control–cooperation interfaces in global strategic alliances: a … · 2020. 6. 12. ·...

Control–cooperation interfaces in global

strategic alliances: a situational typology

and strategic responses

Yadong Luo1, Oded Shenkar2

and Haresh Gurnani1

1Department of Management, School of

Business Administration, University of Miami,Coral Gables, USA; 2Department of

Management, Fisher College of Business,

The Ohio State University, Columbus, USA

Correspondence: Y Luo, Department ofManagement, School of BusinessAdministration, University of Miami,417 Jenkins Building, Coral Gables,FL 33124-9145, USA.Tel: þ1 305 284 4003;Fax: þ1 305 284 3655;E-mail: [email protected]

Received: 19 April 2005Revised: 1 September 2006Accepted: 23 August 2007Online publication date: 14 February 2008

AbstractThis article applies the dialectical logic of loose coupling to interpartner

exchanges in order to analyze the dynamics of global strategic alliances. Wedevelop a typology of control and cooperation that defines alliance states or

situations according to their level of cooperation under private and collective

control. In the private control–cooperation interplay, contending, honeymoon,and coopetition situations arise, depending on the levels of private control and

cooperation. In the collective control–cooperation interplay, the loosely

connected, the equity hostage, the tightly integrated, and the trusting statesemerge according to the levels of collective control and cooperation. We

illustrate how an individual partner strategically responds to the control–

cooperation interplay under each situation or state, and develop hypothesesexplicating how these strategic responses are influenced by relational

characteristics such as goal congruity, resource complementarity, and

bargaining asymmetry between foreign and local partners.

Journal of International Business Studies (2008) 39, 428–453.

doi:10.1057/palgrave.jibs.8400365

Keywords: control; cooperation; global strategic alliance

INTRODUCTIONA loosely coupled system is one whose components are responsiveyet maintain a separate identity and physical location (Weick,1976). The loose coupling concept has been applied to inter-organizational relations, coalitions and federations (Orton &Weick, 1990), but not to global strategic alliances (GSAs),1

although alliances display the classic characteristics of looselycoupled systems, i.e., they consist of entities that remain legallyindependent yet interact with each other across a range ofvariables. Although the various forms of GSA differ in theirlooseness (e.g., equity joint ventures are tighter than contractualagreements), each GSA is a loosely coupled system in whichinvesting parties share or exchange resources or jointly developnew assets while maintaining their respective identities andcontrol. The interface between these entities across their systemproperties is characterized by two seemingly contradictory require-ments: each must exercise control over key system components indefense of its own interests, while both need to cooperate so as notto jeopardize interests tied to common shared variables.

Journal of International Business Studies (2008) 39, 428–453& 2008 Academy of International Business All rights reserved 0047-2506 $30.00

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The requirements of control and cooperation arefundamental in GSA research. Control is theprocess by which one party influences the behaviorand output of another via power, authority, andinfluence (Geringer & Hebert, 1989). Cooperationis a Pareto-improvement process that relies onmutual forbearance and commitment in the alloca-tion and exploitation of resources such that at leastone of the parties is better off and neither is worseoff than would otherwise be the case (Buckley &Casson, 1988). The control–cooperation require-ments are especially onerous in global alliances,because geographic, cultural, and institutionaldifferences spread across partners and operationallocus (Shenkar & Zeira, 1992). Prior GSA studiescovered the importance, structure, and process ofcontrol (e.g., Beamish & Banks, 1987; Choi &Beamish, 2004; Geringer & Hebert, 1989; Killing,1983; Majoen & Tallman, 1997; Yan & Gray, 1994),and its rationale, conditions, and cooperationmechanisms (Buckley & Casson, 1988; Doz, 1996;Dyer & Singh, 1998; Gulati, 1995; Luo, 2001).Control and cooperation are often viewed astensional (Hennart, 1988; Hill, 1990), but recentstudies have called attention to their interactivecharacter (Das & Teng, 1998; Dyer & Singh, 1998).Anchored in dialectics (Orton & Weick, 1990), theloose coupling framework can address the interplaybetween the two seemingly contradictory forces ofcontrol and cooperation.

This study seeks to make a number of contribu-tions to the GSA literature. First, we introduce loosecoupling as a theoretical lens to explain thedialectic nature of alliance dynamics, and developa unifying framework that explains the complexinterface between control and cooperation. Second,we go beyond the extant acknowledgement ofcontrol (or competition)–cooperation dialectics bydecomposing control into private control (adver-sarial with cooperation) and collective control(complementary with cooperation), and develop-ing the two sets of situational typologies viewingcontrol (private and collective) and cooperation assimultaneous and interactive processes embeddedin repeated economic exchanges in a cross-nationalsetting. Along the private control–cooperationinterface, we position three alliance states: con-tending, coopetition and honeymoon. Along thecollective control–cooperation interface, we identi-fy four typological situations: loosely connected,equity hostage, tightly integrated, and trusting.Third, by outlining an individual party’s strategicresponses to various alliance states as well as

relational characteristics that serve as binary linksin the two sets of interfaces, we are able to developmanagerial ramifications of the framework. Under-standing the strategic responses to different con-trol–cooperation situations may help identify thepath for individual parties to achieve their own andjoint gains in international expansion. Similarly,incorporating relational links in the frameworkmay help unveil what alliance members fromdifferent countries will choose from multiplestrategic responses, and when.

LOOSE COUPLING AND THECONTROL–COOPERATION INTERFACE

Loose CouplingIn loosely coupled systems, elements are responsivebut retain separateness and identity (Orton &Weick, 1990; Weick, 1976). Any organizationallocation or coalition contains interdependent ele-ments varying in the number and strength of theirinterdependencies. These elements are linked, andpreserve some determinacy, but are also subject tospontaneous change and retain some indepen-dence and indeterminacy. The resulting systemis simultaneously indeterminate and rational, butalso spontaneous and deliberate (Luke, Begun, &Pointer, 1989; Orton & Weick, 1988). Looseness,arising from each party’s freedom to adjust itscommitments and maintain its identity, permitsprivate control (for unilateral gains) but requirescollective control (for common gains). Coupling,stemming from resource interdependence andjoint activities, nurtures cooperation but necessi-tates reciprocal exchange as well as collectivecontrol.2

The loose coupling concept has been applied to avariety of settings, including inter-organizationalrelations such as federations, service networks andcoalitions (Orton & Weick, 1990). While it has notyet been applied to GSAs, we believe that loosecoupling holds theory development promise byenabling the consolidation of two hitherto separateresearch streams, one highlighting control, theother cooperation. We offer that the GSA is aloosely coupled system in which coupling facil-itates cooperation and produces stability, whilelooseness allows private control and opportunism.Parkhe (1993: 796) states that ‘‘GSAs fundamentallypossess the shared feature of ongoing mutualinterdependence, a condition in which one partyis vulnerable to another whose behavior is notunder the control of the first.’’ Wathne and Heide

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(2000: 39) point out that lack of contract detail in aGSA enables one party to exploit loopholes pas-sively (by evading informal obligations) or actively(by engaging in behaviors that unilaterally improvethis party’s private gains). The GSA system is at thesame time open and indeterminate, given eachpartner’s freedom to adjust resource and commit-ments, and deliberate and closed, given contractualand non-contractual governance mechanisms. Thistranslates into simultaneous use of control (privateand collective) and cooperation, since deliberateand closed structures are executed via joint control(Provan, 1983), while openness permits ‘‘privateinterest pursuit with guile’’ (Macneil, 1981), andinterdependence in a coupled structure sticksparties to cooperate in the course of long-termexchange (Ouchi, 1980). In international alliances,control–cooperation pressures are amplified bypartner differences in national and organizationalidentity (Salk & Shenkar, 2001), governance andcontract interpretation (Shenkar & Yan, 2002),and regulatory and institutional environments(Killing, 1983).

The dialectical nature of loose coupling makes itpossible to reconcile and eventually synthesize theseemingly contradictory forces of control andcooperation. From this perspective the two coexistin a GSA, since shared variables are subject to‘‘asymmetric looseness,’’ that is, sharing entitiesface divergent and evolving pressures to tightenbased on their ability to recover their investment.Coopetitive (simultaneous cooperation and com-petition or control) behavior arises because parties’interest in shared variables will align (Brandenburger& Nalebuff, 1996). Recent alliance studies havereinforced the simultaneous pursuit of competitiveand cooperative gains (Dyer & Singh, 1998). Firmsadopt behaviors that support cooperation and trust(Das & Teng, 1998) while competing for compe-tencies generated via partnership (Hamel, 1991),which can be diffused to non-shared variables.This syncretic behavior generates positive-sum,efficiency effects of competition and cooperation(Lado, Boyd, & Hanlon, 1997). Cooperationincreases and competition declines if the perceivedratio of private to common benefits decreases(Khanna, Gulati, & Nohria, 1998). Firms achievecompetitive advantages by controlling and lever-aging their ownership-specific assets in bargainingwith partners while achieving collaborative advan-tages by leveraging strategic opportunities (Buckley& Casson, 1988). International expansion createsmore opportunities than domestic expansion for

firms to leverage their ownership-specific assetsas well as strategic opportunities (Contractor &Lorange, 1988).

In addition to pinpointing the simultaneity ofcontrol (private and collective) and cooperation,loose coupling logic also underlies the interplaybetween the two. First, collective governance is ameans to compensate for looseness and for obviat-ing opportunism but cannot entirely do away withopportunism given its limitations in monitoringunexpected long-term contingencies (Lutz, 1982;Ouchi, 1980; Provan & Skinner, 1989). Thisexplains the simultaneous existence of collectivecontrol and private control in alliances. Second,sharing resources, information, and values in theface of loose coupling is a critical source of couplingorder (de Rond & Bouchikhi, 2004; Orton & Weick,1988). In a loosely coupled situation, sharingencourages reciprocity and curbs fear of unilateralexploitation (Kaplan, 1982). This implies thatprivate control and cooperation are negativelyinterrelated as two end points of a continuum.Third, the compensatory voice in the loose cou-pling framework suggests that collective control inresources and exchange and joint commitment tointer-organizational exchanges are two compensa-tions used to influence loosely coupled organiza-tions (Gamoran & Dreeben, 1986). It is necessary toconcurrently use both because each is effective incompensating a different area of structural disper-sion (Luke et al., 1989). Loosely coupled systems aredifferentiated by varying levels of collective controland cooperation, depending on the degree oflooseness and resultant problems (Jones, Hesterly,& Borgatti, 1997). This leads us to propose a matrixconfiguration between collective control (high vslow) and cooperation (high vs low). Also, depend-ing on the position in this matrix, tactics toenhance organizational effectiveness vary (Orton& Weick, 1988).

Finally, the loose coupling view holds thatcoupling requires persistent system behavior andis achieved either actively, by having more tightlycoupled subsystems, or passively, by limitingcertain inputs’ access to the system or observingcertain rules (Glassman, 1973). In the internationalscene, each organizational subsystem is alsoembedded in a different cultural and institutionalenvironment that partially governs input accessand sets additional system rules. Thus appropriatestrategies should be used and aligned withspecific interfaces between control and coopera-tion. Weick (1982) suggests that strategic responses


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should vary to respond to required couplingtightness. This view also maintains that boundaryconditions of each loose coupling system aredetermined by shared or relational variables (e.g.,goal congruity, resource complementarity, andbargaining symmetry in the GSA setting). Theseconditions, some of which will systematically varyin a global context (e.g., between a developedcountry and a developing country partner), caninfluence the choice of strategic responses based onthe different situations of control–cooperationinterplays. Provan (1983) suggests that if a looselycoupling system is interorganizational, strategicresponses will change to configure with dyadicrelationships between the parties. We detail eachbelow.

