International Strategic Alliances

Strategic alliances have become one of the most important organizational forms to emerge in the past decade, providing a critical source of competitive advantage because of their value creation potential (Das and Teng, 2000). R&D alliances have been widely used to create a competitive position for high-tech companies (Ball, 1999). However, evidence from past research shows that many strategic alliances fail and the failure rates are even higher for alliances between firms with home bases in different countries (Hitt, Dacin, Levitas, Arregle, and Borza, 2000).

Therefore, the decision to form an international alliance is a critical one, especially in an emerging market like China, which has a very specific business environment. China is still in the course of transition from a state/centrally planned economy to a market economy, and its governments (national and local) still exert great influence on business activities. It is very important for multinational companies wishing to carry out R&D in China to have a good understanding of the growth of R&D activities in China and the government policy towards foreign invested R&D.

When entering into an R&D alliance with local partners, MNCs also need to have a clear understanding of their strategic motives, and choose forms and R&D activities that support their strategic motives. The Growth Trend of International R&D Alliances R&D in China Science and technology development has long been a priority in Chinese policy planning. The Chinese government plays an active role in attracting R&D-related foreign direct investment because R&D investments can have positive spillover effects to other parts of the national economy and to Chinese society at large.

Technology transfer, as an early form for foreign R&D investment, started in the mid-1980s. China implemented a policy of 'Technology Transfer from Opening Domestic Markets' (TTODM) to attract foreign direct investments and obtain spillover effects for the domestic economy in the mid-1980s (Zhao and Sun, 2003). This TTODM strategy has successfully attracted huge foreign investment. MNCs, especially those of the Fortune 500, have been an important source of foreign R&D investment in China. The Chinese government believes that MNCs can promote technology transfer.

By the mid-1990s R&D investment was required by official or unofficial policies regarding the establishment of Sino-foreign joint ventures. However, as many of these early joint venture-based R&D programs were products of government pressure, they rarely involved much advanced research and development work (Walsh, 2003). Rather, technology collaborations in this period commonly comprised simple equipment or fund donations for training or education in China, often in connection with universities and research centers.

Particularly, in the information technology industry, many multinational corporations, like HP, Motorola, Microsoft, IBM, etc. established a number of joint 'labs' at leading Chinese universities (e. g. , Tsinghua, Peking, and Fudan Universities). (Zhao and Sun, 2003) Foreign invested R&D began to grow and expand in China in the mid-1990s. Encouraged by the Chinese policy of 'Going West', many foreign investors moved into the less developed inland provinces in China and established R&D centers and manufacturing bases there, partly to take advantage of the preferential policies.

In addition, the expectation of China's near-term of accession to the WTO and the growing competition among foreign investors, also contributed to the rapid growth of foreign invested R&D centers (mostly joint ventures) in China during this period (Walsh, 2003). During this period, in the telecom and information technology sector, China started to implement so called 'Golden Projects', to establish national fiber-optic communications networks.

This program includes three key projects: the Golden Bridge Project (The State Public Economic Information Network Project), the Golden Cards Project (an electronic currency project to realize computerized finances), and the Golden Customs Project (an information network project specially designed for foreign trade). (Walsh, 2003) This extremely ambitious series of projects, which have been compared to the 19th Century American railroad system development program, provided enormous business opportunities to both domestic and foreign companies.

Multinational corporations rushed to partner with Chinese firms for market access, especially the opportunities these projects offered. Definition of International R&D Alliances There are many definitions of strategic alliances. The differences between the definitions are more on the scope of the definition than the general concept. A broad definition of strategic alliances is given by Yoshino and Rangan (1995) that emphasizes three characteristics of alliances: 1)    Two or more firms unite to pursue a set of agreed upon goals while remaining independent subsequent to the formation of the alliance.

2)    The partner share the benefits of the alliance and control over the performance of assigned tasks, perhaps the most distinctive characteristic of alliances and the one that makes them so difficult to manage. 3)    The partner firms contribute on a continuing basis in one or more key strategic areas, for example, technology and products. In accordance with this broad definition, strategic alliances constitute a subset of various collaborative activities, e. g. R&D, marketing, manufacturing, etc.

This paper focuses on one subset of strategic alliances: R&D alliances, which are also called research partnership or strategic technology partnering by some researchers (Hagedoorn, Link, and Vonortas, 2000). Hagedoorn, et al (2000) defines a research partnership as an innovation-based relationship that involves, at least partly, a significant effort in research and development. International R&D alliances can be defined as a collaborative relationship between firms with home bases in different countries that involve, at least partly, a significant effort in research and development.