Strategic Alliances and the Small Technology-Based Firm

STRATEGIC ALLIANCES AND THE SMALL TECHNOLOGY-BASED FIRM The changing nature of business as reflected in such factors as increased competition, both national and international, the increasing internationalization of markets, and new global competitors has meant that firms both large and small have had to develop new strategies to react to these changes. For small technology-based firms (STBFs) changes in the environment in the form of shortened product life cycles, the more rapid diffusion of new technology, and the increasingly multidisciplinary nature of new technology have added to these challenges. These latter factors are of paramount importance to STBFs as more often than not their technology is their principal competitive weapon. It is now well recognized by managers that technology should be used as a competitive weapon and as such be an explicit part of the firm's overall strategy (Porter 1985, Frohman 1982). It has been posited that technological change is one of the principal drivers of competition and that it can play a role in changing industry structure, creating new industries, and eliminating others. Indeed for some firms technology may be their dominant competitive variable (Alster 1986), though its role can vary over each product's technological life cycle (TLC). Firms in emerging high technology industries are usually faced with unfamiliar products and/or processes and a new set of vendors. Neither the organization nor the environment is yet structured and a certain amount of instability and chaos exists in both, thus making the strategic management of a firm in such an industry a difficult task (MacDonald 1985). The STBF is often characterized as having a disproportionate number of scientists and/or engineers with bright ideas and strong innovative ability to produce new products, but possibly lacking the necessary business acumen or resources to commercialize them. The skills needed to bring a product to market always include marketing, distribution, and selling skills, but for some products/processes other skills are also required. For instance, in the new biotechnology industry it is essential for many firms to acquire scaleup, manufacturing, clinical testing, and regulatory approval skills in order to commercialize their products. The STBF cannot compete by using economies of scale, for both its size and rapid technological change can invalidate this option. Thus the development of innovative new products or processes is the firm's key competitive weapon. The development of product/process expertise can increase the innovative capacity of the firm and pose a barrier to new entrants, but in the increasingly competitive high technology world, where new technology is rapidly diffused, the company must develop other strategies whereby it can exploit and sustain its technological leadership. More and more, small high technology firms are using innovative developmental strategies to do this. STRATEGIC ALLIANCES One such strategy is the use of strategic alliances (SAs) or collaborative arrangements as an explicit part of the firm's development plan. A recent study of small biotechnology firms that use SAs found that for most such firms, SAs were a part of their long-term strategy (Forrest, unpublished study). A variety of terms have been used to describe the relationships which exist between two organizations when they collaborate for strategic reasons. The terms "strategic alliances," "strategic partnerships," "collaborative arrangements," "co-operative agreements," or "coalitions" can be found throughout the literature (Porter and Fuller 1986, Mariti and Smiley 1983, Harrigan 1985, Adler 1966, Varadarajan and Rajaratnam 1986) and have often been used interchangeably. One analysis (Forrest and Martin 1988) of the various ways that firms can link up with other organizations for strategic reasons has identified a range of different types of SAs which are summarized and defined in table 1. …