Private and Collective ControlA distinction between private and collective controlis vital because the two coexist in all alliances buthave opposing impacts on joint gains. Privatecontrol is the process by which a party ensuresthe GSA is managed in a manner benefiting itsprivate variables, which may accrue at the expenseof the other party’s interests or joint gains.Collective control, by contrast, is purposefully andcollectively designed by both parties to guide,monitor and oversee a GSA’s operations in pursuitof maximum joint payoffs. Both private andcollective control are present in a GSA, thoughtheir vim varies since collective control cannottotally dispel private control in a loosely coupledsystem (Provan & Skinner, 1989), nor can privatecontrol sustain dominance when both parties relyon each other for resources (Ouchi, 1980) or when afirm’s own reputation is on the line (Gulati, 1998).For an individual partner, seeking private control isa viable short-term strategy but can also havedetrimental effects on long-term alliance formationopportunities.3 Many GSAs’ long-term performanceis unstable because cultural, organizational andinstitutional differences between partners propeltheir private control pursuit in a dynamic environ-ment (Yan & Zeng, 1999).

Private control and collective control differ inunderlying intent and mechanisms. Private controlis unilateral, aimed at individual gains via control-ling (also covertly) key shared areas. Collectivecontrol is bilateral, aimed at collective gains viaovertly controlling shared variables, especiallythose crucial to common strategic goals. Privatecontrol resides in specific areas using specificmeasures. Some are covert because they harm the

other party’s interests and/or the GSA’s joint gains.Examples are:

(1) controlling and manipulating pricing (e.g.,a foreign party overpricing GSA’s materialprocurement from this party’s parent);

(2) self-interest lobbying (e.g., a foreign partypromises a local party’s officer a future job inthe foreign party’s headquarters); and

(3) influencing board decisions (e.g., entertainingother party’s delegates).

Some private control measures are permissibleunder the GSA contract: for example,

(1) knowledge protection for its own party (e.g.,walling-off clause);

(2) service provision in the most sensitive areas(e.g., financing, information system, exportchannel); and

(3) functional control in key activities (e.g., humanresources, R&D, accounting).

When such ‘‘rights’’ are controlled tactically, pri-vate control will escalate.4

Since it is unrealistic to assume a total-trustingrelationship in a GSA (Das & Teng, 1998), andcollective control is often designed to mitigateuncertainty and cope with various contingencies(Hill & Hellriegel, 1994), collective control isgenerally the second best option, complementaryto cooperation, in helping to generate joint gains.Collective control is overt, since measures areprescribed by both parties and enforced transpar-ently. It can be overall and/or specific, proceedingvia jointly stipulated contractual clauses and jointlyformalized policies, rules and norms (e.g., jobdescriptions for senior GSA posts).5 Governancethat is based on contractual control is bothcomplementary and supplementary to governancebased on structural control. It is complementary,since some policies (e.g., budget control) arecodified in the GSA contract and detailed in formalpolicies. It is supplementary, since contracts specifykey measures not covered in formal policies butvital to the scope and degree of shared control.Measures of collective control during GSA forma-tion are normally written into the contract, whilecontrol measures for subsequent operations arecontained in policies challenged by the intermit-tent, evolving and eventual nature of the impact ofshared variables on non-shared variables. Collectivecontrol is sufficient to cope with GSA’s operations,and is also manifested in contractual terms andother stipulations for handling contingencies.


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Mayer and Argyres (2004) suggest that the ‘‘learn-ing to contract’’ effect exists in alliances, and suchcollective control used to govern collaborationsincreases incrementally as alliances evolve. Tosurmount challenges caused by cross-national andcross-organizational differences and new environ-mental conditions, collective control becomesmore essential in an international setting than ina domestic setting.

A TYPOLOGY OF THE CONTROL–COOPERATION INTERFACE

In this section we build a typology positioningGSAs in the control–cooperation interplay, andoutline corresponding responses. We treat thetypology as a complex theoretical statement thatspecifies a logical set of relationships amongconstructs and variables, ‘‘intended to predict thevariance in a specified dependent variable becausethe organizational types identified in typologies aredeveloped with respect to a specified organizationaloutcome’’ (Doty & Glick, 1994: 232). Loosenesspressures and/or desired coupling requirements(Orton & Weick, 1988; Provan & Skinner, 1989)serve to determine the ‘‘first order’’ constructs ofprivate control–cooperation and collective control–cooperation, which become the basis for designat-ing alliance settings. Each situation, in turn, has itsown repertoire of ex post strategic responses avail-able for each party to choose. These responses arenot proposed as alliance actions or joint responsesby all parties because individual parties may or maynot choose the same response in the given state ofprivate control–cooperation and collective control–cooperation interfaces. To the extent that theresponses assigned to each typological state arethe choices each party can emphasize during a

certain period of time after forming an alliance,rather than the generic options to be considered byall alliances at different evolution stages, they areunique to the corresponding control–cooperationstate. Here, we emphasize what strategic responsesare available for individual parties to elect, andunder what conditions a particular response will beadvisable.

Private Control–Cooperation TypologyPrivate control and cooperation are two dichoto-mous end points in the continuum of privatebenefits, with high private gains and high prob-ability of opportunism associated with privatecontrol and low private gains and high commit-ment associated with cooperation.6 Private controlseeks self-interest and involves a risk of appropria-tion of shared variables – that is, of opportunismand its associated relational risks and lower con-fidence in partner cooperation (Majoen & Tallman,1997). Private control and cooperation are adver-sarial, since the threat of private control triggersscreening and monitoring, increasing transactioncosts (Hennart, 1988). Perceived potential for highrelational risks arising from private control posesthe greatest threat to cooperation and contributesto GSA dissolution (Kogut, 1989). While adversar-ial, however, low private control does not alwaysgenerate full cooperation or vice versa. Thus thepolar position of private control and cooperationalong the continuum of private benefits producesthree situations (see Figure 1):

(1) the contending or bargaining situation, at theapex of private control;

(2) the honeymoon situation, at the apex ofcooperation; and

Complete Private control

CompleteCooperation

Strategic response Dominance Challenge

Exit

Strategic response Influence

Appeasement Compromise

Strategic response Accommodation

Adaptation Compliance

Contending Coopetition Honeymoon

Figure 1 The private control–cooperation typology.


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(3) the coopetition situation, operated at a mid-point.

We suggest that each situation has a different setof strategic responses.7 Although it is beyond thescope of this article to assess the antecedentsand consequences of these responses, we suggestin the next section that when relational links suchas resource complementarity, goal compatibilityand bargaining symmetry are heightened, theprobability for each party to use certain responsesincreases.

Contending state. A contending state is one inwhich partners vie for power, authority, andresources through high private control, maintain-ing high levels of relational risk and op-portunism and low levels of mutual commitmentand cooperation. A bargaining situation ischaracterized by what Williamson (1985) calls‘‘strong form’’ of opportunism (e.g., misleading ormisguiding a partner, falsifying information,shirking obligations, unilaterally using power,refusing to adapt, appropriating key resources andprofit). In the Fischer–GM alliance (contractualagreement), Fischer served as an exclusive auto-part supplier for GM, later taking advantage of thecost-plus provision in the agreement for its privategains through unilaterally modifying internalmanufacturing processes and providing false ex-pense reports (Wathne & Heide, 2000). Such strongopportunism is even more likely in an internationalcontext, where partners often mistrust each otheror collude with institutional players, as in thecollapse of Ramada Guilin (Shenkar & Yan, 2002).

A contending situation is characterized by acombative, competitive atmosphere and opportu-nistic behaviors. A contending situation is likely:(1) in early-phase GSAs with low mutual familiarityand trust, conflicting goals (including a race forlearning), weak resource interdependence, and/ormutual suspicion regarding capability and commit-ments; and (2) in established GSAs with incon-gruent intents and objectives, failure to honorcontractual commitments, appropriation of other’sproprietary knowledge, declining resource sharingand complementary, and/or nascent competitionwith at least one partner. Evidence shows thatcooperation decreases or opportunism increaseswhen partner familiarity (Gulati, 1995) andresource dependence (Hill & Hellriegel, 1994) arelow, goal incongruence (Yan & Gray, 1994) andappropriation hazard (Oxley, 1997) are high, or

under rivalry (Khanna et al., 1998). In a contendingsituation, legitimate and economic reasons mayovertake a party’s concern for its reputation or itsfear of losing continuing networking opportunitieswith the current partner.

A party’s strategic response in a contendingsituation may include dominance, challenge, or exit,depending on the party’s assertiveness, unilateralcommitment, and strategic need to continue thepartnership. Specific efforts are exerted to gaincontrol over GSA decisions and contest plans ordecisions made by the other party and/or GSAmanagement (in equity joint ventures). Dominanceis achieved via equity and/or managerial (overt)controls and by dominating key GSA positions inorder to appropriate alliance or partner benefits.Challenge is articulated in renegotiation demandsby suspending resource commitment until theother party caves in. Exit is a viable response in abargaining situation when a party expects dom-inance and challenge costs to exceed the marginalreturns from continued partnership. With dimin-ished strategic needs for continuing the partner-ship, the marginal gains will descend, furtherlowering commitment and enhancing the exitoption (Hennart, Roehl, & Zietlow, 1999). Of thethree strategic responses, assertiveness decreasesalong dominance, challenge, and exit. The partyneeds not only to link its selected response to itsstrategic needs but also to gauge its bargaining andcontrol capacity vis-a-vis the other party (Pruitt,1981). Given need and capability asymmetries,parties may not exert the same level of contentiousbargaining nor employ the same strategic responsefrom the above three strategic responses. As Gulati,Khanna, and Nohria (1994) point out, unilateralcommitments and confidence-building actionsvary across partners, even under threat.

Honeymoon state. A honeymoon state is one inwhich both parties maintain very high cooperationand very low competition, with little effort exertedtowards private control. This is a situation wherebya GSA has a long and tested history of trustingrelationships between partners, non-trivial resourcedependence and mutual dedication to synergeticgains and common goals (Fichman & Levinthal,1991). As an example, the equity joint venturebetween Xerox and Shanghai Movie and PhotoIndustries Co. has been the dominant leader inChina’s copier market ever since it was formed in1987. Its success has to do in large part with thelong and trusting relationship between the two


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partners (e.g., each party weighs decisions orissues from the partner perspective first) andjoint commitments to new products (especiallyengineering copiers, photoreceptors, and toners)and nationwide distribution, sales, and servicenetworks.

When conflicts or rivalries arise, the honeymoonsituation may be transformed into a coopetitorsituation. The length of the honeymoon perioddepends on the levels of

(1) resource interdependence and mutual sharing;(2) cross-cultural justice in procedures, outcome-

sharing, and interactions as perceived by bothparties;

(3) sustainability of mutual forbearance; and(4) trust.

