Solving the Ally-Versus-Acquire Dilemma Through the Dual Lenses of Subjective and Objective Views

Abstract

Nowadays many firms seek hard-to-imitate assets via allying with or acquiring other firms that own desired resources. As such, how to choose between alliances and acquisitions becomes a critical decision, and one important determinant is interfirm factors. This study probes three crucial yet underexplored interfirm differences, and develops scales to capture managers’ perceptions of the differences that, based on managerial cognition literature, dictate the ally-versus-acquire choice. Further, we argue that managers adjust their judgement across varying objective conditions. Each perceived difference is thus paired with a moderator identified respectively from the resource-based view, competitive dynamics, and collaborative capability literature. Evidences on Taiwanese firms show that a larger resource-deployment difference enhances acquisition likelihood, while greater differences in marketing praxis and human resource management increase alliance formation. Moreover, the resource-deployment difference leads to alliances for relatively younger partners, and the difference in human resource management favors acquisitions when focal firms have more interfirm governance experience.

Build, buy, or partner? A systematic literature review on the choice between alternative modes of growth

“…Some antecedents, particularly the decision-making entity, are not systematically examined in prior research. This finding is surprising given that managerial diagnoses and interpretations considerably impact strategic choices (Ginsberg 1994;Tseng 2017). The rare but noteworthy examples in this direction are Drogendijk and Slangen (2006), Datta (2002, 2006), and Yiu and Makino (2002).…”

“…The second category of internal factors relates to the decision-making entity, that is, the team or individual that ultimately makes the growth mode decision. As managerial cognition literature suggests, strategic choices are determined by top executives' cognitive diagnoses and interpretations (Ginsberg 1994;Tseng 2017). Hence, it is all the more surprising that only six percent of all reviewed papers account for personal or TMT-related factors.…”

“…As partnerships are efficient vehicles for reducing such information asymmetries, firms tend to prefer alliances over acquisitions if the dissimilarity is high. Conversely, based on synergy considerations, a higher level of similarity increases value-creating opportunities and hence, the propensity toward acquisitions (Villalonga and McGahan 2005;Tseng 2017). Dissimilarity, especially regarding the compatibility of strategic intentions, nurtures behavioral uncertainty and the perception of opportunistic threats (Brouthers et al 2008).…”

“…Moreover, some antecedents are approached from various conceptual angles, which greatly nuanced our understanding of their effects. The role of firm resources, for instance, is investigated using the resource-based view (Tseng 2017), transaction cost economics (Brouthers 2002), organizational learning theory (Barkema and Vermeulen 1998), and real option theory (Tong and Li 2011), among many others. Other antecedents (e.g., socio-cultural factors) are treated in a narrower way and mainly leverage transaction cost or institutional theory, which led to rather monothematic results.…”

“…Hence, it is crucial to understand when to choose one mode over another (Bradley and Gannon 2000;Chang and Rosenzweig 2001). This "build, buy, or partner" choice is considered an essential dimension of corporate strategy (Canals 2001) and requires the careful consideration of each mode's characteristics and constraints (Yip 1982), advantages and disadvantages (Tseng 2017), and performance implications (Li 1995).…”