International Strategic Alliance (ISA) Capability, Its Antecedents and Outcomes: A Conceptual Framework

Mag. Barbara Wieshofer

Institute for International Marketing and ManagementVienna University of Economics and Business AdministrationAugasse 2-61090 ViennaAustria

ABSTRACTAn ever growing number of companies are entering into international strategic alliances (ISAs) due to fundamental changes in the international business environment. Generally, al-liances are seen as a viable means for creating competitive advantage. Yet, staggering alli -ance failure rates of up to 60% show that alliance success is not easily achievable. Espe-cially in cross-cultural settings, there is a high risk of failure due to cultural differences and consequential misunderstandings. With the rise of the resource-based and dynamic capabil-ities view, the concept of alliance capability as key driver of alliance performance emerged. Research on alliance capability, however, is fragmented and neglects culture-related aspects in ISAs. Furthermore, a model that integrates capability learning mechanisms that go bey-ond alliance experience and accounts for the multi-dimensionality of the alliance capability construct is so far missing. This study attempts to fill these gaps by developing a frame-work of ISA capability that integrates the culture-related aspect of ISAs, looks at the learn -ing mechanisms that lead to capability development and relates the construct to ISA per-formance. Thus, it delivers a starting point for empirical investigation of such an organiza-tional capability.

KEYWORDSInternational strategic alliances, alliance capability, culture distance, alliance performance

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Introduction

During the past decades the international business environment has been subject to fundamental changes. Globalization and the increasing challenges in competition and technology require more flexible organization forms, which emphasize part-nerships between firms (Webster 1992). Thus, an ever growing number of com-panies are entering into strategic alliances (Hamel et al. 1989, Kauser and Shaw 2004b). Inter-firm collaboration now belongs to the business reality of today’s “network era” (Möller and Halinen 1999) and it has become difficult to stay com-petitive without allying with other companies (Ohmae 1989, Webster 1992). This is also underpinned by a comment of Jack Welch, former CEO of General Elec-tric, who stated,

“Alliances are a big part of the game [of global competition] … They are critical to win on a global basis. … The least attractive way to try to win on a global basis is to think you can take on the world all by yourself” (Speech at Harvard Business School, October 28, 1987 in Yoshino & Rangan (1995, p. 3)).

A study of Booz, Allen and Hamilton affirms the importance of strategic alli -ances as a competitive tool by showing that more than 20% of revenues generated from the top 2,000 U.S. companies come from strategic alliances (Harbison et al. 2000). The notion that alliances create value (Anand and Khanna 2000, Chan et al. 1997) and that they are a viable means to achieve competitive advantage (Day 1995, Ireland et al. 2002, Varadarajan and Cunningham 1995) seems to be suppor-ted by these findings.

At the same time, however, other studies report alliance failure rates as high as 30–60%. Reasons for failure are manifold (see Duysters et al. 1999 for an over-view of failure rates and reasons for failure). Naturally, this has aroused the in-terest of both practitioners and academics. Gulati (1998, p. 309) even calls the problem of understanding the factors that influence alliance performance “one of the most interesting and also one of the most vexing questions” on the research agenda. Consequently, a growing body of research deals with alliance perform-ance and its drivers. Yet the unit of analysis has generally been the relationship between the alliance partners. The fact that some firms, independent of their alli-ance partners, are more successful in managing alliances than others has been neg-lected to a large extent (Schreiner 2004).

However, with the rise of the resource-based view and dynamic capabilities view, the idea emerged that the “ability for finding, developing, and managing al-liances” (Lambe et al. 2002, p. 142) could be a distinctive organizational capabil-ity itself (Dyer and Singh 1998, Eisenhardt and Martin 2000, Lorenzoni and Lip-parini 1999, Madhok 2002). An increasing number of scholars now address the is-sue of alliance capability and its impact on alliance success (e.g. Anand and Khanna 2000, Duysters and Heimeriks 2002, Kale et al. 2002, Lambe et al. 2002,

ISA Capability, Its Antecedents and Outcomes: A Conceptual Framework      3

Ritter and Gemünden 2003, Simonin 1997). Nevertheless, the concept remains rather vague, and there is no agreement on what elements exactly constitute such a capability (Draulans et al. 2003, Gulati 1998, Kale et al. 2002).

In addition, the scope of the studies investigating alliance capability usually re-mains within national borders and does not account for culture-related aspects that are essential in an international setting. ISAs bring together partners from different national origins, with often sharp differences in the collaborating firms’ cultural and political backgrounds. The diversity in firm specific characteristics tied to each firm’s national heritage can severely impede the ability of companies to work jointly and effectively (Parkhe 1991). Although the ability to manage ISAs with their increased complexity stemming from differences in national and organiza-tional cultures is of great interest to researchers and managers, it has not been suf-ficiently conceptualized yet.

Apart from the general impact ISA capability may have on ISA performance, it could also act as a moderator between culture distance and performance. A relat-ively large number of studies attempt to explore the relationship between culture distance and alliance performance (e.g. Glaister and Buckley 1999, Pothukuchi et al. 2002, Saxton 1997). They get mixed results. Some support the notion that cul-ture distance has a negative effect on performance, whereas others show no or even a beneficial effect which points to a potential moderating variable. Different capabilities in managing these relationships might be a reason for this discrepancy.

Finally, while some studies focus on learning mechanisms leading to the devel-opment of alliance capability (Anand and Khanna 2000, Johnson and Sohi 2003, Kale et al. 2002, Lorenzoni and Lipparini 1999) and others on the alliance capabil-ity construct and its dimensions (Lambe et al. 2002, Ritter 1998, Ritter and Gemünden 2003, Schreiner 2004), a model that integrates capability learning mechanisms that go beyond alliance experience and accounts for the multi-dimen-sionality of the alliance capability construct is so far missing.