Provan and Skinner (1989) demonstrate that thelength of strong cooperation is positively associatedwith the length of resource interdependencebetween dealers and suppliers. Johnson (1997)found that the degree of cooperation and commit-ment is an increasing function of perceived justicein strategic decision-making involving interna-tional joint venture management and operations.Buckley and Casson (1988) suggest that reciprocalforbearance is the essence of cooperation, andlimited mutual forbearance can be converted toconsiderable trust and cooperation in internationalbusiness. Zaheer, McEvily, and Perrone (1998)present evidence that interorganizational trustdetermines the longevity of cooperation and thestability of performance. In the international arena,the timing of a shift from the honeymoon to thecompetitor state is associated with the develop-ment curve as well as idiosyncratic characteristics ofthe country in which a local partner is embedded.For instance, such a shift in the relationshipbetween Kodak and its Chinese partner Lucky Filmis related to China’s technological progress but alsoto its disregard for intellectual property rights,which helped the Chinese firm in undercuttingKodak’s price for photographic paper.

In the honeymoon state, a party’s strategicresponse may include accommodation, adaptationand compliance. Accommodation is showingresponsiveness and contribution to the strategicneeds or concerns of the GSA and the other party. Itsignals commitment to synergy by accommodationand, if illustrated by all parties, is likely to sustainthe honeymoon state. Adaptation is displayingefforts to accept, mimic, and apply the other party’sculture, behaviors, values, or standards. Adaptation

can significantly reduce the adverse effect ofinstitutional and cultural differences betweencross-national partners (Das & Teng, 1998; Shenkar& Yan, 2002). Compliance is observance of jointlystipulated rules and policies. It reduces the GSA’svulnerability to negative conduct and hazardousthreats under uncertainty, which prolongs coopera-tion (Oliver, 1991). Through compliance, GSApartners can anticipate benefits ranging fromincreased organizational stability to decreasedadministrative costs. Of the three responses, com-mitment to sustaining the honeymoon-like coop-eration rises with compliance, adaptation, andaccommodation. To an individual party, its choiceof the three responses depends on the level of itsongoing commitment, which involves both eco-nomic (e.g., cost–benefit) and social (e.g., jointvalues decline under low reciprocity) considera-tions, as well as depending on the national context.For instance, in Vietnam, Russia and China acompliance state is more vulnerable because areliable adjudicating authority is lacking, increasinghazards for a foreign partner.

Coopetiting state. A coopetitor situation is one inwhich alliance parties both cooperate and competewith each other, simultaneously maintaining highcooperation and high private control. Contrary tothe honeymoon state, the objectives of partiesunder coopetition do not necessarily converge,and unlike the contending state, coopetitionmeans tight relation, mutuality and reciprocity.Cooperation and interdependence are balancedagainst competitive elements, as each partnerseeks to reconcile the GSA’s activities with itsown. For example, Fiat of Italy and Peugeot ofFrance contributed equally in R&D, engineering,and investment to their van venture SEVEL,cooperating in management, production, andmarketing. Yet Fiat preferred external outsourcingof components while Peugeot wanted to use moreof its own parts. The firms also had to competeagainst each other for market share since bothbought the vans from the venture and distributedthem independently through their own networks(de la Torre, Doz, & Devinney, 2000: 270–280).A coopetitor state is typical in GSAs spanningdeveloped and developing countries, sincepartners tend to be unequal in terms ofcompetencies, providing a strong incentive for theadvanced partner to seek private control (Beamish& Banks, 1987).


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Goal incongruence in a coopetitor state maythreaten GSA cohesion, compounding integrationdifficulties and facilitating private control forunilateral gains (Hill & Hellriegel, 1994; Larson,1992). The need for unilateral control, however,coexists and co-evolves with cooperation andcommitment within the same temporal framework.Strategic interdependence and anticipated syner-gies from resource-sharing support mutual commit-ment for collective interests. If both parties protectthemselves from knowledge spillover, neither willbe able to learn from the other (Inkpen & Beamish,1997). In the coopetiting state, a party’s strategicresponse may include influence, appeasement, orcompromise. Influence is the shaping of the GSA’sstrategic direction and policies with which bothparties must comply. It can be achieved throughactive measures such as lobbying GSA managementand the other party’s representatives, offeringservices on which the GSA depends, and persuadingexternal stakeholders (including home and hostgovernments) to influence GSA decisions. Thelatter is likely, for instance, where cross-bordercooperation has a political dimension – for exam-ple, when it bears on the relations between twonations (for instance, the California-based jointventure between General Motors and Toyota thathas been established in the midst of trade tensionbetween the United States and Japan). Appease-ment is the promise of commitment to jointactivities so as to disarm concerns of the GSA orof the other partner, which is useful when partiessee value in continuing collaboration. Compromisebalances conflicting interests by partly renouncingone’s own. It is an attempt to achieve parity inanticipation of future payoff, and is likely to workwhen the provision of key resources is dependenton continued cooperation (for instance, in theenergy field during times of global shortage). Aparty’s response choice depends on its reliance onthe ongoing partnership, the expected responsefrom the other party, and its own bargainingposition.

Collective Control–Cooperation TypologyCollective control and cooperation are the two axesin the matrix of interdependent collaboration. Bothcollective control and cooperation are designed tostimulate joint gains from interpartner exchanges.Neither contradictory nor dichotomous or sub-stitutive, they are complementary, mutually rein-forcing GSA success and redressing each other’slimits in a repeated exchange. This concordance is

especially vital in a loosely coupled system whereelements are interdependent (Orton & Weick,1990), and in line with the sociological view thatinter-party exchange is an evolving process requir-ing reciprocal dependence and strategic flexibilityunder uncertainty (Uzzi, 1997). Collective controlprovides a governing framework for cooperation,while cooperation redresses collective control’slimitation in GSA evolution and adaptation. Theinterplay of high collective control and highcooperation creates common benefits or collectivegains, and such common benefits increase alongthe diagonal axis in Figure 2.

Without cooperation, collective control measures(overall or specific) cannot effectively govern GSAgrowth, since it is impossible to predict everycontingency, and when contingencies occur, col-lective control alone cannot sustain the relation.Codification helps prolong the exchange but doesnot guarantee continuance or a mutually accepta-ble resolution, especially where partners differnationally (Parkhe, 1991). Cooperation becomes anecessary complement that overcomes collectivecontrol’s constraints in adaptation and permitscontinuity and flexibility. Below, we develop asituational typology representing varying config-urations of these two axes, including (see Figure 2):

(1) loosely connected situation;(2) equity hostage situation;(3) tightly integrated situation; and(4) trusting situation.

In a tightly integrated situation, GSAs are likely towork toward more complex tasks specified byalliance partners than in the loosely connectedsituation, with trusting and equity hostage situa-tions in the middle. The responses outlined beloware generic and do not preclude the leeway firmshave in making strategic choices that are unrelatedto the state of partnership.

Loosely connected state. The loosely connected stateis one in which a GSA is characterized by very lowpartner interdependence, low cooperation, and lowcollective control (many non-equity-based orcontractual alliances fall in this quadrant). Inter-national airline alliances are an example (e.g., Star,Oneworld and Skyteam). These alliances are looselystructured, have limited interdependencies, andcooperate in a specific area, typically flight code-sharing and/or in their frequent flyer programs.Although they may benefit from passenger‘‘feeding’’ by alliance members, they are not


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vertically integrated in the full sense of the term.In this situation, stickiness in resource sharingand exchange is very low, given low verticalintegration and low operational interdependence(Contractor & Lorange, 1988). Loosely connectedpartners collaborate in a predefined area basedon contractual arrangements, with partnersmaintaining high respective authorities. Ladoet al. (1997) note that inter-firm connectednessis a function of how integrated the value chainis across partner activities and resources, andcompetition–cooperation dynamics reflect thisconnectedness. In the loosely connected situation,GSAs are characterized by low attachment andlow coupling. Codification and joint activities’monitoring are less crucial when structural attach-ment and coupling decline (Jones et al., 1997;Orton & Weick, 1990; Provan & Skinner, 1989).Thus low stickiness reduces cooperation whilelooseness decreases collective control. Neverthe-less, owing to the low complexity of the tasks thatpartners share, there may exist a good opportunityto develop inter-organizational routines (Reuer,Zollo, & Singh, 2002), which may explain in partwhy such loosely connected, often cluster- orgroup-based alliances emerge in industries whereinternational players compete for the marketleadership in industrial standards (Gomes-Casseres, 1996).

A party in a loosely connected state may considerexpansion, acquiescence, or turnaround as its strategicresponse, depending on its strategic reliance on theGSA and its strategic interest in the partnership.Although they look generic, seemingly applicableto all alliances along their life cycle, these threeterms here refer specifically to the strategic choicesthat a party in a loosely connected situation canelect at a given period of time rather than to thedifferent phases through which an alliance evolvesover time. In a loosely connected situation inwhich interdependence and collective control arevery low, each party must decide whether thealliance should stay, expand or turn around. Whenthis party sees potential in deeper collaborationwith the other party, expansion may occur, extend-ing connectedness, interdependence and depth ofcollaboration (e.g., a technical standard-settingtransformed into an R&D consortium). Along suchexpansion, collective control and cooperation willrise with the sophistication of the exchange. This isin line with the evolutionary notion that GSAsdevelop with partner familiarity, exchange exten-siveness, interdependence intensity, and learningto contract (Doz, 1996; Mayer & Argyres, 2004;Ring & Van de Ven, 1994). If a party is satisfied withthe existing level of collaboration and does notwish further expansion, it may opt for acquies-cence. Acquiescence is the continuance of the

H

L LOW HIGH

COOPERATION

CO

LL

ET

IVE

CO

NT

RO

LEquity hostage

Strategic responses:

Specification Commensuration Positioning

Tightly integratedStrategic responses:

Transmission Assimilation Co-optation

Loosely connected Strategic responses:

Expansion Acquiesce Turnaround

TrustingStrategic responses:

Adherence Imitation Socialization

Figure 2 The collective control–cooperation typology.


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collaboration at the current level under existinggovernance; a partner seeks benefits such asefficiency arising from the established exchangestructure. If a party is dissatisfied with a looselyconnected state, it may consider turnaround. Turn-around terminates the partnership, seeking a newpartner for a similar scope. Since the GSA is onlyloosely connected without involving high collec-tive control, termination cost is deemed low. Thiscost has been found to be a positive function ofinterpartner interdependence and exchange sophis-tication (Hennart et al., 1999). Moreover, newpartner search costs for unsophisticated transac-tions and the costs for follow-up contracting for thesimilar business are likely to be low (Williamson,1979). An example is the replacement of GeneralMotors by Toyota as a partner in Fuji HeavyIndustries (Subaru manufacturers), which wasfurther facilitated by the switch from an interna-tional to a domestic alliance.

