Embedded Networks and Suboptimal Resource Matching in Alliance Formations
| DOI | http://doi.org/10.1111/1467-8551.12134 |
| Author | Jungwon Min,Hitoshi Mitsuhashi |
| Date | 01 April 2016 |
| Published date | 01 April 2016 |
British Journal of Management, Vol. 27, 287–303 (2016)
DOI: 10.1111/1467-8551.12134
Embedded Networks and Suboptimal
Resource Matching in Alliance Formations
Hitoshi Mitsuhashi and Jungwon Min1
Keio University, Facultyof Business and Commerce, Mita 2-15-45, Minatoku, Tokyo 108-8345, and 1Kyushu
University, Faculty of Economics, 6-19-1 Hakozaki Higashi-ku Fukuoka, 812-8581, Japan
Email: mitsuhashi@fbc.keio.ac.jp; jwmin@econ.kyushu-u.ac.jp
Interest has been growing in alliance networks, and research has demonstrated several
advantages of embedded networks, including joint problem solving. How embedded net-
works function as social capital and promote alliance formation has also been explored.
However,less is known about constraints that they impose on firms’ extensive search for
partners. In this study,we advance our understanding of the downsides of embedded net-
works by proposing that embedded networks facilitate alliance formations, but they may
also cause suboptimal resource matching in alliance formations. Specifically,we predict
that, in alliances where initial resource matching is more important than expost collabo-
rativeactivities, suboptimal resource matching is more likely when firms ally with partners
with which they have pre-existing direct or indirect ties and that such alliances decrease
firm-level resource utilization performance in operations. Using codeshare alliance data
from the global airline industry,we find support for our predictions.
Firms are not self-sucient social entities, and
they possess only some of the resources required
for survival. To procure resources from external
environments, firms build networks of alliances,
defined as ‘voluntary arrangements between firms
involving exchange, sharing, or co-development of
products, technologies, or services’ (Gulati, 1998,
p. 293). There is no question today about the im-
portance of eective alliances. Das (2006, p. 1)
noted that ‘the global environment of business has
made it increasingly dicult for firms to sustain
their competitive advantageon their own, prompt-
ing the accelerated growth of collaborations be-
tween independent firms’.
One of the theoretical arguments in the alliance
literature is the embeddedness perspective, which
suggests that the behaviour of economic actors is
a partial result of ongoing social relationships and
reflects the characteristics and structures of the
social relationships in which they are embedded
(Granovetter, 1985). The literature has consistently
This work was supported by JSPS KAKENHI Grant
Number 25285121.
highlighted the advantages of embedded networks
as social capital and relational assets, facilitating
the development of new alliance formations and
promoting collaborative resource exchanges across
organizational boundaries (Al-Laham, Amburgey
and Bates, 2008). A firm’s alliance networks are
embedded when they consist of other firms that
have pre-existing direct or indirect ties with the
firm. Firms have pre-existing direct ties if they
have allied with each other in the past, and pre-
existing indirect ties if they have been members of
groups that include some of the same firms, such
as being members of consortiums or connected
via shared third-party firms (Gulati and Gargiulo,
1999). ‘Embedded others’ are other firms in em-
bedded networks. Kim and Parkhe (2009) high-
light the embeddedness advantage, demonstrating
that alliance performance increases when partner-
ing firms quickly develop trust and shared refer-
ence frameworks as a result of the strong simi-
larity of their corporate cultures. Arranz and de
Arroyabe (2012) find that the performance of ex-
plorative interfirm collaboration increases when
© 2016 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
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288 H. Mitsuhashi and J. Min
partnering firms adopt relational forms of gover-
nance that rest on trust and embeddedness. Uzzi
(1996) also argues that long-term relations be-
tween partnering firms facilitate the development
of trust, which reduces transaction costs and pro-
motes fine-grained information transfer and joint
problem solving.
In contrast, some scholars warn about the costs,
risks and downsides of maintaining collaborative
relations with embedded others (Rangan, 2000).
For example, Buckley et al. (2009) argue that
allying with embedded others sometimes causes
performance monitoring problems because the
partner may exploit the developed trust. Allying
with embedded others may also limit the extent
of reach by organizations to resources in envi-
ronments and disable flexible realignments of
relations with other firms, and hence preventfir ms
from achieving alliance goals. Unlike individuals
who develop relationships with social motives,
firms form alliances in their pursuit of external
resources with clear commercial and instrumental
objectives. As an implication of their analysis that
found that repeated ties and common third-party
ties are major catalysts for alliance formation,
Gulati and Gargiulo (1999, p. 1477) note that
organizations ‘maystill be victims of subtler forms
of “overembeddedness” that could limit their
search for partners, depriving them of the full
benefits of strategic alliances’. Lazzarini, Miller
and Zenger (2008, p. 710) also note that ‘embed-
ded networks impose dysfunctional constraints on
optimal matching’. Nevertheless, such costs and
risks have been rarely theorized and empirically
tested, and Thorgren and Wincent (2011, p. 23)
note that ‘there are only a few studies that have
examined them [costs and risks of trust and
embedded relations] theoretically or empirically’,
resulting in ‘the limited theory development of the
dark sides of trust’ and embeddedness.
The purpose of this study is to respond to this
call for research by focusing on whether building
alliances with embedded others causes suboptimal
resource matching in alliances.
Resource matching is defined as the extent to
which partnering firms have the tangible and in-
tangible resources necessary to accomplish each
other’s alliance objectives (Mitsuhashi and Greve,
2009). Suboptimal resource matching occurs when
the focal firm allies with other firms that do
not present the potentially best resource match-
ing in the population or when there are alternative
potential partners that can present better resource
matching than the firms with which the focal firm
actually allies.Our focus on the constrained search
that results in suboptimal resource matching is
new and diers from previous research that fo-
cuses primarily on costs of trust. This study also
examines the consequences of suboptimal match-
ing and, in particular, how the formation of al-
liances with partners with which the focal firm has
suboptimal resource matching influences the firm’s
post-formation performance.
We use data on codeshare alliances in the global
airline industry to theorize and demonstrate a
trade-o between the eciency of search cost and
resource matching, in which boundedly rational
managers prioritize the former and sacrifice the
latter. In particular, we find that firms are more
likely to form alliances with embedded others, but
resource matching tends to be suboptimal in such
alliances, and thatpartnering with other fir ms with
suboptimal matching decreases post-formationor-
ganizational performance. Hence, this study con-
tributes to the literature on the downside of em-
beddedness by formally theorizing and empirically
showing that firms can economize search costs by
allying with embedded others butsacrifice resource
matching as a result of a limited local search.
Because productive interfirm collaborationrests
on resource matching between partnering firms,
the selection of appropriate partners is one
of managers’ most critical tasks (Al-Laham,
Amburgey and Bates, 2008). The evolution of
an inter-organizational network tends to be path
dependent and takes the pattern of lock-in: an
emerging network becomes nested within the pre-
existing or embedded network (Gulati, Sytch and
Tatarynowicz, 2012). By showing that this lock-in
causes suboptimal resource matching, our analy-
sis should present some implications about firms’
selections of alliance partners and their strategies
for building alliance networks (Rangan, 2000, p.
814). Our theoretical arguments and empirical re-
sults should thus be of interest to both academics
and practitioners.
Theory and hypotheses
Reviews on the advantages of embedded networks
Previous research on alliances demonstrates
firms’ strong preference for embedded others
as alliance partners for the following reasons:
© 2016 British Academy of Management.
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