Consequently, four questions arise: (1) Which elements constitute an interna-tional strategic alliance capability? (2) Which mechanisms lead to the develop-ment of such a capability? (3) How is the construct of ISA capability related to ISA performance? and (4) In which way does ISA capability moderate the impact of culture distance on performance? The purpose of this article is to answer these questions by developing a conceptual framework which is anchored in the literat-ure on dynamic capabilities and the resource-based view and accounts for cultural and learning aspects as well as performance issues.

The paper is divided into three sections. After a theoretical background section, the ISA capability framework is presented and propositions with regard to the re-lations between learning mechanisms, ISA capability and performance are de-veloped. The article closes with a discussion of theoretical and practical implica-tions and ideas for future research.

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Theoretical background

Before establishing a conceptual framework of ISA capability, the concept intro-duced in this paper needs to be defined and anchored in the relevant literature. Therefore, this section comprises a short note on terminology and a review of the resource-based and dynamic capabilities views as well as of past research on alli-ance capabilities, which form the theoretical base of the ISA capability concept.

A note on terminology

Although the literature on strategic alliances is abundant, there is still no agree-ment on their exact definition. Therefore it is important at the outset to define the terminology used in this paper. Strategic alliances can be defined as “inter-firm cooperative arrangements aimed at pursuing mutual strategic objectives” (Das and Teng 2003, p. 280). They are a manifestation of inter-organizational cooperative strategies and involve the pooling of skills and resources by the alliance partners in order to achieve one or more mutual goals (Varadarajan and Cunningham 1995). Popular forms of strategic alliances are joint ventures, direct equity invest-ments, research and development (R&D) agreements, research consortia, joint-marketing agreements, buyer-supplier relationships, etc. (Das and Teng 2000b). They can be structured either as distinct corporate entity (equity joint ventures) or as a distinct inter-organizational entity (non-equity venture, contractual alliance) (Varadarajan and Cunningham 1995). The conceptual framework in this article does not refer to a specific type of alliance.

Furthermore, strategic alliances can either be national or international depend-ing on their geographic scope or the national identity of the alliance partner (Varadarajan and Cunningham 1995). Parkhe (1991, p. 581) defines ISAs as “rel-atively enduring inter-firm cooperative arrangements, involving cross-border flows and linkages that utilize resources and/or governance structures from autonomous organizations headquartered in two or more countries, for the joint accomplishment of individual goals linked to the corporate mission of each spon-soring firm.” Hereby he clearly differentiates ISAs from single-transaction market relationships and unrelated diversification moves, while taking into account the multiplicity of strategic motives and organizational forms of international partner-ships (Parkhe 1991).

This paper explicitly focuses on international strategic alliance capability. Ex-tending Lambe et al.’s (2002) definition of alliance capability to an international context, I define ISA capability as follows:

ISA capability is the ability for effectively finding, developing and man-aging ISAs.

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“Effectively” makes clear that this capability has a performance aspect. “Find-ing” refers to the process of screening potential partners and “making the deal”. “Developing” refers to the implementation phase and “managing” to all activities involved with the ongoing process of managing, coordinating, restructuring and terminating the alliance. From this definition it follows that ISA capability is im-portant across all phases of the ISA life-cycle.

Resource-based view

The resource-based view is one of the main theories used for explaining the role of strategic alliances as a source of competitive advantage. Moreover, it delivers an important base for understanding the effective management of alliances (Eisen-hardt and Schoonhoven 1996, Ireland et al. 2002). Thus together with the dynamic capabilities view it builds the foundation of the concept of ISA capability.

In contrast to the competitive forces approach pioneered by Porter (1980) which focused on industry structure and strategic positioning within that structure as the determinants of competitive advantage, the resource-based view puts em-phasis on the internal organization of firms (Eisenhardt and Martin 2000, Teece et al. 1997). One of the main features of the resource-based view is that it conceptu-alizes firms as bundles of resources that are heterogeneously distributed across firms and assumes that this heterogeneity persists over time (Amit and Schoe-maker 1993, Helfat and Peteraf 2003, Penrose 1959, Peteraf 1993, Wernerfelt 1984).

According to Barney (1991, p. 101) firm resources comprise “all assets, capab-ilities, organizational processes, firm attributes, information, knowledge, etc. con-trolled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness”. It is assumed that for sustaining compet-itive advantage over time, resources and capabilities must be valuable, rare, inim-itable and nonsubstitutable (Barney 1991, Mahoney 1995, Peteraf 1993, Werner-felt 1984). Having a sustained competitive advantage means that a firm “is imple-menting a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy.” (Barney 1991, p. 102, italics in the original). Thus the term “sustained” is not tied to a specific period of calendar time, but means that it will not be endangered by duplication efforts of other firms. Unanticipated changes in the economic structure of an industry, might very well undermine this advantage and make it no longer valuable to the firm (Barney 1991).

Dynamic Capabilities View

On the foundations of the resource-based perspective, the dynamic capabilities view has been developed (Eisenhardt and Martin 2000, Teece et al. 1997, Winter

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2003, Zollo and Winter 2002). It extends the resource-based view by explaining why some firms achieve competitive advantage in fast changing environments with rapid and unpredictable change which, as stated above, can destroy the value of former advantages (Eisenhardt and Martin 2000, Teece et al. 1997). The dy-namic capabilities perspective introduces the concept of “dynamic capabilities” as the source of sustained competitive advantage. Dynamic capabilities are defined as those capabilities by which firm managers “integrate, build and reconfigure in-ternal and external competencies to address rapidly changing environments” (Teece et al., 1997, p. 516),. This definition already accounts for external compet-encies such as in the case of alliances.