Equity hostage state. The equity hostage situation isone in which alliance partners maintain lowcooperation but high collective control. It isnamed as such since high collective control in alow-cooperation atmosphere often takes place in anequity joint venture where parties’ interests are sofirmly tied together that exit or turnaround is verycostly. Examples of equity hostage situations arereal estate projects that, once begun, turn partnerinvestments into sunk and unrecoverable cost.Although an equity hostage alliance is typicallyequity based, it is possible to have a contractualagreement where moral hazard is mitigated (albeitnot prevented) not by contract but by thecapability of a ‘‘tit for tat’’ response. A case inpoint is the alliance between Nike and Footlockerfor the sale of Nike shoes in Footlocker stores. Thislong-term alliance, which represented a significantamount of the overall business of both players,began to unravel when Footlocker reduced itspurchases from Nike to protest at constraints onmodels and prices, and Nike retaliated by reducingshipments on a much greater scale that Footlockerdesired (Wall Street Journal, 2003). The mutualhostage defense can also be undermined incertain institutional contexts. A case in point is aChina-based cooperative venture that unfoldedwhen foreign irrecoverable investment in a hotelbuilding became vulnerable to a conflict with apartner, China Youth Travel Service, which wasundisturbed by the business consequences (Shenkar& Yan, 2002).

Williamson (1979) saw equity hostage as a specialcase in a repeated relational contract that involvesenormous sunk and exit costs due to opportunismfears, resulting in high collective control. Highcollective control serves as the leading mechanismto ensure risk commensuration and deter opportu-nism. Contractual specification provides a legallybinding institutional framework under which eachparty’s rights, duties and responsibilities are codi-fied and the goals and strategies underlying theequity GSA are specified. It mitigates moral hazards,reduces uncertainty, and safeguards against ex postperformance problems by restraining a party’sability to pursue private goals at the expense ofcommon benefits (Geringer & Hebert, 1989; Poppo& Zenger, 2002; Williamson, 1979). Structuralspecifications regulate joint GSA activities anddecision-making. In an equity hostage situation,alliance partners have low cooperation, with lowtrust resulting from low familiarity, lack of priorcollaboration or poor reputation. This situation,exacerbated in an international context by culturaldifferences and mutual suspicion, essentiallywrings out socially embedded cooperation, narrow-ing it to economic motives.

A party’s strategic response in an equity hostagesituation may include specification, commensurationor positioning. Specification is the rigorous codifica-tion of the GSA’s contingencies in contractual andgovernance frameworks. It controls opportunismand stipulates joint management. Studies haveconfirmed that specification reduces role conflictbetween GSA boundary spanners (Shenkar & Zeira,1992), obviates ambiguity (Geringer & Hebert,1989), and smooths information flow (Hill, 1990);however, it is more difficult to achieve in a weakcontractual environment (Luo, 2002; Shenkar &Yan, 2002). Commensuration is the balancing ofrisk and interests so that no party gains or suffersmore than the others. If it fails, the GSA is likely todestabilize. To achieve commensuration, partnerscontractually align stakes and exit costs. Addition-ally, positioning confers a collective control advan-tage. The party with stronger bargaining power maybe able to influence the collective control process orpolicies (Yan & Gray, 1994). For the party viewingan equity hostage as vital to its overall strategy,positioning can help ensure that the GSA evolves inits planned direction and that joint payoffs alignwith its own interests. An individual party’s choiceof these responses is determined by its power toinfluence joint decisions and the expected costsassociated with these responses as well as by the


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legal environments in which the focal firm, thepartner and the activity are situated.

Tightly integrated state. A tightly integratedsituation is one in which alliance partnersmaintain high interdependence, resulting in highcollective control and high cooperation (manyequity joint ventures fall into this quadrant). Inthe case of the Ford–Mazda alliance, the twocompanies share substantial technological andknowledge resources and have been sharingvehicle platforms in an effort to capture synergies.The alliance’s roots were in the early 1970s, andcooperation has become embedded to the point ofreflecting knowledge assets rather than equity stakeand formal control (e.g., the superior technologywill be used regardless of which partner is theknowledge holder). Parties pursue joint gains fromjoint operations that tightly integrate pooledresources. Integration occurs in the form ofresource and/or function sharing, and yieldsoperational synergies and knowledge gains forboth (Dyer, 1997; Hamel, 1991). Under tightintegration, GSAs tend to be long-term orientedbecause of requisite high cooperation, the need tobuild confidence over time, and the time requiredto blend resources and cultures, implying an evenlonger time range in an international context.Partners need more certainty about cooperation inorder to commit themselves to a tightly integratedGSA (Das & Teng, 1998; Hennart, 1988), and arewilling to enter only if they are confident in partnercooperation. When integration involves eachparty’s ownership-specific assets high cooperationis needed, owing to asset non-recoverability(Majoen & Tallman, 1997; Parkhe, 1993;Williamson, 1985). Such cooperation in the longrun will be incrementally embedded in socialexchange, subject to the influence of social normsand principles (Granovetter, 1985), which in turnfacilitates interpartner attachment and cooperation(Zaheer et al., 1998). This creates the need for highcollective control to streamline integration andavoid appropriation of common assets. Without it,the GSA lacks mechanisms to ensure productiveblending of pooled resources (Hill & Hellriegel,1994).

Exchange parties in a tightly integrated situationmay choose transmission, co-optation, or assimilationto respond to high cooperation and high collectivecontrol. Transmission is the institutionalization ofa party’s expertise into the GSA’s base throughroutinized learning, reward systems and formal

standards. As an important part of organizationallearning, transmission encodes inferences fromhistory or other firms into routines that guidebehavior (Levitt & March, 1988: 320). Contractpermitting, it transforms information into knowl-edge and partisan knowledge into GSA’s knowl-edge. High integration increases gains for bothparties and provides a context for reciprocal learn-ing and knowledge contribution, while highcollective control triggers institutionalization, rou-tinization and capitalization of expertise fromindividual parties. Co-optation neutralizes conflict,enhancing common understanding and reciprocalforbearance. Co-optation and cooperation reinforceeach other since mutual understanding and reci-procal forbearance are common roots for both(DiMaggio & Powell, 1983). Collective control andco-optation are also complementary in that theformer offers frequent contacts through which thelatter is achieved, while the latter buffers the formerfrom tension. Finally, assimilation is the absorptionand acquisition of complementary knowledge fromanother party through collective learning andsharing. If this occurs under turbulence, integrationcan transform into an exit barrier; if a party orparties are well prepared by bilateral assimilation,such hazard will be avoided. Further, as Dyer andSingh (1998) point out, a firm with greaterassimilative and integrative capacity contributesmore to a partnership and learns more fromcooperation. A firm may use one or more of theabove tactics, depending on its strategic intentregarding cooperating, its capability of employingthese tactics, and its outlook of ongoing gains. Atthe international level, the choice of tactics willalso depend on cultural imperatives such as conflictavoidance (common in many Asian cultures),among other variables. For instance, the routiniza-tion of knowledge flow from an industrializedcountry firm to a developing country partner willsustain cooperation as long as this national contextdoes not materially change.

Trusting state. In the trusting state, alliance partnersare bound together by a long history of col-laboration and a highly interdependent relation-ship, resulting in high cooperation but lowcollective control. In the case of Fuji–Xerox, afour-decade-old joint venture, the Japanese partnerhas been largely passive, but trusted Xerox aswell as the venture’s management to defendcollective interests and its own private interests.This venture survived dramatic changes in the


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business environment and internal restructuring,including an eventual change in ownershipdistribution resulting from Xerox’s financialdistress. Under the trusting state, cooperation hasa high proportion of social exchange elementsprecipitated over a long period. Economicexchanges become gradually embedded in socialcontext, constrained by social standards and normssuch as restricted reciprocity (Blau, 1964). Trustemerges from social exchanges over time andtranslates into relational capital if the relationshipprovides players with scarce and vital resources. Inthe presence of relational capital, partners aremutually attracted. They know the capital willdisappear if they discontinue cooperation orreciprocity since it is attached to the specificrelationship, and is non-transferable if the relation-ship ends (Emerson, 1976). High cooperationcontinues as long as parties are economically andsocially interdependent. As social exchange normsplay an important part in governing exchange, therole of collective control declines. Social normsbecome an invisible but powerful force, with lowertransaction costs than formal control (Birnberg,1998). Under the reciprocity norm, a party willreciprocate owing to its basic need to maintain thisand future exchanges, which would otherwise nottake place if this party gained a reputation forfailing to reciprocate (Granovetter, 1985).

Exchange parties in a trusting state may consideradherence, imitation, or socialization in responding tohigh cooperation/low collective control. Adherenceis the internalization of social values, norms andbehaviors that are pervasive in the course ofcooperation. Observing social exchange require-ments is a prerequisite for exchange participants toaugment their trustworthiness and legitimacy inthe long-term (Das & Teng, 1998). In a cross-cultural setting, studies have shown that adherenceincreases GSA performance (Liebeskind, Oliver,Zucker, & Brewer, 1996; Luo, 2001; Shenkar &Yan, 2002; Zaheer et al., 1998). Violations of socialexchange norms will be penalized by social sanc-tions or other acts that will harm the corporateimage (Westphal & Zajac, 1997). Imitation, con-sistent with the concept of mimetic isomorphism,is the mimicking of values and behaviors of theother party or of another high-legitimacy organiza-tion. Through imitation, inter-firm cultural dis-tance is bridged. Oliver (1991) suggests thatimitation is a more active and committed tacticthan acceptance or adherence in responding toinstitutional pressures. Imitation reinforces trust as

it cherishes the integrity and unity of firms withdifferent backgrounds. Lastly, socialization unitesmanagers from different parties, enhancing identi-fication with and commitment to the GSA (Fichman& Levinthal, 1991). It reduces boundary-spanningbarriers for top alliance managers, which reducesambiguity (Shenkar & Zeira, 1992). Socializationaccommodates high cooperation through interper-sonal attachment between boundary spanners(Luo, 2001; Seabright, Levinthal, & Fichman,1992), and accommodates low collective controlthrough elevated interorganizational attachment,familiarity, and trust (Gulati, 1995; Zaheer et al.,1998), all of which are especially important inter-nationally. A party may emphasize one or more ofthe tactics depending on the other party’s response,its commitment to GSA evolution, and prevailingsocial norms. Responses will also vary with homeculture and the perceived differences from orrelationship to the host culture: for instance, wherea foreign culture is deemed attractive, imitation ismore likely to be chosen by a local player.

As shown in Figures 1 and 2, we separate the twosets (private control–cooperation and collectivecontrol–cooperation) because they differ substan-tially in the nature of interplays (adversary vscomplementary) and the required strategicresponses to such interplays. Nonetheless, the twosets are related in two ways: (1) they simultaneouslyoccur in each alliance; and (2) both private andcollective controls arise under uncertainty, conflictor opportunism. The two controls, associated withexploitation and exploration objectives respec-tively, are undertaken to align with a party’sstrategic intent and environmental conditions.Thus the two interplays move together to respondto the perceived uncertainty (internal and exter-nal). Although this study did not address therelationship between the two interplays owing tospace constraints, future research may use asubgroup approach to diagnose the three-dimen-sional matrix (private control, collective controland cooperation). For instance, one might examinehow the collective control–cooperation interfacechanges in the high private control group com-pared with the low private control group.

