How the partners in an alliance view their joint venture can have much to do with its success or failure. Do they fear that the other partner will get a larger payoff, while they operate in good faith? Or do they make seemingly counterintuitive unilateral commitments that involve acts of faith by one or both companies? Here the authors present a framework, derived from field interviews and viewed in game theory terms, for securing partners’ cooperation, managing an alliance, and ensuring its success.
1. For a discussion of the many pitfalls associated with alliances and some examples of prominent failures, see:
J.B. Levine and J.A. Byrne, “Corporate Odd Couples: Joint Ventures Are the Rage, But the Matches Often Don’t Work Out,” Business Week, 21 July 1986, pp. 100–105; and
R.B. Reich and E.D. Mankin, “Joint Ventures with Japan Give Our Future Away,” Harvard Business Review, March-April 1986, pp. 78–86.
2. Coopers & Lybrand study, reported in Levine and Byrne (1986), p. 101.
3. An equilibrium in the game theory sense is an outcome where none of the participants can do better by choosing a different action, given that their rivals’ choices are as specified in the equilibrium. Thus, in the prisoner’s dilemma example, prisoner A cannot do better than to “not cooperate,” given that prisoner B has also chosen to “not cooperate.” The same is true for prisoner B, given prisoner A’s choice.
4. For experimental approaches to the prisoner’s dilemma, see:
R. Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984).
For applications of the prisoner’s dilemma to interfirm alliances, see:
R. Johnston and P.R. Lawrence, “Beyond Vertical Integration: The Rise of Value-Added Partnerships,” Harvard Business Review, July-August 1988, pp. 94–101.
5. G. Hamel, Y. Doz, and C.K. Prahalad, “Collaborate with Your Competitors and Win,” Harvard Business Review, January-February 1989, pp. 133–139.
6. For a discussion of changes in the character of recent alliances, see:
K.J. Hladik, International Joint Ventures: An Economic Analysis of U.S. Foreign Business Partnerships (New York: Lexington Books, 1988);
D.C. Mowery, International Collaborative Ventures in U.S. Manufacturing (Cambridge, Massachusetts: Ballinger Books, 1988); and
H.V. Perlmutter and D.A. Heenan, “Cooperate to Compete Globally,” Harvard Business Review, March-April 1986, pp. 136–152.
7. For general discussions on how to manage alliances, see:
J. Main and W. Woods, “Making Global Alliances Work,” Fortune, 17 December 1990, pp. 121–126;
J.M. Geringer and L. Herbert, “Control and Performance of International Joint Ventures,” Journal of International Business Studies 19 (1988): 235–254;
R. Gulati and N. Nohria, “Mutually Assured Alliances,” Proceedings of the Academy of Management, 1992, pp. 17–21.
K.R. Harrigan, Managing for Joint Venture Success (New York: Lexington Books, 1986);
J.P. Killing, “How to Make a Global Joint Venture Work,” Harvard Business Review, May-June 1982, pp. 120–127;
Perlmutter and Heenan (1986); and
T.W. Roehl and J.F. Truitt, “Stormy Open Marriages Are Better: Evidence from U.S., Japanese, and French Cooperative Ventures in Commercial Aircraft,” Columbia Journal of World Business, Summer 1987, pp. 87–95.
8. For a summary of the McKinsey study findings, see:
J. Bleeke and D. Ernst, “The Way to Win in Cross-Border Alliances,” Harvard Business Review, November-December 1991, pp. 127–136.