“Alliancing” is therefore seen as one possible manifestation of a dynamic cap-ability (Eisenhardt and Martin 2000, Powell et al. 1996, Zollo and Winter 2002). Zollo and Winter (2002) present as example for a dynamic capability the case of an organization that develops from its initial experiences with acquisitions or joint ventures a process to manage such projects in a relatively predictable and system-atic manner. Considering that, from a resource-based perspective, the motivation to form strategic alliances is gaining access to new resources (Das and Teng 2000a, Madhok 1997), it becomes clear that effectively managing strategic alli-ances can help firms to survive in turbulent environments in various ways. For ex-ample, it has been argued that collaborations can spur organizational learning, thus helping firms to recognize dysfunctional routines, and preventing strategic blind-spots (Teece et al. 1997).

While originally scholars argued that dynamic capabilities themselves are a source of sustainable competitive advantage (e.g. Teece et al. 1997), this has been challenged as the field progressed (Eisenhardt and Martin 2000). It seems that dy-namic capabilities have greater equifinality, homogeneity, substitutability and fun-gibility across firms than traditionally assumed in resource-based view. Con-sequently, they are not likely to be the source of sustainable competitive advant-age but rather their value for competitive advantage lies in the resource configura-tions they create. This means that commonalities across effective firms exist – something like “best practice” – even though at the beginning of capability devel-opment managers might start off from very different positions. However, effective dynamic capabilities are far from being exactly alike across firms. They differ in form and detail as long as the main commonalities are present (Eisenhardt and Martin 2000). These commonalities can be transferred across industries and firms, which in turn is a very important assumption for studying the concept of ISA cap-ability.

Past research on alliance capabilities

Having reflected on the theoretical underpinnings of alliance capabilities, it is now necessary to review past research on the concept of alliance capability. The idea of a capability responsible for the effective management of strategic alliances emerged parallel to the development of the dynamic capabilities view. Already

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Prahalad and Hamel (1990) recognized that the competence in managing interfirm collaborations can be an important determinant of accessing and internalizing new strategic assets from alliance partners. Bucklin and Sengupta (1993) suggest that partner match reflects the capability of alliance firms to cooperate and work with each other. Also Kanter (1994) asserts that being a good partner has become a key corporate asset and that the ability to create and sustain partnerships can be a so called collaborative advantage. She further adds that in successful collaborations, the relationship and not just the deal is managed.

In the same year, the seminal article of Day (1994) was published which elab-orates on the capabilities of market-driven organizations. Drawing from the chan-nel literature, he introduces the concept of “customer linking” as a distinctive cap-ability which is defined as the ability of “creating and managing close customer relationships” (Day 1994, p. 44). He notes that this capability is becoming increas-ingly important and suggests that close communication and problem solving as well as coordinating activities are among those processes and skills that must be mastered to achieve mutually satisfactory collaboration.

His subsequent work on advantageous alliances eventually anchors the ability to create and sustain fruitful cooperative arrangements in the literature on strategic alliances (Day 1995). The author refers to evidence that some firms have higher success rates than others and that this success stems from a core competency en-abling them to outperform their rivals in many aspects of alliance management. Using the well-known Corning example, Day (1995) points out that such a core competence must be learned, needs sufficient investments and thus is not easily inimitable. These articles, both conceptual, build the cornerstone of further con-ceptual and empirical studies on alliance capabilities.

Two years later, the first trend-setting empirical study by Simonin (1997) fol-lowed. From then on an increasing number of scholars conceptually and empiric-ally contributed to the field. Yet research remained scattered and the concept vaguely defined (Draulans et al. 2003, Gulati 1998, Kale et al. 2002, Schreiner 2004). This is reflected by the numerous terms used to name the construct and the various definitions provided:

Simonin (1997, p. 1151), for example, speaks of “collaborative know-how” and defines it as the “skill in identifying, negotiating, managing, monitoring, and ter-minating collaborations”. Lambe and Spekman (1997) are the first to introduce the term “alliance capabilities” but use it interchangeably with “alliance competence”. Lorenzoni and Lipparini (1999, p. 320) name the concept “relational capability” and define it as “the ability to interact and share knowledge with other compan-ies”, while Gulati (1999, p. 402) focuses on the formation of alliances with “alli -ance formation capabilities”, which are “organizational capabilities that enable firms to form alliances with greater ease.” Anand and Khanna (2000, p. 295) who also use the term “alliance capability” define it as “ability […] to create value through alliances.” and Kale et al. (2002, p. 750) suggest that “alliance capability” rests “upon how effectively the firm is able to capture, share, and disseminate the alliance management know-how associated with prior experience.” Finally,

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Lambe et al. (2002, p. 142) who use the term “alliance competence”, define the concept as “organizational ability for finding, developing, and managing alli-ances.”

Some of these studies mainly focused on the learning mechanisms that build up alliance capability (Anand and Khanna 2000, Draulans et al. 2003, Johnson and Sohi 2003, Kale et al. 2002, Kale 1999, Lorenzoni and Lipparini 1999), while oth-ers (but fewer) tried to conceptualize or investigate the dimensions of the alliance capability construct (Lambe et al. 2002, Ritter and Gemünden 2003, Schreiner 2004, Simonin 1997, Spekman et al. 2000). To my knowledge so far only Simonin (1997) has included both the learning side and the dimensions constituting alliance capability in an empirical study.

The shortlist of different definitions impressively shows that the concept is far from being clear and it seems that only one attempt to develop a comprehensive framework of alliance capability has been undertaken (Schreiner 2004). Research and concepts remain fragmented with respect to the scope of inter-organizational ties (dyad, alliance portfolios and networks) and their theoretical backgrounds (re-source-based view / dynamic capabilities view, knowledge-based view / organiza-tional learning, social network theory, etc.). The most important differences, how-ever, exist with regard to the elements constituting alliance capability.

