Alliance Portfolio Complexity, Market Entry Timing, and Alliance Formation in the Global Airline Industry

Abstract

Recent studies suggest that the average number of alliances per firm has increased over the years, and their scope extends to various stages of the value chain. As firms face greater challenges coordinating multiple simultaneous alliances across various value chains and functions, this new phenomenon has encouraged scholars and practitioners to shift their attention to understanding the strategic complexity and the impact of alliance portfolios. Possessing an alliance portfolio is an inevitable consequence for all firms because it naturally occurs when managing a set of multiple alliances. Investigating the continuous evolution of an alliance portfolio is very important to better understand alliance dynamics because it heavily influences firms value creation activities through its functional focus, the depth of collaboration, the mode of governance, partner selection, and so on. These influences of an alliance portfolio may critically affect future decisions regarding whether a specific firm should add an additional alliance or terminate an existing alliance. This approach calls for attention from scholars to further examine existing alliances as a structural portfolio of interlinkages rather than simply counting the total number of alliances. Nevertheless, most of the prior research on alliances has not paid sufficient attention to the fact that firms in fact evaluate the value of their new alliances based on the continuously evolving context of their alliance portfolios. Contrary to the traditional alliance research, the alliance portfolio-based view considers multiple existing alliances not as a simple set of aggregated individual alliances and but as an evolving portfolio of inter-related relationships. Therefore, alliance portfolio approach goes beyond the single-alliance evaluation approach and can explain why firms decide to form less efficient alliances or give up certain beneficial alliances to maximize the overall gains from their existing alliance portfolios. Particularly when adding volume and diversity to their existing alliance portfolio, firms are challenged to address the unintentional consequences of a state of increased complexity associated with alliance portfolio management. It is important for firms to understand the level of complexity at which firms can maximize the overall gains of their alliance portfolios. The main objective of this study is to advance the alliance literature by developing a new theoretical concept as well as a construct measurement for alliance portfolio complexity. The first study investigates the various theoretical drivers of alliance formation to extend the existing literature on alliance formation, with special attention paid to the moderating effect of alliance portfolio complexity and alliance termination. I show how the bounded pattern of alliance formation can be stronger when the focal firms alliance portfolio complexity is low or its alliance termination experience is high. The second study advances international alliance formation and alliance portfolio research by highlighting the role of alliance portfolio complexity and order-of-entry learning effects in international alliance formation. This study sheds light on the various theoretical drivers of alliance formation to extend the existing literature on alliance formation, with special attention paid to order-of-entry learning effects in increasing the benefits and mitigating the costs of alliance portfolio complexity. The results show that early entry order learning exists for direct international alliance experience in both local and global markets. However, indirect entry order learning effects of international operations are limited to only the local market. The implications of this research are substantive with regard to predicting what alliances firms will form and what benefits and costs their cooperative strategies entail.