Finally, our framework is based on the assump-tion that the strategic responses we propose are setto optimize the dynamics of the quadrant (inFigures 1 and 2) alliance parties are in, withoutconsidering the possibility that they may reshapethe quadrant they are in and switch to anotherquadrant. In other words, the above interfaces may


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not always be stable. Alliance research suggests thatthe stability of the control–cooperation dynamic isinfluenced by unexpected changes in parties’strategies and bargaining power (Parkhe, 1991),the GSA’s strategic importance to partners (Yan &Gray, 1994), and regulatory or industry conditions(Contractor & Lorange, 1988), which can also varyinternationally. Below-par performance also trig-gers instability of control and cooperation, and anunsatisfied party may restructure private controland escalate intervention (Arino & de la Torre,1998; Beamish & Banks, 1987; Killing, 1983; Luo,Shenkar, & Nyaw, 2001; Yan & Zeng, 1999). Apartner’s relative progression in a ‘‘race to learn’’(Hamel, 1991) creates pressure for altering collec-tive control and cooperation (Inkpen & Beamish,1997). Interpartner jockeying for private controland power may follow from the fast learner raisingits ‘‘price’’ for ongoing collaboration (Doz, 1996).Likewise, while not formally denoted here, changein the business environments of the partners andthe activity that is subject to cooperation as well aschanges in global ‘‘ground rules’’ (e.g., change in atariff regime that will alter the value of certainresources and contributions) will also have animpact on the choice and activation of strategicresponses.

RELATIONAL LINKS ANDSITUATIONAL TYPOLOGY

The space of a loosely coupled system is one ofcontinuously shifting elements that influence andreact to each other (Orton & Weick, 1990). Looselycoupled systems vary in tightness (coupling) basedon the activity of shared variables: the looser thesystem (the lesser the sharing of variables), themore likely it is to maintain separateness whileignoring perturbations in other parts of the system(Glassman, 1973). Loosely coupled systems alsovary in the boundary conditions separating eachsystem from the outside world as well as in theinternal boundaries governing subsystems. Forinstance, Kaplan (1982) refers to an under-boundedsystem as having highly permeable outer bound-aries and underdeveloped relations betweensystem members. These variations influence themanner in which loose coupling enables behaviorpersistence in the face of instability pressuresand hence the strategy used by the system tomaintain stability. There are two ‘‘grand strategies’’utilized to uphold system stability under loosecoupling. The first strategy (termed active orself-adjusting) is to have a tightly coupled sub-

system that is buffered from, and compensatesfor, a given input category via negative feedback;the second is a passive strategy limiting the accessof certain variables into the system (Glassman,1973).

In GSAs, like other loosely coupled systems, thechoice of a grand strategy of adaptation is based onthe nature of coupling across shared variables,which determines the option of tightening aparticular subsystem. Coupling in a GSA system isdetermined by three key ‘‘binary’’ variables that aredyadically relational in nature. First, resourcecomplementarity, which is binding the parties’resources together, defines ‘‘system gravity’’ anddetermines the scope, interface and interdepen-dence in resources. Second, the boundary condi-tions in GSAs are influenced by goal congruence,which may limit permeability of outside inputs tothose which are in line with the interests of allparties. Alliance research agrees that the congruityof parent goals affects the extent to which theybehave cooperatively during GSA operations(Beamish & Banks, 1987; Hill, 1990; Inkpen &Beamish, 1997; Parkhe, 1993; Zaheer et al., 1998).Third, bargaining asymmetry decides the potentialreach of each system member over variables andresources that are in common space or those thatare currently under the control of another member.In international alliances these three conditions arepartly codetermined by national-level variables. Forinstance, alliances that bring together partnersfrom developed and developing countries com-monly contribute complementary resources (e.g.,technical know-how and local contacts, respec-tively) but are susceptible to contrasting objectives(e.g., access to local market and technology trans-fer, respectively) and are subject to bargainingasymmetry. Change in the bargaining position ofthese partners along time can also have a majorsystem coupling.

The above three relational variables determinethe tightness of various bundles of components inloosely coupled systems (Provan, 1983) and knit acomplex web of relational links among partners(Hill & Hellriegel, 1994). Other relational variablesreported in the alliance literature include culture(Medcof, 1997), commitment (Duysters, Kok, &Vaandrager, 1999; Park & Ungson, 2001), attach-ment (Luo, 2001), prior ties (Gulati, 1995; Luo,2002), trust (Parkhe, 1998) and nesting withinsocial networks (Gulati, 1998), among others. Still,we focus on resource complementarity, goalcongruity, and bargaining asymmetry since they


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govern subsystems critical to a loosely coupledsystem (Glassman, 1973) and because they allpertain to the control over or distribution ofstrategic assets, which underlie both cooperationand competition (Lado et al., 1997). Below, wedevelop the propositions that illustrate how thethree relational variables affect strategic responsesunder each alliance type. The choice of strategicresponses discussed above is particularly influencedby the state that reflects how alliance partners arelinked along resources, objectives, and power.When such dyadic links strengthen, the likelihoodof using a preferred strategic response by each partyas we propose below will increase. However, it ispossible that different parties of an alliance mayprefer different responses at the same focal point,an issue not addressed here but warranting futureassessment. Such response variance may be condi-tioned upon a given party’s peculiar motives andexpectations. For this reason, we suggest thatfortified links in resources, objectives and bargain-ing power will impact on the convergent propen-sity of using the same strategic response.

Contending State and Relational LinksAmong the three strategic responses that may beused in the contending state, we expect thatchallenge is particularly susceptible to resourcecomplementarity, exit is sensitive to goal congruity,and dominance is prone to bargaining asymmetry.When unilateral control by self-interest-pursuingparties dominates in a loosely knit system, theentire system will be vulnerable to key sharedvariables such as resource mix, goal compatibility,and power balance (Birnberg, 1998; Lutz, 1982).First, challenge is an active strategy in a bargainingsituation because the member organizations thatchallenge the surrounding pressures attack indefiance of these pressures, and may indeed makea virtue of their insurrection (Oliver, 1991). Kaplan(1982) suggests that if members of a loosely coupledsystem have trouble acting collectively, or if it isdifficult for a newly assembled body to workeffectively owing to weak connections betweenmembers, intervention or challenge will rise. In thesetting of GSAs, these weak connections are largelydetermined by resource incomplementarity (Chi,1994; Khanna et al., 1998). This incomplementarityalso reduces the domain similarity endemic to thesystem, propelling individual members to chal-lenge the system’s rules, norms, or expectations(Kaplan, 1982; Weick, 1982). Second, when goalcongruence is higher, the loosely connected system

will be more coherent and hence more stable andintegrative (Orton & Weick, 1988). If not, themember organizations will have very little ‘‘domainsimilarity’’ (Kaplan, 1982: 429). Goal incongruitycauses divergence in the interests of exchangeparties that will pursue private goals (Hennart,1988; Williamson, 1985). Because a GSA lacks asolid foundation for cooperation and for sustainingexchange in the contending situation, both partiesare likely to choose an exit strategy if goaldivergence exceeds a certain high limit and/or ifsuch divergence is viewed as unlikely to be reduced.In other words, goal incongruity increases theprobability of using the exit strategy by eitherparty, Ceteris paribus. Finally, dominance is likely tobe the strategy chosen under bargaining asymme-try. This asymmetry often exists because themember organization connected by weaker vari-ables is more loosely coupled in the system (Glass-man, 1973: 85). The member that has greaterbargaining power in the system will use dominanceto manipulate the direction and organizationof the system (Gamoran & Dreeben, 1986). In acontending situation where the unilateral pursuitof private gains is endemic, a stronger player willleverage its bargaining power for a dominantposition to either safeguard its own interests orsecure a bigger share of joint gains (Inkpen &Beamish, 1997; Yan & Gray, 1994). A weaker partymay instead be more likely to choose exit andcollect its belongs in this situation. We thuspropose:8

Hypothesis 1a: In the contending situation,resource incomplementarity increases the prob-ability of the use of challenge by each party.

Hypothesis 1b: In the contending situation, goalincongruity increases the probability of the use ofexit by each party.

Hypothesis 1c: In the contending situation,bargaining asymmetry increases the probabilityof the use of dominance by a stronger party andthe use of exit by a weaker party.

Honeymoon State and Relational LinksOf the three strategic responses under the honey-moon state, commitment to sustaining thehoneymoon-like relation rises with adaptation,accommodation, and compliance. These responsesare what Glassman (1973) calls ‘‘active strategies’’,since they encourage persistent behavior in a


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loosely coupled system. Each contributes tostability by containing more tightly coupled sub-systems relating to shared variables, which com-pensates for external pressures that triggerinstability (Glassman, 1973). First, adaptive cou-pling rises if resource interdependence betweenmember organizations increases (Luke et al., 1989).Resource complementarity fosters this interdepen-dence (Park & Ungson, 1997; Parkhe, 1991) andhence adaptive coupling. Adaptive coupling isadvanced by each member’s effort to adapt to othermembers’ culture or environment (Orton & Weick,1988), especially pronounced in an internationalcontext (Parkhe, 1991). Adaptation is thus spurredby resource complementarity. Second, studiesagree that goal congruity reduces costs incurredin information exchange between parties becauseit reduces each party’s perceived uncertainty regard-ing what other players will do; this in turnencourages responses that lead to high payoffs atboth the joint and individual levels (Eisenhardt,1985; Flamholtz, Das, & Tsui, 1985; Park, 1996).Thus accommodation in the honeymoon situationmay amplify in response to increased goal con-gruity. Lastly, despite the fact that the cooperationatmosphere and the commitment spirit dominatein the honeymoon situation, bargaining power isinevitably asymmetric to some extent betweenparties. This asymmetry is unlikely to increase thelikelihood of the use of adaptation or accommoda-tion by both parties because asymmetry impliesresource and power imbalance (Harrigan & Newman,1990) and unequal importance attached to theGSA by each party (Inkpen & Beamish, 1997). How-ever, since each party realizes the importance ofextending the honeymoon period, compliancewill be preferred by both parties under bargain-ing asymmetry. Although less committed thanaccommodation and adaptation, compliance atleast prolongs the exchange relationship. We thusexpect:

Hypothesis 2a: In the honeymoon situation,resource complementarity increases the probabil-ity of the use of adaptation by each party.

Hypothesis 2b: In the honeymoon situation,goal congruity increases the probability of the useof accommodation by each party.

Hypothesis 2c: In the honeymoon situation,bargaining asymmetry increases the probabilityof the use of compliance by each party.