Although so far mainly the differences between the studies have been stressed, the number of underlying commonalities is larger than one would expect from the list above. Experience, learning, coordination, communication, conflict handling, and other central elements are recurring themes and it seems that they can be gen-eralized across industries and firms (Eisenhardt and Martin 2000). Based on these commonalities which are further outlined in the conceptual framework section be-low, the ISA capability construct is developed.

Another “commonality” but one which is rather surprising, is that despite the fact that scholars are well aware of the potential adverse effect of cultural differ-ences between alliance partners on performance (e.g. Child and Yan 2003, Lyles and Salk 1996, Mjoen and Tallman 1997, Park and Ungson 1997, Parkhe 1991, 2001), the inter-cultural aspect of alliance capability has received only very lim-ited attention. Although various authors have already referred to ISA capability implicitly, the concept has not been conceptualized further. For example, Parkhe (1991) states that attempts to enhance the cumulativeness of cooperative experi-ence are already evident as in the case of General Electric the firm has created a special mechanism to efficiently handle the growth of ISAs by establishing GE In-ternational. The primary role of GE International is identifying and implementing ISAs, promoting increased international awareness within the company and to per-mit the sharing of international collaboration expertise throughout the company (Parkhe 1991). Also Lane and Beamish (1990) assume that firms can learn to co-operate on an international basis and that being a good partner heavily depends on the inter-cultural behaviour a firm shows.

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Interestingly, one of the earlier studies, namely those of Simonin (1997), in-cludes cross cultural training in the measurement scale of one of the five dimen-sions of his main construct “collaborative know-how” but does not further elabor-ate on why this factor is important. Also the scholars who followed suit in invest-igating alliance capabilities did not take up on this. Only recently Meyer (2004) has attempted to conceptualize an “inter-cultural cooperation competence”. His work, unfortunately only available in German, is an important step towards an in-tegration of culture into the concept of alliance capability. However, it neglects to a large extent the Anglo-Saxon literature on alliance capabilities and lacks import-ant aspects of alliance management such as learning from the alliance partner and general coordination issues not related to culture. Even more importantly, his ap-proach to a “inter-cultural cooperation competence” bases on the assumption that such a competence is dependent on a specific partnership and as such situation-specific (Meyer 2004). Thus, it cannot be evaluated on an individual firm level basis which contradicts the notion of “alliancing” as a firm-specific dynamic cap-ability.

Considering the growing number of ISAs and the costs involved with their fail-ure (Ireland et al. 2002), the purpose of this study is to conceptualize a framework of ISA capability that is in line with the assumptions of the resource-based view and dynamic capabilities view as well as with past research on alliance capability. At the heart of the framework is a holistic ISA capability construct. However, the model also integrates the learning mechanisms leading to the development of ISA capability, as well as its impact on performance and on the culture distance – per-formance relationship.

Conceptual Framework

After having established the theoretical base for the conceptual framework of ISA capability, this section explores the different components of the construct as de-rived from the literature, the learning mechanisms leading to the development of this capability and how it affects performance.

ISA capability – a multi-dimensional construct

Before the different dimensions of the ISA capability construct are introduced in detail, a view words on the nature of this capability: The focus of this study is on a firm level capability but organizational capabilities also involve skills residing in individuals (Spekman et al. 2000). Simonin (1997) states that collaborative know-how represents organization-wide culture and expertise that cut across depart-ments, individuals and time. In this definition are all major assumptions on alli-ance capability nicely combined, namely that this capability is important in all phases of an alliance, that it resides in the organization but also in its individuals

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and that it is not restricted to one department of the organization but permeates different parts of the organization such as top management, human resource man-agement and functional departments.

Apart from this, it has been lamented that soft or people issues in strategic alli-ances and mergers are often neglected by managers and academics or that they are treated separately from “hard” factors such as contracts and governance issues (Cartwright and Cooper 1995, Hutt et al. 2000, Kelly et al. 2002, Schreiner and Corsten 2004). However, increasing attention is being paid to the social and af-fective dimensions of inter-firm partnerships and performance (Lawler and Thye 1999, Luthans 2002) and research shows that this aspect is regarded as essentially important in the management of collaborations (Schreiner and Corsten 2004). Thus a conceptual model which accounts for both the “hard” and the “soft” issues of alliance management is needed. The multi-dimensional construct proposed here attempts to integrate both sides.

I have claimed that past research on alliance capabilities but also on determin-ants of alliance success in general show a certain set of underlying commonalities. These factors are integrated into five dimensions of ISA capability, all oriented to-wards international partnerships. According to this, I conceptualize ISA capability as consisting of the following elements: international social competence, interna-tional formation competence, international coordination & management compet-ence, international resourcing competence and international learning competence. ISA capability thus is a higher-order capability which relies on the development of subordinate competences that must be learned first (Eisenhardt and Martin 2000).

International social competence

International social competence refers to the affective and behavioural side of alliance management. Already Mohr and Nevin (1990) state that successful alli-ances build and improve a collaborative advantage by first acknowledging and then effectively managing the human aspects of their alliances. Anderson and Narus (1990) add that the real focus of managers should be on behavioral issues rather than on structural and control matters. Especially social competences such as communication and conflict handling fall into this category and, in the case of cross-border relationships, this social competence needs to be complemented with inter-cultural aspects.

