1996; Geringer, 1991). Ninety-four senior executives (80 per cent atdirector level or above) met our informant quality criteria and agreed to a personalinterview[2], giving a response rate of 24 per cent. This response rate is comparable to

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other ISA studies using high-level executives (Ding, 1997; Hitt et al., 2000). Not havingtime was the main reason for non-participation.

The majority (62 per cent) of ISAs studied were joint ventures, whilst the remainder(38 per cent) were non-equity, cooperative agreements[3]. Tertiary industries were wellrepresented in the sample, with 39 ISAs (41 per cent), and roughly two-thirds of the 55(59 per cent) manufacturing ISAs involved heavy industry. The average number offull-time employees in the ISA business was 60. Of the 188 parent firms involved in thesample ISAs, 105 were from the UK or Ireland, 30 from North America, 27 fromcontinental Western Europe, and 14 from Japan. The remainder were mostly fromSouth-East Asian NICs and Central/Eastern Europe.

MeasuresMeasures for the study constructs were generated on the basis of a broad-basedliterature review and exploratory discussions with alliance managers. Multi-itemscales were employed for each variable with the exception of the dichotomousmoderator, collaborative history. Measurement scales are provided in the Appendix(Table AI). Item content and applicability was considered a major concern, because ofthe relative unavailability of suitable measures in the ISA literature. One variable,scope of cooperation analysis, was conceptualized as being formative in nature. Eachselection criterion embodies a single dimension of scope of cooperation analysis; thislatent variable is caused by, rather than causing, its items (Bollen and Lennox, 1991).As traditional association-based validation procedures are not applicable to formativescales, emphasis was placed on ensuring the content validity and theoretical basis ofthe index used to tap this variable (Johnson, 1999).

To assess parent top management attitude towards alliances, respondents wereasked to rate how a focal parent firm’s top management rates collaborative businessventures relative to lone business ventures in terms of five business outcomes. Thefive-item metric was developed on the basis of Lyles and Salk’s (1996) ISA businessperformance scale and insights into associated strategic motives provided by Sarkaret al. (1997). Importantly, the informants were urged not to allow the experiences andresults of the present ISA to influence their answers.

To assess the parent firm’s scope of cooperation analysis, we constructed acomprehensive list of cooperation-related partner selection criteria. This necessitated apainstaking investigation: first, an exhaustive review of the ISA partner selectionliterature (Glaister and Buckley, 1997), and of the larger body of work consideringalliance partner characteristics generally (Luo, 1997); and second, a series ofexploratory discussions with experienced alliance managers. The final scale comprises12 conceptually distinct and relevant partner-related partner selection items.

The pre-study interviews were used to investigate the feasibility of five- andseven-point Likert scales for retrospectively measuring ISA partner selection criteria.This decision hinged on two contrasting weaknesses: five-point scales might impedeprecise discrimination amongst a set of mostly important selection criteria, whilst theextra variance afforded by seven-point scales could generate unacceptable noise due torecall problems (Geringer, 1991). We elected to use seven-point scales as it was feltknowledgeable alliance managers who had been involved behaviourally andcognitively in ISA partner selection would have sufficient recall of what is a majorand non-routine decision (Golden, 1992), provided that the ISA concerned was

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sufficiently young. Indeed, at 3.16 years, the mean age of the sample ISAs was muchlower than that in certain other partner selection studies (Glaister and Buckley, 1997),despite the imposition of a minimum operating duration for assessing ventureoutcomes.

What is more, seven-point retrospective metrics are employed in other spheres ofstrategy research (Fox, 1992). And the interviews themselves were used to improvemanagers’ memories of partner selection: they began by covering a range of importantISA formative aspects (e.g. the contract, parental motives) to improve recall of theoverall formation process (Mitchell and Thompson, 1994); and they enabled theresearcher to focus respondent attention on precise partner selection issues (Geringer,1988). These cues proved effective in that the managers consistently had vividmemories of the considerations the decision involved[4].

Collaborative history was assessed using the question “Has your firm been engagedto the partner in relational ties (e.g. licensing arrangements, joint ventures, supplypartnerships, R&D contracts, technology development projects . . . .) established beforethe focal alliance venture?” This item was adapted from those employed by Inkpen andCurrall (1997) and Parkhe (1993).