Coopetition State and Relational LinksIn this state, parties may use compromise, appease-ment, and influence as strategies to respond to themixture of private control and cooperation and tothe simultaneous occurrence of competition andinterdependence. First, compromise may be used toalign with resource complementarity. The loosecoupling logic argues that the degree of coupling,or interaction, between two system membersdepends on the activity of the variables they share(Orton & Weick, 1990). The complementary ofresources pooled by GSA partners ties them in long-term cooperation and reciprocity maintenance(Buckley & Casson, 1988; Doz, 1996; Parkhe,1993). Doz (1996) states that joint payoffs from aGSA are an increasing function of this complemen-tarity. Yan and Gray (1994) suggest that self-interestpursuit may decline and compromise may heightenif resource complementarity is greater. Khannaet al. (1998) observe that the scope of competitiondecreases while the scope of compromise increaseswhen resource interdependence rises. Second,appeasement is expected to align with goal con-gruity. System members are often confronted withinconsistencies in expected efficiency and autono-my (Kaplan, 1982). Appeasement helps removeconcerns pertaining to these inconsistencies. Ifparties share more common goals, they are morelikely to consider appeasement because continuingthe relationship will enable an appeasing partyto collect its payoff at a later date. Third, influenceis expected to be employed when system membersvary in their bargaining power. Influence tacticstend to be directed toward a situation of simul-taneous competition and cooperation (DiMaggio& Powell, 1983), and more frequently used whenbargaining power is highly asymmetric betweensystem members (Provan, 1983). A party’s bargain-ing power is its ability to favorably changethe bargaining equation and win concessionsfrom the other party. Power asymmetry mayskew GSA interests towards the dominant party,thus fortifying this party’s intention to use influ-ence to increase its gains. A weaker party, how-ever, may heighten its appeasement propensityin the relationship with its dominating partnerto cope with the coopetition situation. We thusposit:

Hypothesis 3a: In the coopetition situation,resource complementarity increases the pro-bability of the use of compromise by eachparty.


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Hypothesis 3b: In the coopetition situation, goalcongruity increases the probability of the use ofappeasement by each party.

Hypothesis 3c: In the coopetition situation,bargaining asymmetry increases the probabilityof the use of influence by a stronger party and theuse of appeasement by a weaker party.

Loosely Connected and Relational LinksIn this situation, the parties may opt for expansion,turnaround, and acquiescence as strategicresponses to respond to the control–cooperationinterplay. First, expansion is more likely whenresource complementarity is high, since thisincreases the desire to share resources and exploitsynergies, Ceteris paribus (Dyer & Singh, 1998;Provan & Skinner, 1989). This in turn encouragespartners to deepen cooperation and expand con-nectedness. Because both task complexity andinter-organizational coordination costs are rela-tively low in a loosely connected state (Reueret al., 2002), resource complementarity allowsalliance parties to reap benefits from collaborativeopportunities without incurring high extra costs.Second, turnaround is more likely to be adopted ifstrategic goals substantially vary between partnerfirms. Goal congruity makes a system’s parts morerichly interconnected, and goal incongruity makesa system’s coupling more possibly maladaptive(Glassman, 1973). In the loosely connected situa-tion, a GSA has a highly permeable boundary andan underdeveloped relationship among subsystems(Kaplan, 1982). Such permeable boundaries maketurnaround a feasible solution when goals ofsystem members are vastly different. Lastly,acquiescence is more likely to be chosen if bargain-ing symmetry exists. Acquiescence aims to con-tinue the current framework of collaboration andgovernance and to maximize possible gains from aloosely organized but mature and stable relation-ship. As Glassman (1973: 94) notes, ‘‘the couplingbetween two systems has been selected becausethere is a need for it, but it must not be such asituation that one party fears to be exploited by theother party.’’ Bargaining power symmetry reducesthese fears and motivates partner firms toacquiesce. We thus anticipate:9

Hypothesis 4a: In the loosely connected situa-tion, resource complementarity increases theprobability of the use of expansion by each party.

Hypothesis 4b: In the loosely connected situa-tion, goal incongruity increases the probability ofthe use of turnaround by each party.

Hypothesis 4c: In the loosely connected situa-tion, bargaining symmetry increases the prob-ability of the use of acquiescence by each party.

Equity Hostage and Relational LinksFrom a loose coupling perspective, the equityhostage alliance system is tightly coupled butover-bounded, with boundaries that are not perme-able and prevent entry of inputs that are threaten-ing or otherwise undesirable to a particular party.This system will rely on some common variables tomaintain stability: that is, the behavior of criticalsubsystems will be constrained by strict regulatoryand relational mechanisms (Brown, 1980; Kaplan,1982). These relational variables, in turn, willinfluence the equity hostage alliance’s choice ofstrategic response from the repertoire of commen-suration, specification, and positioning. First, com-mensuration involves careful alignment of vestedstakes and exit costs that necessitate blocking theentire system to inputs. It balances risk andinterests to the point where neither party gains orsuffers more than the other party. This strategy isapplicable under high resource complementarity,because this balance implies that key subsystemscan be held at a tighter level, which satisfies theneeds for sharing complementary resourcesbetween parties. Second, since specification invokesrigid contractual and governance codification, it isan effective tactic to guide collective control andcooperation between partners whose goals behindalliance formation significantly differ. Goal incon-gruity naturally inspires conflicts and unilateralbehaviors unfavorable to the other party (Parkhe,1993). Specification helps alleviate these problemsbecause it provides a safeguard against ex postperformance problems by restraining each party’sability to pursue private goals at the expense ofcommon benefits. Finally, positioning enables theparty with the stronger bargaining position tocontrol outside inputs and is hence likely underbargaining asymmetry. Positioning under bargain-ing asymmetry is in line with the logic of mutualhostages, where parties making less transaction-specific investments behave opportunistically (Hill,1990) and the dominant party needs to usepositioning to mitigate the other party’s opportu-nism and protect its own interests (Williamson,1979). Owing to the lack of bargaining power, a


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weaker party may not be able to use positioning butcan rely more on contractual specification toprotect its important stake. We thus suggest:

Hypothesis 5a: In the equity hostage situation,resource complementarity increases the probabil-ity of the use of commensuration by each party.

Hypothesis 5b: In the equity hostage situation,goal incongruity increases the probability of theuse of specification by each party.

Hypothesis 5c: In the equity hostage situation,bargaining asymmetry increases the probabilityof the use of positioning by a stronger party andthe use of specification by a weaker party.

Tightly Integrated and Relational LinksThree strategies can be used in the tightly inte-grated situation characterized by high levels ofjoint control and cooperation: assimilation, trans-mission, and cooptation. First, assimilation is moreapplicable under high resource complementarity.Since interdependence is extremely high in thetightly integrated situation, resource complemen-tarity will nurture joint gains from shared variables.For either party, assimilation through absorbinganother party’s complementary skills and throughjoint learning and capability upgrading is both theend underlying interfirm exchange and a means forretaining tight integration. As resource comple-mentarity increases, so does coupling; the fusion inresources, knowledge, inputs, value chains, andbusiness policies will deepen. This engenders moreopportunities for either party to obtain gains fromassimilative knowledge-sharing. Second, transmis-sion is more likely to be used under goal congruity.Transmission is an active strategy that institutiona-lizes each party’s major expertise into the GSA’sknowledge base through joint sharing and devel-opment. It is possible only when the systems arevery richly interconnected and any overridingobjectives are common to all parties. Goal con-gruity in a tightly integrated alliance implies thatno party will gain without the attainment of jointpayoffs. Congruity thus propels a party’s willing-ness to transmit its own expertise and knowledge tothe alliance’s repertoire. Finally, cooptation is morelikely to be adopted under bargaining asymmetry.Aiming at conflict neutralization and forbearanceenhancement, cooptation is a less active and moreindirect strategy than assimilation and transmis-sion. Power asymmetry is normal even in the

tightly integrated situation. Possible conflicts andtension resulting from bargaining power asymme-try are buffered by cooptation efforts of bothparties. We thus envisage:

Hypothesis 6a: In the tightly integrated situa-tion, resource complementarity increases theprobability of the use of assimilation by eachparty.

Hypothesis 6b: In the tightly integrated situa-tion, goal congruity increases the probability ofthe use of transmission by each party.

Hypothesis 6c: In the tightly integrated situa-tion, bargaining asymmetry increases the prob-ability of the use of cooptation by each party.

Trusting State and Relational LinksA trusting state implies long and intense collabora-tion, high interdependence, and low control.Because trusting alliances contain a high propor-tion of social exchange elements present over along period of time, and since all three strategies(imitation, socialization, and adherence) involvesome degree of social commitment, it is possiblethat all three will be used concomitantly to respondto the control–cooperation interface in the trustingsituation. However, the degree of emphasis on eachis likely to vary according to specific relationalsituations. First, resource complementarity mayincrease the likelihood of imitation. Under highcomplementarity, mutual interests will becomemore inseparable, with operational synergies gra-dually developed (Hamel, 1991). According toKaplan (1982), the important task in a tight systemis to promote learning and reciprocity. Imitation,which mimics the best practices of the partner, is alegitimate way to accomplish this. Resource com-plementarity offers greater potential for each partyto benefit from imitation. Second, goal congruitymay increase the likelihood of socialization. Goalcongruity improves the consistency, transparency,and accuracy of GSA goals, and thus helps definethe scope and structure of cooperation. Since goalcongruity enhances the connectedness of systems(Weick, 1982) and the interparty binding of gain-sharing (Provan & Skinner, 1989), parties in atrusting alliance are motivated to strengthen theirbilateral attachment, both structurally and socially(Luo, 2001). This increased socialization furtherbolsters interorganizational trust (Zaheer et al.,1998). Finally, bargaining asymmetry may increase


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the likelihood of emphasizing adherence. Even inthe trusting situation, bargaining power is barelysymmetric between partner firms. In order to stayin a trusting alliance and continue to benefit fromthe partnership, a party, whether with strong orweak bargaining power, must adhere to socialexchange requirements and related values, norms,and behaviors that underline mutual trust. Adher-ence is described as a passive strategy in the loosecoupling literature because it contributes to stabi-lity by allowing persistent behavior of the systemthrough observing necessary norms and standards(Glassman, 1973). We thus hypothesize:

Hypothesis 7a: In the trusting situation, resourcecomplementarity increases the probability of anemphasis on imitation by each party.

Hypothesis 7b: In the trusting situation, goalcongruity increases the probability of an empha-sis on socialization by each party.

Hypothesis 7c: In the trusting situation, bargain-ing asymmetry increases the probability of anemphasis on adherence by each party.

It is worth noting that alliance executives play animportant role in shaping the effectiveness ofcontrol and cooperation and influencing theimplementation of strategic responses noted above.In an international setting, the alliance teamsbecome even more important because they observe,assess, report, and analyze interparty exchanges,and subsequently represent their constituents incommunicating, negotiating, and implementingcorporate plans. The top management team in aGSA is made up of boundary-spanning executivesfrom different countries who work at the organiza-tional–organizational interface and perform theroles demanded by their respective parent organi-zations as well as by the alliance charter orconstitution (Salk & Shenkar, 2001). Culturalclashes at the parent, group, and employee levelsare often concentrated in and absorbed by bound-ary-spanning executives, who may transform theirperceived control–cooperation situations intoparent actions in and commitment to alliancedevelopment. A superior boundary-spanningteam may sometimes suppress a parent firm’s desirefor private control owing to improved bilateralopenness or transparency and mutual understand-ing. Some covert behaviors or actions in the privatecontrol process may be blocked by the team,

especially when its members are confident in theexpected achievement of joint operations. Healthypersonal attachment or relationships betweencross-cultural team members can also complementformal control mechanisms for joint activities andfoster cooperation via knowledge- and information-sharing. Such relationships provide social elementsthat foster the enactment of structural elements injoint governance and cooperation (Fichman &Levinthal, 1991; Luo, 2001).