Communication and conflict handling have already been recognized early as alli-ance success factors by scholars from the channel literature (Anderson and Narus 1990, Mohr and Nevin 1990). Also researchers focusing on strategic alliances and alliance capability have included both concepts (e.g. Johnson et al. 2004, Kauser and Shaw 2004a, Meyer 2004, Schreiner 2004, Sivadas and Dwyer 2000). Com-munication processes underlie most aspects of strategic alliances and are critical to alliance success (Kauser and Shaw 2004a). Ineffective communication can reduce the effectiveness of strategic alliances and lead to conflict (Jain 1987). This is even more true in the case of ISAs as the cultural and language differences com-

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plicate communication (Lane and Beamish 1990). Effective communication, in contrast, leads to trust and reduces transaction costs (Anderson and Narus 1990, Morgan and Hunt 1994).

Closely related to communication processes is conflict management. Conflict is inherent in alliances because of partner opportunism, goal divergence (Doz 1996) of course cultural differences (Kale et al. 2000). Therefore, explicit mechanisms and processes that help firms to deal with conflict should have a particularly high priority in ISAs. Traditionally, the management of conflict has been linked to formal governance mechanisms but there has been a shift towards considering a mix of contractual and organizational mechanisms (both formal and informal) more effective in managing conflict (Doz 1996, Dyer and Singh 1998). Institution-alized conflict management provides firms with a better understanding of mutual concerns and enables fast recognition of potential conflict situations (Kale et al. 2000). Together with effective communication, conflict solving mechanisms sub-stantially contribute to the success of a collaborative venture.

As already mentioned above, in an inter-cultural context communication and conflict handling becomes even more difficult and complex. Thus in ISAs a num-ber of additional elements needs to be taken into. Firms that interact effectively in a cross-cultural context rely on managers that have inter-cultural communication skills (e.g. empathy, display of respect, language skills) as well social problem-solving capabilities. Moreover, they demonstrate inter-cultural sensitivity, inter-personal competence (e.g. assertion or care-giving and emotional support), and self-monitoring capabilities (Buckley et al. 2002, Graf 2004, Meyer 2004, Schreiner 2004). All these skills are mainly derived from research on inter-cul-tural competence, a concept which can broadly be defined as abilities or character-istics that facilitate competent interaction with a person from a different national culture (Graf 2004).

While traditionally these competences have been investigated on an indi-vidual’s level, there have been first attempts to raise them on an organizational level. Schreiner (2004), for example, integrates empathy and care-giving into her multi-dimensional construct of collaborative capability and finds strong support for these “soft” factors. Also Meyer (2004) includes inter-cultural sensitivity and inter-cultural consciousness in his framework of inter-cultural cooperation com-petence.

International social competence, especially the inter-cultural aspect of this di-mension, can be improved through a number of organizational processes. Inter-cultural training is among the most cited mechanism and its effectiveness has been confirmed by empirical research (Black and Mendenhall 1990, Iyer 2002, Lane and Beamish 1990, Parkhe 1991). Also through international management rotation and ISA-oriented recruiting practices (people that will be exposed to alliances should have a certain degree of social and inter-cultural skills, experience with working with other cultures and language skills) this competence can be improved (Kanter 1994). What is important in this respect is that these processes should in-volve all management levels that are exposed to an alliance. Otherwise, the fact

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that low-rank employees may be less “cosmopolitan” than top managers and less experienced at working with people from other cultures might lead to lower per-formance (Kanter 1994).

International formation competence

There is an underlying agreement in most of the studies on alliance capabilities that the process of finding and establishing new ventures are an important determ-inant of alliance success and competitive advantage. Already in the work of Kanter (1994) four of the five major alliance phases she discovers are devoted to setting up the partnership and getting it going. In the description of the core alli-ance competence of Corning, Day (1995) includes the abilities of selecting and ne-gotiating with potential partners and abilities in carefully planning the mechanics of the alliance. Simonin (1997) refers to negotiation and partner-searching know-how, the alliance competence construct of Lambe and Spekman (1997) includes partner scanning skills, selecting and negotiating skills as well as alliance planning skills and Gulati (1999) even speaks of “alliance formation capabilities”. Finally, Lambe et al. (2002) identify partner identification propensity as important element of alliance competence and Glaister et al. (2003) see the management of the IJV formation process as one of the three major areas of learning how to manage alli-ances.

As already stated above, the key to any strategic alliance is skilful management from the initiation onwards (Johnston et al. 1999). Cultural problems often show after the deal has been made and managers are surprised by them if they do not have partner search mechanisms oriented also towards cultural issues (Kanter 1994). Thus an assessment of compatibility with national and organizational cul-ture is essential for establishing successful partnerships (Sarkar et al. 2001). An-other critical issue is setting up a suitable governance structure right from the be-ginning on. Firms traditionally tend to use majority ownership governance modes for partnerships with firms from culturally distant countries. These governance modes might, however, not be the best choice (Lane and Beamish 1990).

International coordination & management competence

Also coordination requirements of partnerships have been widely recognized by the literature on alliance capabilities (e.g. Lambe and Spekman 1997, Schreiner 2004, Sivadas and Dwyer 2000) and cooperation success (e.g. Anderson and Narus 1990, Kauser and Shaw 2004a, Mohr and Spekman 1994). Traditionally co-ordination in the strategic alliance literature has been described as the extent to which two companies are integrated within a relationship (Kauser and Shaw 2004a).

Here, coordination competence comprises coordination in the meaning of the specification and execution of roles with minimal redundancy and verification (Lambe and Spekman 1997, Sivadas and Dwyer 2000), as well as the coordination of boundary spanning activities such as project coordination, meeting structures,

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incentive systems, etc. (Schreiner 2004). Parkhe (1991) further suggests that to prevent problems of unclear lines of authority, poor communication, and slow de-cision making, ISAs could set up unitary management processes and structures, where one decision point has the authority and independence to commit both part-ners. Other authors that mention coordination as important element of alliance capability are Kale (1999), Duysters et al. (1999), Kale et al. (2001), Spekman et al. (2000), Johnson et al. (2004) and Meyer (2004).