The parent firm’s willingness to invest additional capital, resources, and effort in thefocal ISA arrangement was measured using four items adapted from scales providedby two marketing channels studies: Anderson and Weitz (1992) and Kumar et al.(1995). This was also the case for relationship satisfaction, in that four items weremodified from those used by Baker et al. (1999) and Gassenheimer et al. (1996).

Measure purification and validationInitial assessment and purification of all scales, bar the formative measure, wasachieved through a combination of item-to-total correlations and exploratory factoranalysis (Stump and Heide, 1996). Items with low item-to-total correlations, low factorloadings, or loadings on multiple factors were dropped, after such a step was judged tohave little impact on the conceptual content of the particular measurement scale (Ayerset al., 1997). Discarded items are reported in the Appendix (Table AI), along with scalereliability values. The remaining set of indicators was subjected to confirmatory factoranalysis via Bentler’s (1995) EQS program to assess unidimensionality and constructvalidity.

Structural equation modelling (SEM) is the most appropriate analytical technique asthe present conceptual model involves multiple dependent and independent variables(Hair et al., 1998). Nonetheless, the present sample ðn ¼ 94Þ is relatively small for SEMpurposes and, thus, care was taken to employ procedures that allow for small samplesizes (Yip et al., 2000). Tanaka’s (1987) suggested minimum observations-to-variablesratio of ten (Barling and MacEwen, 1991) is exceeded. And to secure a samplesize-to-estimated parameter ratio greater than five, and attain reliable parameterestimates (Bentler and Chou, 1987), it proved necessary to run two measurementmodels. The first contained six items measuring the ex ante formation issues, topmanagement attitude towards alliances and scope of cooperation analysis, whilst thesecond model tested eight indicators tapping the ex post management constructs,willingness to invest and relationship satisfaction (Table I). In both cases the analysiswas performed using the elliptical re-weighted least squares estimation procedure

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(ERLS), which produces reliable parameter estimates for multivariate normal andnon-normal data (Sharma et al., 1989).

In the ex ante formation measurement model scope of cooperation analysis wasrepresented by a single composite measure with the error set at 0.10, due to itsformative logic (Anderson and Gerbing, 1988). The fit indices of this model(x 2ð9Þ ¼ 11:18; p ¼ 0:26; NFI ¼ 0:97; NNFI ¼ 0:99; CFI ¼ 0:99; RMSEA ¼ 0:05;AOSR ¼ 0:04) suggest it represents a good fit to the data. The ex post managementmeasurement model yielded an excellent overall fit to the data (x2ð19Þ ¼ 14:67; p ¼0:74; NFI ¼ 0:98; NNFI ¼ 1:01; CFI ¼ 1:00; RMSEA ¼ 0:00; AOSR ¼ 0:03). That allfactor loadings for these models exceed 0.68 and have t-values above 6.50, providesstrong evidence of unidimensionality and convergent validity. Table II presents meansand standard deviations for, and correlations between, the scales entered into themeasurement models.

We assessed discriminant validity of the measures in two ways. First, we conducteda chi-square difference test for all the constructs in pairs to examine their distinctness

Measurement model 1 –Ex Ante formation variables

Measurement model 2 –Ex Post management variables

FactorsStandardized

loadingsa FactorsStandardized

loadingsa

Top management attitude towards alliances Willingness to investATUDE1 0.75 (7.61) INVES1 0.73 (7.08)ATUDE2 0.77 (7.81) INVES2 0.91 (9.68)ATUDE3 0.88 (9.62) INVES3 0.69 (6.51)ATUDE4 0.80 (8.31) INVES4 0.88 (9.14)ATUDE5 0.82 (8.55)

Scope of cooperation analysis b Relationship satisfactionSCOPE1 0.93 (10.63) SATIS1 0.94 (10.49)

SATIS2 0.95 (10.58)SATIS3 0.82 (8.39)SATIS4 0.94 (10.48)

Goodness-of-fit statisticsx 2ð9Þ ¼ 11:18; p ¼ 0:26 x2

ð19Þ ¼ 14:67; p ¼ 0:74NFI ¼ 0:97; NNFI ¼ 0:99 NFI ¼ 0:98; NNFI ¼ 1:01CFI ¼ 0:99; RMSEA ¼ 0:05 CFI ¼ 1:00; RMSEA ¼ 0:00AOSR ¼ 0:04 AOSR ¼ 0:03

Notes: aThe t-statistic for each estimate is in parentheses; bformative construct