CONCLUSIONThis paper addressed the control–cooperation inter-play in GSAs and developed a framework of analysisbuilt on the premise that private control–coopera-tion and collective control–cooperation representtwo distinct yet related and reconcilable sets ofinter-party dynamics. The present study uses thisdistinction to dialectically provide insights intostrategic responses associated with the varioustypological states identified by the control–coop-eration axes, inclusive of interpartner actionsand the responses they generate. Summarily, weproposed that:

(1) a GSA is a loosely coupled system in which bothparties interdependently share existingresources or jointly develop new resources(coupling) while retaining their respective iden-tity, resource control, and parent-allianceseparation (looseness);

(2) looseness permits private control, couplinghelps cooperation, and collective control isneeded to mitigate opportunism associated withlooseness and to guide cooperation linked tocoupling;

(3) control and cooperation coexist and co-evolve,since in loosely coupled systems, elementspreserve independency, spontaneity and inde-terminacy as well as interdependency, delibera-tion and determinacy;

(4) each loose coupling system varies in thestrength and pattern of both looseness andconnectedness, and differs in pressure for tight-ness and stability, resulting in different typolo-gical states;

(5) coupling requires persistent behavior of thesystem, and it is achieved either actively, byhaving more tightly coupled subsystems, orpassively, by limiting certain inputs accessto the system or observing certain rules andnorms; and


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(6) boundary conditions of each loose couplingsystem are determined by shared or relationalvariables such as goal congruity, resource com-plementarity, and bargaining symmetry.

These conditions in turn influence the choice ofstrategic responses under each typological situationin response to the control–cooperation dualism.

In our model, we suggest that private andcollective controls can coexist and that it is rareto have total private control or total collectivecontrol; however, each alliance has a varying degreeof the two. More importantly, cooperation ele-ments always coexist and co-evolve along withthese two controls, leading to different control–cooperation combinations and different strategicresponses based on varying levels of private control,collective control, and cooperation. Viewing pri-vate control and cooperation as dichotomous andcontradictory, we identified contending, coopeti-tion, and honeymoon states to characterize analliance’s position on the relational risks conti-nuum. With collective control and cooperation astwo mutually reinforcing axes for synergy, wetypified loosely connected, equity hostage, tightlyintegrated, and trusting states to illustrate hetero-geneous configurations between the two. Thesedistinct typological situations should be empiri-cally verified in future research, together with thelevel of convergence of parties’ strategic responsesand the relational variables that may influence thisconvergence. For instance, Mayer and Argyres (2004)suggest that contractual control is an incrementallearning process subject to boundary conditionssuch as communication and trust. It is interestingto see the evolutionary transformation of situationaltypes along the private control–cooperation con-tinuum or within the collective control–cooperationmatrix. A wealth of alliance research suggests thatcontrol and cooperation change with time to copewith new needs or new environments as the allianceevolves. To incorporate the time or evolutiondimension in our framework, future research mayelucidate the internal and external conditions underwhich the control–cooperation interfaces change.Further, the separation of private and collectivecontrol may allow future research to examinevarying sets of antecedents or determinants ofprivate and collective control. Knowing these differ-ent sets of antecedents (strategic, behavioral, andenvironmental) can help international executives toidentify actual needs of private control and collec-tive control, respectively.

We documented strategic responses for individualparties under each typological situation to fulfilltheir respective goals. Each GSA inevitably involvesa private control–cooperation dilemma, with col-lective control mitigating private control hazards orreinforcing cooperation gains. As such, strategicresponses should be different under different situa-tions. Even within a typological situation,responses may still differ. We offered multiple yetdistinct in situ and ex post strategies under eachsituation in the two sets of control–cooperationinterplay, and proposed that the use of thesestrategic responses under each situation is furthershaped by relational characteristics, such as bar-gaining asymmetry, goal congruence, and resourcecomplementarity, though we acknowledge the roleplayed by other variables (e.g., previous relation-ship) in the control–cooperation interplay, as wellas the effects of the three relational links weexamined in alliance governance and performance(Gulati, 1999; Park & Ungson, 2001; Rosenkopf,Metiu, & George, 2001). The control–cooperationdualism and its related responses cannot be isolatedfrom these relational features because the latter arelikely to affect changes in private or collectivecontrol and the degree of coupling between systemmembers.

Global DimensionsWhile we present a generic framework that canapply to both domestic alliances and cross-borderalliances, variability between the two alliance typesprevails; indeed, a byproduct of the present paper isthe opportunity to highlight some of the importantdifferences between the two. From a loose couplingperspective, global system elements are more dis-persed – geographically, culturally and institution-ally – than domestic alliances, and are more likelyto retain their identity and spontaneity of actionand reaction. Because organizational identities arecodetermined by cultural, linguistic, and institu-tional affiliations, the boundaries of global alliancesare more susceptible to tension and conflict (Salk &Shenkar, 2001). Independence and spontaneity ofaction will also be higher in an internationalcontext because elements are embedded in highlydiverse systems (e.g., national entities) that areindependent of each other. As a result, private andcollective control pressures, which are associatedwith looseness, tend to be stronger in cross-borderthan in domestic alliances. Private control will beespecially pronounced in a global context, sincepartners have a broader array of mechanisms to


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exercise it, using both overt mechanisms (e.g.,limiting knowledge flow via use of one’s ownlanguage for certain communications) and covertmechanisms (e.g., manipulating cost via transferpricing, secretly lobbying one’s government forbeneficial provisions on their added value). Tocompensate, a greater burden is placed on collec-tive control mechanisms, for example, codificationof routines and procedures.

Global alliances are also more likely to haveasymmetries in bargaining (due to variations inskills and resources; this is especially the case wherepartners come from a mix of developed anddeveloping economies) as well as in transparency,and hence control (because the local partner iscloser to the operational scene than the foreignpartner physically, culturally and institutionally, asargued by Luo et al., 2001). This asymmetry isexacerbated by the lower trust that characterizesglobal alliances, as stereotyping lays a layer ofsuspicion on the relationship. Situational probabil-ity will also vary across alliance types, with acontending situation more likely for a GSA thanfor a domestic alliance. Since bargaining asymme-try is also more likely to occur in an internationalcontext, dominance and exit, respectively, are morelikely to be enacted as strategies by partners in acontending state. The same is true for the strategiesundertaken under other situations (e.g., acquies-cence in a loosely connected situation).

While international alliance characteristics suchas bargaining asymmetry can be accommodatedwithin the existing typology, it might also proveuseful in the future to add mediating national-levelvariables that affect both system looseness andtightness. Such variables include, but are notlimited to, geographical, cultural, and institutionaldifferences both among partners and between eachpartner and the locus of alliance activity (e.g.,where a joint venture is located), as well asasymmetries and complementarities in resourceendowments, intellectual property regimes, andthe like. In addition, geopolitical relations amonghome and host nations as well as the extent towhich transactions are governed by rules overseenby international organizations (e.g., the WTO) willalso need to be considered, since they are likely tohave an impact on the dialectics of allianceestablishment and operation in a global context.

Finally, as we have noted, for instance, in the caseof shifting from a honeymoon to a contendingstate, environmental change is an essential ingre-dient affecting the strategies undertaken by firms

and their partners. A GSA may evolve over timeinto a different state of control–cooperation inter-face as environmental, organizational, and inter-organizational conditions drastically change.General systems theory suggests that open systemsexchange information, energy, or materials withtheir environments, and these systems can beviewed as an evolving transformation device thatreceives various environmental inputs and trans-mits these inputs in some way into deliberateresponses (Kast & Rosenzweig, 1972). A GSA is acooperative, complex, and open system containingboth economic or structural and social or culturalsubsystems that work together for sharing comple-mentary resources and generating synergeticadvantages for alliance parties. As an open system,a GSA needs to remain in a dynamic equilibriumthrough the continuous inflow of environmentalinputs and the continuous match between neworganizational needs and new environmental set-tings. A longitudinal perspective is especially vitalin the case of international alliances, since changecan span multiple environments as well as theirrelative standing. For instance, a rising technologylevel of an emerging economy partner will narrowits knowledge resource asymmetry with a devel-oped country partner, leading to a change instrategic responses on both sides. The dynamics ofsuch a change, say a shift away from dominance ina contending situation, are difficult to manage, andit is possible that the stability of the alliance will beundermined. Since social exchange is very muchshaped by historically repeated exchange (Blau,1964), the sequence of situations is one issue to beconsidered in future research.

Managerial ImplicationsSeveral managerial implications arise from thepresent analysis. We provide managers with the dis-tinctions between private control and collectivecontrol and the ways to distinguish between thetwo. We explain that private control by anindividual party and collective control by all partiestogether have very different implications for jointreturns from cooperation. Second, our discussionson the interfaces between private control andcooperation and between collective control andcooperation may help executives better understandthe dilemma between control and cooperationand identify what situations they are in so thatthey can be better prepared with appropriatestrategies. In addition, the strategic responsesproposed in each typological state provide executives


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with options to balance private control and coop-eration and to optimize the complementary gainsfrom collective control and cooperation.

Our suggestions on how relational links mayshape the control–cooperation configurations andrelated strategies may help executives to match thedyadic conditions and specific strategies theyshould choose. An important message here is thatthe control–cooperation interplays and correspond-ing strategies cannot be isolated from the currentstate of inter-party relationships. Internationalexecutives need to integrate their resource commit-ment, strategic goals and bargaining power withtheir intention and strategies underlying controland cooperation if they seek the optimal privateand collective gains at the same time. Finally, thisstudy illuminates some conditions that are morelikely to occur in global vs domestic alliances,thereby illustrating the limits of applying learningfrom domestic to international alliances and viceversa. That these conditions are constantly chan-ging requires managers to be vigilant about mon-itoring change, not only in the multipleenvironments in which they operate but also inthe environments in which their partners areembedded, even if those partners are remotelylocated from the locus of alliance activities.

Further ResearchApart from empirical verifications of the proposi-tions outlined in this paper, future research shouldalso examine the global extension of the frame-work, adding the proposed as well as othernational-level variables, before testing them empiri-cally, ideally in a longitudinal context. The long-itudinal investigation can also unveil situationalchanges and internal and external factors causingthese changes. Although previously proposed con-trol–cooperation portfolios maintain some degreeof a steady state during a certain period of time,these portfolios are largely an open system thatinteracts with and embraces in environmentalchanges. Future research should also investigatewhether collective control suppresses the privatecontrol–cooperation tension, what the importantantecedents (external and internal) and conse-quences of the choice of strategic response are,and in what ways ongoing commitment changesthe influence of these variables on the dynamics ofcontrol and cooperation. It is interesting to inves-tigate alliance outcomes of the strategic responseheterogeneity between parties, as this heterogene-ity may deter resource-sharing and joint planning

between partners. Future research should particu-larly address the extent to which the incongruencein such responses causes skewed value appropria-tion between partners. Additionally, future researchmight look at the specific roles played by allianceteam, as we noted above, in shaping the control–cooperation interfaces and strategic responses indifferent situations. This team often has its ownself-interests and agenda, which may deviate fromthose of one or both parents, hence creating twovertical control and cooperation links (team vs localparent and team vs foreign parent) in addition tothe horizontal or partner link this study hasaddressed.

ACKNOWLEDGEMENTSWe thank two JIBS reviewers and Professors NicolaiJuul Foss and Arie Y Lewin, for their insightfulcomments.