The second component of this competence is the actual management compet-ence. It is related to coordination but refers more to management practices and tools such as alliance evaluation methods (Draulans et al. 2003, Duysters and Heimeriks 2002, Glaister et al. 2003, Simonin 1997) and the abilities in continuing reviewing the fit of the alliance (Day 1995, Lambe and Spekman 1997)

International resourcing competence

International resourcing competence refers to the alliance commitment a firm shows. The construct commitment has received much attention in the organiza-tional behavior literature as well as in the marketing channel and alliance literature (Kauser and Shaw 2004a). Commitment can be defined as an implicit pledge of relational continuity between exchange partners (Dwyer et al. 1987). The alliance partners show commitment through their willingness to adopt a long-term per-spective to the relationship (Morgan and Hunt 1994).

Scholars traditionally distinguish between resource commitment defined in terms of economic cost maintaining the partnership and affective commitment that refers to the emotional ties of the relationship (Anderson and Weitz 1992, Kauser and Shaw 2004a, Morgan and Hunt 1994, Skarmeas et al. 2002). Both types of commitment are supposed to have a positive effect on alliance outcomes. The im-portance of commitment and resource availability as part of effective alliance management has also been recognized by some scholars in the field of alliance capability (Day 1995, Duysters et al. 1999, Lambe and Spekman 1997, Ritter 1998).

Thus ISA capability includes the ability to provide sufficient resources in form of management time, employees, financial resources and space. Especially in ISAs, managers should dedicate time to communication with their counterparts. As an executive with a highly successful international corporation stated, “Com-mitment is probably the single most critical factor for successful entry into foreign markets” (Lane and Beamish 1990, p. 99). This also refers to affective commit-ment: “Good local partners have to be cherished and take care of.” (Lane and Beamish 1990, p. 100). This often requires investment in communication and travel time.

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International learning competence

Firms use alliances for a variety of reasons. One of the most important is learning in terms of accessing and acquiring critical information, know-how or capabilities from their partner (Hamel 1991, Prahalad and Hamel 1990). Yoshino and Rangan (1995) even go further and claim that fully acquiring or internalizing partner skills are always an implicit objective for every firm that uses alliances.

Learning in alliance situations can be of different kind – learning that involves accessing or internalizing partner skills, learning how to manage their existing alli-ances better and learning how to manage alliances in general (Kale et al. 2000). The latter type refers to the learning mechanisms that lead to the development of alliance capabilities and will be elaborated in the next section. The first and the second, however, are important elements of an ISA capability as they help firms to achieve competitive advantage by developing unique resource combinations. This is in line with the assumption of Eisenhardt and Martin (2000) that dynamic cap-abilities are necessary but not themselves the source of competitive advantage.

Learning from alliance partners is influenced by two main mechanisms – learn-ing intent (Hamel 1991) and receptivity (also learning capacity or absorptive capa-city) (Cohen and Levinthal 1990, Fiol and Lyles 1985, Lane et al. 2001, Lyles and Salk 1996). According to Hamel (1991) intent refers to a firm’s initial propensity to view collaboration as an opportunity to learn (desire to learn). He observed that systematic learning did only take place if the firm had a clearly communicated in-ternalization intent.

In contrast, receptivity describes a partner’s capacity for learning or “absorpt-iveness” (potential to learn). Cohen and Levinthal (1990) defined absorptive capa-city as the ability to assimilate and exploit new information as the basis for learn-ing. They suggest that an organization’s absorptive capacity develops cumulat-ively, is path dependent and builds on prior investments in its members’ individual absorptive capacity. The personal skills of the receptors influence the capacity to learn and thus training, which is related to the skills that should be acquired, is a useful tool to increase learning capacity (Lane and Lubatkin 1998). Which import-ance learning capacity and consequently learning competence can have, is em-phasized by Hamel (1991) who states that the capacity to learn may be the ulti-mate source of alliance bargaining power.

Developing ISA capability

Having explored the dimensions of ISA capability, the question arises how such a capability can be developed. Organizational capabilities cannot just be acquired on a tradable factor market (Diericks and Cool 1989) but need to be developed through organizational learning. Organizational learning refers to the process of making associations between past actions, the effectiveness of those actions and future actions (Fiol and Lyles 1985. It involves the interpretation of past experi-

ISA Capability, Its Antecedents and Outcomes: A Conceptual Framework      15

ence as a basis for present and future action (Inkpen 1995). Zollo (1998) reflects this by defining an organizational capability as outcome of the process of know-ledge accumulation and rationalization (sense making) derived from past experi-ence. A firm’s ability to transform experience into superior performance stems from its capacity to systematically internalize and routinize lessons drawn from a variety of organizational and individual experiences (Kale 1999). This makes clear that experience accumulation is a central process in the development of dynamic capabilities (Zollo and Winter 2002).

Learning from experience is path dependent – history matters – and frequency as well as diversity of experience impact the way in which this type of learning in-fluences the development of a dynamic capability (Eisenhardt and Martin 2000, Kale 1999). However, evidence shows that experience alone not always leads to capability development. High alliance failure rates indicate that collaborative know-how or capability is rarer than collaborative experience (Simonin 1997). Moreover, empirical studies found that previous partnering experience did not sig-nificantly impact collaboration success or learning (Harrigan 1988, Inkpen 1995).