Table I.Construct measurement

models

Variable Mean SD 1 2 3 4

1. Attitude towards alliances 5.13 1.18 1.002. Scope of cooperation analysis 4.85 0.85 0.06 1.003. Willingness to invest 5.26 1.31 20.02 0.36 1.004. Relationship satisfaction 5.12 1.53 0.19 0.45 0.62 1.00

Notes: n ¼ 94; correlations greater than 0.20 or less than 20.20 are significant at the 0.05 level

Table II.Means, standard

deviations andcorrelations

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from each other. The process involved collapsing each pair of constructs into a singlefactor model and comparing its fit with that of a two-construct model (Anderson andGerbing, 1988). In each case a two-factor model had a better fit (at the 0.05 level) than asingle factor model[5]. Second, as a more rigorous test of discriminant validity, averagevariance extracted (AVE) was computed for every reflective construct and found to begreater than the squared correlation between that construct and any other construct inthe model (Fornell and Larcker, 1981). AVE for top management attitude towardsalliances, willingness to invest, and relationship satisfaction was 52.2, 53.4, and 68.0per cent, respectively. Our measures therefore possess adequate psychometricproperties.

ResultsThe structural paths were also examined using Bentler’s (1995) EQS program and theERLS estimation procedure. We first investigated a model containing the main effects(H1, H3-H6). Then, in an effort to understand the moderating role of collaborativehistory (H2), subgroup analysis was employed (Simonin, 1999). Williams and Hazer’s(1986) parsimonious estimation technique was employed due to sample sizeconstraints. This entails using composite measures as manifest indicators for eachlatent construct. For the reflective scales, the path from the latent construct to itscomposite indicator was set at the square root of the relevant scale’s alpha coefficientand the error term at one minus the alpha value (Settoon et al., 1996). The formativeconstruct, scope of cooperation analysis, was assumed to have a reliability of 0.90 forpurposes of model estimation (Anderson and Gerbing, 1988).

Standardized parameter estimates, t-values, and significance levels for the sixstructural paths are presented in Table III. The fit statistics for the main effects modelexhibit an excellent fit to the data (x 2

ð1Þ ¼ 0:19; p ¼ 0:66; NFI ¼ 1:00; NNFI ¼ 1:09;CFI ¼ 1:00; RMSEA ¼ 0:00; AOSR ¼ 0:01). The results suggest that except for onestructural path, found to be nonsignificant, the main effects are significant and in theexpected direction.

Contrary to expectations, attitude towards alliances was not associated with scopeof cooperation analysis (H1: t ¼ 0:38; p . 0:05). The study findings provide supportfor H3, which posited that scope of cooperation analysis would have a positive effecton willingness to invest (t ¼ 3:36; p , 0:01). As per H4, a positive relationship wasfound between willingness to invest and relationship satisfaction (t ¼ 5:61; p , 0:01).A positive association was also revealed between attitude towards alliances andrelationship satisfaction (t ¼ 2:28; p , 0:05), in line with H5. And consistent with H6,a positive relationship was identified between scope of cooperation analysis andrelationship satisfaction (t ¼ 2:51; p , 0:05). Overall, the model explains a sizeableproportion (52.7 per cent) of the variance in relationship satisfaction.

The data were divided into two evenly sized groups based on the (non)existence ofcollaborative history between the alliance partners. Subsequently, two main effectsmodels were run: restricted (i.e. imposing equality constraints on the hypothesized topmanagement attitude towards alliances – scope of cooperation analysis structural pathbetween the groups) and nonrestricted (i.e. permitting all parameter estimates to varybetween the two groups). For the “no” versus “yes” collaborative history groups, theunconstrained model yields x 2

ð2Þ ¼ 2:37; p ¼ 0:31; whilst for the constrained one

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x 2ð3Þ ¼ 8:95; p ¼ 0:03: The significant Dx 2

ð1Þ ¼ 6:58, p , 0:05 between the two modelsprovides support for the interactional effect of collaborative history and topmanagement attitude towards alliances on scope of cooperation analysis. However, theresults are not supportive of H2. In the “no” collaborative history group, the topmanagement attitude towards alliances – scope of cooperation analysis path ispositive, but nonsignificant (t ¼ 1:39; p . 0:05). And in the “yes” collaborative historygroup, rather than there being no association, top management attitude towardsalliances is negatively associated with scope of cooperation analysis (t ¼ 22:41;p , 0:05).