NOTES1This article defines GSAs as equity joint ventures or

cooperative arrangements established by two or morepartners from different nations in order to achievecertain common strategic goals. To help our discus-sions on dyadic links, we assume there are only twopartners in every GSA. We also note that some forms ofGSA are more transitory than others, thus varying inthe degree of control. Further, equity joint venturesinherently contain stronger coupling (or weakerlooseness) than cooperative arrangements. Since thisstudy focused on an overarching framework for GSAsin general, it did not specifically compare differentforms of alliances. We leave this issue to futureresearch.

2The role of the alliance or joint venture manage-ment team in the control–cooperation dualism is notdirectly included in our framework. The ‘‘party’’throughout the article thus refers to either parent orpartner, which are used interchangeably. Moreover,this study assumes that foreign and local parties willreact to the control–cooperation interfaces equally orsimilarly, without considering the possible partnerasymmetry in such reactions.

3Although it is beyond the limit of this paper,knowing the antecedents of private and collectivecontrol is important. Both the desire and ability tomaintain private control vary by firm. For instance,those caring more about future networking opportu-nities and organizational reputation may exert a lowerlevel of private control in GSAs they build. Similarly, apartner’s international experience and internal govern-ance in managing GSAs may also be an important


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antecedent of private and collective control. Thosewho have accumulated greater international experi-ence and capabilities in governing alliances overseasmay place lower collective control, Ceteris paribus,over alliance activities. Such experience and capabil-ities are found to be critical in managing alliances andcreating alliance values (Anand & Khanna, 2000; Kale,Dyer, & Singh, 2002; Sampson, 2005).

4The control literature also grouped control mea-sures or modes into behavioral (i.e., process) control,output control, and social (e.g., informal norms)control (Eisenhardt, 1985) and applied these modesin GSAs (e.g., Das & Teng, 1998). In illustrating privateand collective control, we blend these modes on thesame list of various measures. Among private controlmeasures, some are process-based (e.g., budgetcontrol) and others are output-based (e.g., transferpricing) or social-based (e.g., socialization).

5Apart from these two primary channels, whichtogether build a formal institutional framework forcollective control, some informal control measures,such as shared corporate philosophies and corporateculture norms, are also a part of collective control andare supplementary to this institutional framework.

6Private control is not a sufficient condition foropportunism. A party may institute various forms ofprivate control, but may not necessarily avail itself of

them if it finds the other party is cooperating.Moreover, some private control measures may bepermissible under the alliance agreement and thus notopportunism in a legal sense.

7Typological states here describe a general patternof private control and cooperation in an alliance,which do not fully capture a possible difference inactual levels of control and cooperation betweenparties. As it focuses on an overarching view of controland cooperation interfaces at the alliance level, thisstudy leaves the unilateral view of such interfaces tofuture research.

8Owing to the space limitations, this study did notaddress 2�2 interactions that reflect the joint pre-sence of relational characteristics. Such interactioneffects may exist, however. For instance, in thecontending state, the probability of using exit is muchhigher if goal incongruity and resource incomplemen-tarity coexist.

9There are opportunities to extend the hypothesesfurther in this entire section. For instance, one mayalso posit a positive relationship between goal con-gruity and the use of expansion as a strategic responsein the loosely connected situation. With compatiblegoals, alliance partners are more likely to sharecommon outlook and future orientation, thus prefer-ring the path of expansion.

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APPENDIX

Mathematical Illustrations of Collective andPrivate Control

Model assumptionsWe develop a model of a cooperative arrangementbetween two firms from different countries. Firm 1(foreign partner) has the technology to make theproduct, and wants to expand into different globalmarkets, but lacks knowledge and expertise aboutlocal markets. Firm 2 (local partner) can developthe local market, and enters into an alliance withFirm 1. It is assumed that the firms independentlymake decisions to invest in product technology andmarket development effort, respectively. Once theproduct and market development has taken place,the alliance sets the selling price and the two firmsshare the profits.

The normalized demand (D) for the productdepends on the technology provided by Firm 1,the selling effort expended by Firm 2, and the retailprice. That is:

D ¼ a� p þ yþ e ðA:1Þwhere a is the base market size potential, p is theretail price for the product, y measures the impactof Firm 1’s choice of technology on demand, and emeasures the impact of Firm 2’s selling effort(market development efforts) on demand. It isassumed that the choice of product technologyand selling effort level has a linear impact ondemand. However, the costs of these investmentsare assumed to be convex increasing to model thediminishing impact of investment on demand.

In the optimal solution to the model, we considertwo different mechanisms: collective control andprivate control.

Collective controlWe start with collective control, where both firmsmake decisions to jointly maximize the totalalliance profits in stage 1; then, in stage 2, the


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total profits are divided between the two firms.Firm 1 invests in the choice of technology (y) thatmay include new high-precision equipment withhigh reliability, fast or flexible equipment, organi-zational training and restructuring, etc., whichimprove the demand potential of the product. Letc be the unit cost of production, and the cost oftechnology be Zy2/4.

Firm 2 invests in developing the market and inthe promotional efforts (e). The cost of promotionaleffort is ge2/4. Now the centralized profits for thealliance (denoted by superscript c) are

Pc ¼ ða� p þ e þ yÞðp � cÞ � Zy2

4� ge2

4ðA:2Þ

The optimal decision for the alliance is to set theretail price (p) and determine the optimal invest-ment in choice of technology (y) and the promo-tional effort (e). On solving the above, the optimalparameters are

yc ¼ gZg� Z� g

ða� cÞ ðA:3Þ

ec ¼ ZZg� Z� g

ða� cÞ ðA:4Þ

pc ¼ c þ Zg2ðZg� Z� gÞ ða� cÞ ðA:5Þ

Substituting from above into (A.1) and (A.2), we get

Dc ¼ Zg2ðZg� Z� gÞ ða� cÞ ðA:6Þ

Pc ¼ Zg4ðZg� Z� gÞ ða� cÞ2 ðA:7Þ

It is easy to see from the above that as the cost oftechnology (Z) or the promotional cost (g)increases, the optimal investment by the two firms(yc and ec) would decrease, and the profit for thealliance (Pc) would also be lower.

Since the alliance profit is system-wide optimal,the next task is to divide the profits between thetwo firms. Let b (0 o b o 1) be the share of Firm 1’sprofit, and �b (equal to 1�b) be the share for Firm 2.Then, Firm 1 makes a profit of bPc and Firm 2makes a profit of �bPc.

Private controlWe now consider the case of private control, wheneach firm makes decisions in order to maximizetheir individual profits. Firm 1 selects its optimalchoice of technology, and Firm 2 selects the

promotional selling effort based on a predeter-mined negotiated sharing of the total profitsbetween the two firms. Subsequently, the alliancesets the retail price, and profits are realized andshared between the two firms.

In order to analyze this problem, we start back-wards with the stage 2 analysis and make theoptimal pricing decision assuming that the tech-nology choice and promotional effort decisions arealready made. Then we solve for the optimal choiceof technology and promotional effort.

For a given choice of technology (y) and effort (e),the alliance profits are

P ¼ ðp � cÞða� p þ yþ eÞ ðA:8Þwhich is maximized by choosing p¼(aþ yþ eþ c)/2.On substituting above, we get P¼(aþ yþ e�c)2/4.

Since b is the fractional share of the profit forFirm 1, Firm 1’s objective function is to select thechoice of technology (y) in order to maximize ITSnet profit:

P1 ¼ bðaþ yþ e � cÞ2

4� Zy2

4ðA:9Þ

Similarly, the objective for Firm 2 is to select theoptimal promotional effort, and ITS profit is

P2 ¼ ð1 � bÞðaþ yþ e � cÞ2

4� ge2

4ðA:10Þ

On solving (A.9) and (A.10) simultaneously, theoptimal decisions (denoted by superscript *) are

y� ¼ bgZg� Z�b� gb

ða� cÞ ðA:11Þ

e� ¼�bZ

Zg� Z�b� gbða� cÞ ðA:12Þ

Therefore we get

p� ¼ c þ 1 þ Z�bþ gb2ðZg� Z�b� gbÞ

ða� cÞ ðA:13Þ

and

P�1 ¼ bð1 þ Z�bþ gbÞ2ða� cÞ2

4ðZg� Z�b� gbÞ2ðA:14Þ

P�2 ¼

�bð1 þ Z�bþ gbÞ2ða� cÞ2

4ðZg� Z�b� gbÞ2ðA:15Þ

It is easy to see from the above that qy*/qb40 andqe*/q�b40: that is, Firm 1’s investment in choice oftechnology increases as its profit share (b) increases;


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Firm 2’s investment in promotional effort increasesas �b increases, that is, as its share of profit increases.Also, we note that the two firms will reduce theirinvestment in choice of technology (y*) andpromotional effort (e*) if the cost increases, thatis, both y* and e* decrease as g or Z increase.

In summary, we note that y*oyc and e*oec: thatis, under private control, Firm 1 would under-investin Technology, and Firm 2 would provide lesspromotional effort as compared with the invest-ments in the collective control case. Further, theprofit for each firm is lower in the private controlcase: that is, P1*obPc and P2*o�bPc, for all b. Also,P1*þP2*oPc: that is, the total system profits arealso lower for the private control case. The intuitionfor this result is that while the system as a wholewould prefer that the firms invest more, since eachfirm is only interested in maximizing individualprofit, the choice of investment in technology/selling effort is only sub-optimal. With collectivecontrol, however, firms would invest more in thetechnology and also exert more selling effort inorder to reach the system optimal solution. Thesystem profit is higher here, and each firm benefitsby getting higher profit.

In our model, the bargaining power is related tothe fraction of the profit-sharing division betweenthe two firms. It is easy to see that in the case ofcollective control the investment made by bothfirms is the system optimal, and does not dependon the sharing of the profit between the two firms.Therefore the impact of bargaining asymmetry ismuted for the case of collective control. In theprivate control case investment by both firms isdependent on the nature of bargaining power: that

is, each firm makes its investment decision as afunction of its individual share of the total profit.

ABOUT THE AUTHORSYadong Luo (PhD, Temple University) is the EmeryFindley Distinguished Chair, Professor of Strategyand International Business, and ManagementDepartment Chair at the University of Miami. Hisrecent research focuses on global strategy andinternational business in emerging economies. Hecan be reached at [email protected].

Oded Shenkar (PhD, Columbia University) wasborn in Israel and holds US and Israeli citizenships.He is currently the Ford Motor Company Chair inGlobal Business Management and Professor ofManagement and Human Resources at the FisherCollege of Business, the Ohio State University. Hismain research interests are the impact of culture onbusiness systems, the evolution of business inChina, and the management of cross-border mer-gers and alliances. He can be reached at [email protected].

Haresh Gurnani (PhD, Carnegie Mellon Univer-sity) is Leslie O Barnes Professor in Logistics andProfessor of Management at the University ofMiami. His research interests are in supply chainmanagement concerning interface issues with eco-nomics, information systems, marketing, and strat-egy. He has received several research awards,including the William W Cooper Award for the BestDoctoral Dissertation, the William Larimer Fellow-ship, and the Richard Cyert Fellowship nomination.He can be reached at [email protected].

Accepted by Nicolai Juul Foss, Departmental Editor, and Arie Y Lewin, Editor-in-Chief, 23 August 2007. This paper has been with the authors for two revisions.


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