When companies decide to engage in technology transfer through exclusive licensing to other firms, they have two basic options: to use standard licensing contracts or to set-up more elaborate partnership-embedded licensing agreements. We find that broader partnership-embedded licensing agreements are preferred with higher levels of technological sophistication of industries, with greater perceived effectiveness of secrecy as a means of appropriability, and when licensors are smaller than their licensees. Innovative differential between companies, innovative supremacy of the licensor and market and technological overlap between partners appear to have no effect on the preference for a particular form of licensing.

This research studies the effect of specific institutional and distance cost issues, in particular the protection of intellectual property rights and geographic distance, on the preference of companies for different governance modalities in terms of the degree of their involvement in international relational‐based technology alliances. In the sample, all technology alliances contain exclusive technology agreements. We find that international differences in intellectual property rights protection regimes between the home countries of partnering companies are a significant factor: the larger the difference, the more likely that partnering companies prefer to form an equity relational‐based technology alliance with substantial inter‐partner involvement. The degree of geographic distance between partners also affects the preference of companies for a particular form of relational‐based agreement. Companies prefer to engage in deeper inter‐partner involvement, albeit of a non‐equity nature, in case of large geographic distance between the home countries of the partnering companies.