Discussion and implicationsDespite widespread recognition amongst management scholars of the importance ofestablishing a strong relationship within cross-border interfirm partnerships, there is ashortage of empirical evidence explaining how the managerial process of forming anISA contributes to the emergence of a relational point of view within thesearrangements. The present study targets this gap in knowledge by enhancingunderstanding of the ISA decision process, together with the social system in which ittakes place. On the basis of Aharoni’s (1966) theory of a chain of socially embeddeddecisions that comprise the foreign investment decision process, we advocate a new

Standardized estimate Conclusion

Hypothesized linksTop management attitude towardsalliances ) scope of cooperation analysis 0.06 (0.46) H1 not supportedScope of cooperation analysis ) willingness toinvest 0.41 (3.36)** H3 supportedWillingness to invest ) relationship satisfaction 0.55 (5.61)** H4 supportedTop management attitude towardsalliances ) relationship satisfaction 0.20 (2.28)* H5 supportedScope of cooperation analysis ) relationshipsatisfaction 0.25 (2.51)* H6 supported

Goodness-of-fit statisticsx 2ð1Þ ¼ 0:19; p ¼ 0:66

NFI ¼ 1:00; NNFI ¼ 1:09CFI ¼ 1:00; RMSEA ¼ 0:00AOSR ¼ 0:01

Split group moderator test a

No collaborative historyTop management attitude towards alliances)scopeof cooperation analysis 0.22 (1.39)

Yes collaborative historyTop management attitude towardsalliances ) scope of cooperation analysis 20.45 (22.41)* H2 not supported

Notes: a The parameter estimates are standardised coefficients, whilst the t-statistic for each estimateis in parentheses; *p , 0:05; **p , 0:01

Table III.Structural equation

model results

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model of the behavioural process linking ex ante ISA creation phases to ex postrelationship development. The study results suggest a venturing firm’s ongoinginvestment efforts and relationship satisfaction are shaped by two formative forces:top management general attitude towards alliances, reflecting the strength of theinitiating force behind the ISA investment; and scope of cooperation analysis, which isan integral constituent of ISA investigative extent.

Unlike prior research that has concentrated on identifying determinants of ISA taskperformance, we investigate the development of relationship satisfaction. From aninterorganizational exchange perspective, this construct is the fundamentalconsequence of business partnerships (Anderson and Narus, 1990). Collectively, ourresults draw a picture of the occurrence of satisfactory ISA relationships, with thehypothesized structural paths explaining over half (52.7 per cent) of the observedvariance in relationship satisfaction. Aharoni’s (1966) theory of a foreign investmentdecision process is thus capable of providing rich insights into ISA strategymanagement. This conceptual approach constitutes a potent antidote to otherperspectives that neglect the mindset of alliance decision makers and, with it,behavioural and processual axioms of ISA management.

As opposed to the tradition in the field, we identify and study the interplay amongstformative forces in ISA dealings. We predicted (H1) a positive relationship betweenparent firm top management attitude towards alliances and scope of cooperationanalysis, reasoning that alliance investigators would try to avoid friction with topmanagement policies and intent. We also theorized (H2) that this parental pressure fora thorough investigation of partner cooperative potential lessens where the two sideshave already established a working relationship, due to reduced uncertainty in thedecision process. However, our results indicate a trivial positive linkage betweenattitude towards alliances and scope of cooperation analysis, which not only decreaseswhere collaborative history exists, but becomes a significant negative causal path. Inan effort to understand these findings we conducted some post-study interviews withexperienced alliance managers.

We originally asserted that investigators try to avoid friction with top managementattitudes and intent by increasing the scope of cooperation-related partner selectionfactors used. The absence of this effect in the “no” collaborative history group maystem from an opposing influence, that alliance investigators no longer need tofastidiously vet partners to reassure the parent firm’s senior management when it is awilling and confident collaborator. Indeed, the more positive the parent firm is aboutISA use, the more it will understand the importance of having long-term strategicpartners. According to Aharoni (1966), the initiating force behind the investment (i.e.parent top management attitude towards alliances) serves to push the organizationalong the investment path. If the parent firm has previously collaborated with thepartner, there will be pressure to go with this existing co-collaborator for the focal ISAventure and advance quickly through the partner selection phase to consummate thepartnership. Owing to the presence of close ties between the two top managementteams, any remaining diversity would be seen as surmountable or even indicative ofthe two sides’ longer-term need for each other. Hence, in the “yes” collaborative historygroup, positive attitude towards alliances has engendered a significantly lessexhaustive partner cooperation analysis. This moderating effect provides a little moredepth to our understanding of the ISA establishment process.