This points to the fact that the accumulation of prior experience is not the only way for firms to develop dynamic capabilities (Kale et al. 2002, Zollo 1998, Zollo and Winter 2002, Zollo and Singh 2004). More deliberate learning mechanisms and processes that enable organizations to notice, interpret and manage their ex-perience such as knowledge articulation (e.g. via collective discussions, debriefing sessions and performance evaluation processes) and knowledge codification (e.g. via manuals, blueprints, spreadsheeds, etc.) play an equally vital role in capability development (Argote 1999, Eisenhardt and Martin 2000, Zollo and Winter 2002, Zollo and Singh 2004).

A conceptual framework that attempts to explain the construct of ISA capabil-ity and how this capability is developed should therefore account for the fact that capability learning goes beyond the mere accumulation of ISA experience. How-ever, only a few studies have so far systematically investigated learning mechan-isms leading to alliance capability that go beyond alliance experience (e.g. Dyer et al. 2001, Johnson and Sohi 2003, Kale 1999).

Building on the work of Zollo and Winter (2002), I therefore argue that learn-ing about alliance management occurs on the basis of prior ISA experience, ISA knowledge articulation and ISA codification. This is in line with the findings of Kale (1999) which suggest that knowledge sharing and codification have the biggest impact on alliance success. Among mechanisms for articulating and codi-fying ISA knowledge are a dedicated alliance function (Draulans et al. 2003, Kale et al. 2002, Spekman et al. 1998, Yoshino and Rangan 1995), alliance manage-ment systems and creating alliance databases (Duysters and Heimeriks 2002, Kale et al. 2001, Kale 1999) and alliance training (Draulans et al. 2003). I thus propose the following relationship:

16     Mag. Barbara Wieshofer

P1: ISA learning mechanisms (prior ISA experience, ISA articulation and ISA codification) positively influence the development of a firm-level ISA capability.

ISA capability and its impact on ISA performance

As outlined in the introduction, understanding the factors that lead to alliance suc-cess is a central issue for research and academia (Gulati 1998). Research on alli-ance capability has shown that this construct is one of the key drivers of alliance performance. Various studies hypothesized a positive relationship between alli-ance capability and alliance performance and they could prove this assumption (e.g. Duysters and Heimeriks 2002, Dyer et al. 2001, Kale 1999, Kale et al. 2001 Kale et al. 2002, Lambe et al. 2002, Ritter 1998, Simonin 1997, Sivadas and Dwyer 2000). I follow suit by proposing a positive relationship between ISA cap-ability and ISA performance:

P2: ISA capability positively influences the individual firm’s ISA perform-ance.

However, it is important to note in this context that ISA performance is a rather controversial concept. Definition and measurement are far from being clear. Some studies rely on a variety of financial indicators such as profitability, growth and cost position and objective measures such as performance such as survival, dura-tion or instability, while others use perceptual or subjective measures such as sat-isfaction with alliance performance or fulfilment of alliance goals (Ariño 2003, Geringer and Hebert 1990). As past research shows a positive relationship between “objective” and perceptual measures of firm performance (Lyles and Salk 1996), a mix of both measures seems advisable. Furthermore, as ISA capability resides within one focal firm, it makes sense to investigate the focal firm’s ISA performance.

ISA capability and the culture distance – performance relationship

Alliance management is a difficult task, the management of cross-cultural rela-tionship is even more challenging – this is the general tenor of studies focusing on cultural issues in strategic alliances (e.g. Barkema and Vermeulen 1997, Lane and Beamish 1990, Pothukuchi et al. 2002, Sirmon and Lane 2004). Culture differ-ences usually comprise differences in national and organizational culture (Glaister and Buckley 1998, Sirmon and Lane 2004). While national culture refers primar-ily to deep-seated values, organizational culture involves shared beliefs in organiz-ational practices and processes (Hofstede et al. 1990). Both culture dimensions are said to affect the performance of cross-cultural relationships.

ISA Capability, Its Antecedents and Outcomes: A Conceptual Framework      17

Research shows that, among the reasons for alliance failure, national and organ-izational culture distance have a prominent position (Duysters et al. 1999). To some scholars compatibility is even the most important factor in the endurance of a strategic alliance (Lane and Beamish 1990). The main reason for this belief is that cultural differences in ISAs create additional difficulties and challenges for managers. They must spend more time on communication, design of compatible work routines and development of common managerial approaches (Parkhe 1991). Unresolved conflicts stemming from cultural misunderstandings and language bar-riers may lead to mutual mistrust or even failure (Child and Yan 2003, Lane and Beamish 1990). Johnston et al. (1999 p. 265) note,

“[t]he key to any strategic alliance is skilful management of relations from the initiation onward. In cross-cultural alliances, however, the challenge is greater, because each party brings to the table different cultural schemata through which they interpret events.”

Moreover, partners might be more likely to behave opportunistically in a cul-turally distant context than in a domestic context, as negative consequences on their reputation may be less severe (Gulati 1995). Parkhe (1991, p. 585) puts this in a nutshell by stating that “ethnocentric arrogance (or cultural naivete) and GSAs [global strategic alliances, added by author] simply don’t mix well.” Con-sequently, considerable attention has been paid to the impact of culture on alliance stability and outcomes (e.g. Barkema and Vermeulen 1997, Glaister and Buckley 1998, 1999, Park and Ungson 1997, Parkhe 1991, Pothukuchi et al. 2002, Sarkar et al. 2001, Sirmon and Lane 2004). Some findings will be presented as they clearly show the difficult role of culture in ISAs.

Lyles and Salk (1996), for instance, report that conflicts and cultural misunder-standings due to cultural differences can minimize flows of information and learn-ing. The study of Barkema et al. (1997) supports the assumption that international joint venture longevity decreases with the cultural distance between firms. Glaister and Buckley (1998) who examine measures of performance in UK international alliances find that perceived national-culture differences affect particularly sub-jective measures of performance, while perceived organizational culture differ-ences have an effect on both subjective and objective performance measures. Fi-nally, Barkema and Vermeulen (1997) show that cultural differences have a negat-ive impact on international joint venture survival, some differences being more disruptive than others. Despite their variations in outcomes, all these studies sup-port the belief that cultural differences negatively affect alliance performance.