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Although business practitioners are well aware that companies which oftenemploy ISA arrangements tend to be more successful with their collaborations,available evidence has attributed this to positive experience effects (Sim and Ali,1998). Our results suggest a slightly different explanation: collaborating firms whosetop management have a positive general attitude towards shared businesses aresignificantly more likely to be satisfied with such businesses. Furthermore, strengthof the corporate initiating force behind the ISA investment may constitute, dependingon the existence of collaborative history, the first link in a chain of socially embeddeddecisions within the ISA investment process (Aharoni, 1966). However, it is unclearwhether the decision process leading eventually to ISA success actually begins withparent senior management attitude, or this is itself an effect of increasing allianceexperience and competence. Future research featuring the relationship betweenparent firm top management attitude towards alliances and alliance experience couldshed important additional light on the complex interplay amongst ex ante formativeissues.

It is critical managers understand that where the focal ISA arrangement is buildingupon an existing relational base, parent firm top management attitude towardsalliances creates pressure to reduce the scope of cooperation-related partner selectioncriteria utilized. Our results suggest that care and attention during this investigationphase is crucial for progressing along the alliance investment path. When decidingwhether to commit further resources to an existing alliance business, parent companydecision makers draw on their stock of knowledge concerning the presence, andreduction through partner selection, of relational uncertainties. Furthermore, the act ofleveraging the partner selection process to ensure a smooth working relationship is animportant source of ISA relationship satisfaction. Still, the results imply thatwillingness to invest is the most significant precursor of relationship satisfaction.Firms contemplating forging a new alliance arrangement should be cognisant of thefact that essentially they are embarking on a demanding investment process.Successful ISA relationships are built over time.

The contributions of this study must be viewed in light of several limitations. First,cross-sectional rather than longitudinal research methods were employed, in spite ofthe fact that the subject of this study is the alliance process. We were thus unable tocapture the dynamic relationships amongst the constructs in our process model anddraw causal inferences. It is important that future research efforts strive to collect dataat different points in time reflecting different stages of the ISA investment process,despite the difficulties associated with conducting such research. All the same, ourconceptualization of the present set of constructs incorporates a rudimentary timedimension, namely factors concerning ex ante creation and ex post maintenance of theISA; though admittedly, the two ex post constructs could occur at any time relative toeach other[6]. The ordering of the variables in our model reflects the likely chain ofevents from the nascence of an ISA strategy (Siguaw et al., 1998).

Second, gathering cross-sectional data from key informants for independent anddependent constructs creates the potential for common method variance to be anexplanation for the interrelationships observed amongst the study constructs. It is,however, possible to somewhat assess the presence of this concern using Harman’ssingle-factor test. Accordingly, the study variables were entered into a principlecomponents factor analysis and the results of the unrotated factor solution observed

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(Luo and Tan, 2003). The presence of seven factors with eigenvalues greater than oneand the fact that the first factor only accounted for 26.3 per cent of the variance,suggests there is no serious problem with common method bias (Lane et al., 2001). Themoderate sample size ðn ¼ 94Þ constitutes a third limitation of this study. However,one should be aware of the difficulty of acquiring responses from senior managersknowledgeable about partner selection, management issues, and performanceoutcomes for surviving ISAs.

Owing to the complexity of SEM methods, sound theoretical foundations for theconceptual model and rigorous conceptualisation of the focal variables are imperative(Fornell et al., 1990). Significantly, this paper reports a theoretically anchored study ofactual alliance behaviours based on Aharoni’s (1966) eminent work. However, we didnot transplant Aharoni’s (1966) broad-based framework of the foreign investmentdecision process into the ISA context without modification, and this potentiallyconstitutes a fourth limitation of this study. Aharoni (1966) defined force of initiationand scope of investigation as consisting of various sub-forces and, hence, our proxiesfor these variables are somewhat narrow. Although the present approach did receivesupport in the pre-study interviews with managers knowledgeable about ISAs, thesurprising finding that there was no direct association between the two suggests itmay prove fruitful for further research work to adopt a broader conceptualization ofthese variables. As regards initiatory force, for instance, one might refer to Ring’s(2000) concept of an alliance champion, denoting a highly influential parent firmmanager who engineers the development of the proposed investment idea and gets itheard by the people that matter.