However, other evidence suggests that differences in culture can have also have a neutral or beneficial influence on alliance performance (Sirmon and Lane 2004). For example, Glaister and Buckley (1999) find their hypothesis that cultural dis-tance has a negative effect on alliance performance not supported. This is in line with the findings of Saxton (1997) whose results also contradict the popular notion of “culture clash”. The outcomes of his study indicate that similarities between or-ganizational characteristics, including culture and human resources, are negatively related to alliance outcomes. In addition, Park and Ungson (1997) discover that al-liances with larger culture distance have longer durations and are less likely to

18     Mag. Barbara Wieshofer

end. They argue that prior relationships between firms might offset cross cultural differences which corresponds to the suggestion of Barkema et al. (1996) that learning between partners may offset cultural differences (Park and Ungson 1997).

Thus the relationship between cultural differences and alliance performance seems to be more complex than often presumed. While cultural issues have negat-ive effects in many cases, sometimes they can be neutral or even beneficial. The question now is why some alliances benefit from cultural differences while others do not. I argue that ISA capability plays an important role in explaining this dis-crepancy and has a moderating effect on the impact of culture distance on per-formance. Firms capable of effectively managing ISAs presumably are aware of the problems that may arise from cultural differences and thus devote more effort and time to their cross-border alliances. This can lead to high-level communica-tion and more sustained collaboration (Shenkar and Zeira 1992).

With respect to organizational and national culture distance, I therefore follow the propositions of Pothukuchi et al. (2002), suggesting that a priori culture dis-tance has a negative effect on performance:

P3a: National culture distance between partners negatively influences ISA performance.

P3b: Organizational culture distance between partners negatively influ-ences ISA performance.

I add, however, the moderating effect of ISA capability on this relationship, which might explain the differences in findings with regard to the influence of culture distance on performance:

P4a: ISA capability has a moderating effect on the adverse relationship between national culture distance between alliance partners and ISA per-formance and thus decreases the negative impact of national culture dis-tance between partners.

P4b: ISA capability has a moderating effect on the adverse relationship between organizational culture distance between alliance partners and ISA performance and thus decreases the negative impact of organizational cul-ture distance between partners.

ISA Capability, Its Antecedents and Outcomes: A Conceptual Framework      19

Fig. 1. Conceptual framework of ISA capability, its antecedents and outcomes

Discussion and Conclusion

In this paper, I introduce a conceptual framework of ISA capability which integ-rates both learning mechanisms that lead to capability development as well as the relationship between ISA capability and ISA performance. Furthermore, it at-tempts to shed light on the relation between culture distance between the alliance partners and performance which has so far remained unclear. The model suggests that ISA capability has a moderating effect on this supposedly negative relation-ship.

Naturally, this framework also has certain limitations. First, various other vari-ables exist that may have an effect on performance such as prior relationship with the partner, governance mode, number of alliances, etc. The framework can thus only represent a parsimonious model that tries to explain those dimensions that are thought to explain most of the variance. However, with reference to the ISA con-struct itself which relies on the major commonalities derived from the current lit-erature, it tries to come close to what “dynamic capabilities” are. The second lim-itation is that it takes a dyadic approach to alliance management although the multi-alliance and network perspective becomes increasingly important (Gulati 1998, Hoffmann 2005). However, it might be argued that the dimensions identi-fied in this model are also valuable in a multi-alliance context.

The theoretical implications of this study are in the first place, that for the first time it conceptualizes the capability of managing international strategic alliances in a holistic way. Although inter-cultural cooperation competence has been invest-

20     Mag. Barbara Wieshofer

igated by Meyer (2004), he neglects important findings of the Anglo-Saxon literat-ure on alliance capabilities. Furthermore he does not see the construct as residing on a firm-level but rather on a partnership level which contradicts the assumptions of the resource-based and dynamic capabilities view. Thus this concept of ISA capability is the first based on the theoretic approach of the resource-based and dynamic capabilities view and on the state-of-the-art literature on alliance capabil-ities. Second, it explains both the mechanisms driving the development of ISA capability and also the underlying processes and structures that constitute such a capability. Apart from Simonin (1997), this has not yet been attempted systematic-ally. Third, it offers an explanation for the discrepancy in the findings of studies on the relationship between alliance performance and culture distance. Practical implications are that by basing the framework on the insights of Eisenhardt and Martin (2000) it becomes evident that something like “best practice” exist. Thus the model may help managers in building up ISA capability and also institutional-izing their learning mechanisms.

In a next step it is necessary to evaluate the framework in a large scale study, which will show whether the propositions developed here can be supported. Fur-thermore, research should investigate what happens if only one partner in an alli-ance is capable of managing ISAs. I would argue that one partner having ISA cap-ability can make up for this lack in know-how to a certain extent and that a one-sided ISA capability may still decrease the negative impact of cultural differences. Yet, better results could be achieved when both partners have this capability. However, it is questionable whether a firm that possesses ISA capability would at all pick a partner that has such a deficiency. It seems that if they come to the con-clusion that it is still worth entering this partnership, they would at least invest into training of the alliance partner. Digging deeper into these considerations might be worthwhile.

In any case, ISA capability remains definitely a useful concept for firms in-volved in the management of ISAs. The future will show whether more firms will carefully consider how they should manager their ISAs.

ISA Capability, Its Antecedents and Outcomes: A Conceptual Framework      21

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