Notes

1. We use the terms ex ante and ex post in reference to the establishment of the particular ISAbusiness venture, the unit of analysis in this study.

2. This sample far exceeds those generated in most other studies investigating specific alliancepartner selection decisions; even Geringer’s (1991) seminal work on the topic was based onjust 81 cases. Moreover, to enhance confidence in the present key informant approach, a posthoc check on respondent competency on the basis of the aforementioned attributes (i.e.knowledge, involvement, and confidence) was employed during the interviews. No problemssurfaced regarding any of the respondents, and the mean composite rating for informantquality was 6.45 (on a seven-point scale).

3. Although cross-border joint ventures and cooperative agreements both constitute “realinternational commitments” (Yip et al., 2000, p. 10), it is necessary to address contention thatform of alliance governance structure impacts the foreign investment decision process. Tothis end, we checked for disparity in the mean scores for these two groups on each of thestudy constructs, in order to assess whether a dummy variable should be included in thestructural model (Steensma and Lyles, 2000). No significant differences (at p , 0:05) wereobserved.

4. Notwithstanding this, the possibility of memory decay causing bias in the data wasinvestigated. We conducted a MANOVA procedure, with the partner selection criteria beingthe dependent variables, to compare responses for older (four years or more) and newer (twoyears or less) alliances. Univariate F-tests and multivariate test statistics indicated nostatistically significant differences between the two groups, enhancing confidence thattime-dependent forgetting effects had not caused significant bias.

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5. Because of space limits, we do not include the results of this analysis here. They can befurnished on request.

6. Reversing the willingness to invest-relationship satisfaction path (H4) in the hypothesizedmodel, we estimated a rival model in which willingness to invest was the ultimate dependentvariable. The fit statistics of the rival model (e.g. x 2

ð1Þ ¼ 2:59; p ¼ 0:11; NNFI ¼ 0:81;RMSEA ¼ 0:13) were inferior to those of the hypothesized model, providing additionalsupport for H4.

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Appendix

Attitude towards alliances a ¼ 0:90a

(Six-item, seven-point scale anchored by 1¼“Collaboration Much Worse”,4 ¼ “About the Same”, and 7 ¼ “Collaboration Much Better”)

1. Making profits2. Increasing business volume3. Increasing market share4. Increasing competitiveness5. Strategic value added

Scope of cooperation analysis a ¼ N/A(Twelve item, seven-point scale anchored by 1 ¼ “Not Important”,4 ¼ “Neither”, and 7 ¼ “Very Important”)

1. Partner’s acceptance of, or agreement with your ideas for the alliance2. Trust between the two top management teams3. Favourable past association with the partner4. Partner’s reputation5. Partner’s strong commitment to the proposed alliance6. Compatible top management teams7. Partner’s previous alliance experience8. Similarity of the partner’s national or corporate culture9. Similarity of the partner’s size or corporate structure

10. Compatibility of the partner’s goals for the alliance11. Complementarity of the partner’s capabilities12. Likelihood of a favourable flow of special skills learnt

Willingness to invest a ¼ 0:88(Four-item, seven-point scale anchored by 1 ¼ “Strongly disagree” and7 ¼ “Strongly agree”)

1. My firm is willing to put more effort and investment into building thisbusiness venture

2. My firm would be willing to make further investments if the alliancerequested it

3. My firm will dedicate whatever people and resources it takes to strengthenthe alliance

4. My firm is not willing to make significant future investments in this alliance(Reversed)

5. In the future, my firm will work hard to link itself to the partner for thealliance’s purposesb

Relationship satisfaction a ¼ 0:95(Four-item, seven-point scale anchored by 1¼“Strongly disagree” and7 ¼ “Strongly agree”)

1. Generally, my firm is very satisfied with its overall relationship with thispartner

2. Overall, my firm’s relationship with this partner is very cooperative3. My firm believes that this interfirm relationship is ideal4. The relationship of my firm with this partner has been an unhappy one

(Reversed)5. This is one of the best interfirm relationships that my firm has ever

experiencedb

Notes: aa=Cronbach’s Alpha scale reliability values; N/A implies formative construct; bitem droppedduring scale purification procedures

Table AI.Questionnaire items

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