International Alliances with Competitors and Non‐Competitors: The Disparate Impact on Sme International Performance

• DOI: http://doi.org/10.1002/sej.1169
• Author: George Nakos,Pavlos Dimitratos,Keith D. Brouthers
• Published date: 01 June 2014
• Date: 01 June 2014

INTERNATIONAL ALLIANCES WITH COMPETITORS

AND NON-COMPETITORS: THE DISPARATE IMPACT

ON SME INTERNATIONAL PERFORMANCE

GEORGE NAKOS1*, KEITH D. BROUTHERS2,3, and PAVLOS DIMITRATOS4

1School of Business, Clayton State University, Morrow, Georgia, U.S.A.

2Department of Management, King’s College London, U.K.

3Department of Global Economics and Management, University of Groningen,

Groningen, The Netherlands

4Adam Smith Business School, University of Glasgow, Glasgow, U.K.

The international entrepreneurship literature maintains that small- and medium-size firms can

suffer from resource constraints as they move abroad. To alleviate this problem, research

suggests participating in strategic alliances. We develop and test the theoretical perspective

that not all alliances are the same; cooperative agreements with non-competitors and com-

petitors have disparate direct and moderating impacts on international performance. Based on

an analysis of 162 British and U.S. private SMEs, our results indicate that alliances with

non-competitors are positively associated with international performance, but that alliances

with competitors are negatively related. In addition, our findings suggest that in alliances with

non-competitors, entrepreneurial orientation helps SMEs increase international performance

and that in alliances with competitors, entrepreneurial orientation simply reducesthe negative

impact. Copyright © 2013 Strategic Management Society.

INTRODUCTION

Recent international entrepreneurship research has

suggested that small- and medium-size enterprises

(SMEs) benefit substantially from alliances when

they expand to international markets (Colombo

et al., 2009; Fernhaber, McDougall-Covin, and

Shepherd, 2009). Strategic alliances are cooperative

agreements between two or more companies to share

knowledge and resources (Lu and Beamish, 2001). A

shortage of knowledge and other resources may

curtail the ability of even the most entrepreneurial

company to succeed abroad (Coviello, 2006). Alli-

ances provide these firms with the knowledge and

resources needed to overcome liabilities of small-

ness and foreignness (Fernhaber et al., 2009). By

leveraging these arrangements, SMEs can develop

the organizational capabilities needed to success-

fully compete in a specific foreign country. Previous

research provides some support for this perspective,

noting that participation in strategic alliances helps

explain international success (Lu and Beamish,

2001).

Other research suggests that an SME possessing

a high level of entrepreneurial orientation (EO)

can recognize opportunities in international markets

and create the processes, asset base, and strategies

needed to take advantage of these opportunities,

resulting in more successful international operations

(Jantunen et al., 2005; Marino et al., 2002). EO is a

firm’s propensity to utilize novel behaviors, to

anticipate and act on future changes in the external

environment, and to be willing to undertake invest-

ments with uncertain outcomes (Covin and Slevin,

Keywords: SME; strategic alliances; non-competitors; competi-

tors; performance; entrepreneurial orientation; EO

*Correspondence to: George Nakos, School of Business,

Clayton State University, 2000 University Blvd., Morrow, GA

30260, U.S.A. E-mail: georgenakos@clayton.edu

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Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 8: 167–182 (2014)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1169

Copyright © 2013 Strategic Management Society

1989). Firms with high EO are more apt to introduce

new products, diversify their activities, and learn

how to thrive in uncertain international environments

(Dess et al., 2003).

Although research in these two areas provides

valuable insights about SME international perfor-

mance, we could identify no studies that look at how

strategic alliance participation and entrepreneurial

orientation jointly influence international perfor-

mance. This is important because a number of

studies have found a strong relation between strate-

gic alliances and entrepreneurial orientation (Marino

et al., 2002; Dickson and Weaver, 1997) but have not

looked at how these two factors work together to

influence performance. Furthermore, past research

tends to concentrate on firm alliances with non-

competing partners (Zhou, Wu, and Luo, 2007) and,

with few exceptions, ignores the compound relation-

ships that a company might establish with firms that

are direct competitors or potential competitors

(Dollinger and Golden, 1992; Ross and Robertson,

2007). Because of the importance of strategic alli-

ances with competing firms (Bengtsson and Kock,

2000), this type of alliance may have a significant

influence on SME international performance.

In this study, we build on the strategicalliance and

entrepreneurship literatures to examine the relation

between strategic alliances, entrepreneurial orienta-

tion, and international performance for SMEs. Inter-

national performance is often defined at the firm

level as the intensity or scope of international

operations (Keupp and Gassmann, 2009). In this

article, we explore the performance of a specific

international operation after entry and measure inter-

national performance using a multidimensional con-

struct that examines the firm’s foreign market

performance versus competitors in terms of sales,

market share, return on investment, and profitability

of the foreign venture.

Our main contribution is the development and test

of a theory that suggests participation in foreign

market strategic alliances with competing and

non-competing firms will have disparate direct and

indirect associations with SME international perfor-

mance. We hypothesize that participation in

alliances with non-competitors in the foreign market

results in improved international performance

because these alliances provide firms with market-

specific skills, resources, and knowledge necessary to

effectively execute an international expansion strat-

egy (Fernhaber et al., 2009; Colombo et al., 2009). In

contrast, we propose that participation in alliances

with competitors in a foreign market adversely

impacts international performance because the poten-

tial benefits from an increase in market-specific skills

and resources generated by the alliance are offset by

the added costs associated with monitoring the behav-

ior of competing partners who may possess contrary

interests and act opportunistically (Ritala, Hallikas,

and Sissonen, 2008; Luo, Rindfleisch, and Tse,2007).

Finally, we theorize that EO will moderate these

relations, further improving performance for SMEs

participating in alliances with non-competitors and

reducing the downside affects of alliances with

competitors.

We test these ideas on a sample of privately held

manufacturing and service sector SMEs based in the

United States and the United Kingdom. Our results

provide support for the direct and moderating influ-

ence of alliance participation on international perfor-

mance and for the differing impact of alliances with

competitors and non-competitors. Hence, our study

makes several critical contributions to the interna-

tional entrepreneurship literature by providing a

better understanding of how alliance participation

and EO jointly influence the international perfor-

mance of SMEs. By theoretically and empirically

exploring the different performance implications of

alliances with competitors and those with non-

competitors, as well as how EO moderates these

relations, we help explain SME performance differ-

ences, identify successful strategies SMEs can use

when internationalizing, and enhance our knowledge

of international entrepreneurship.

THEORY AND HYPOTHESES

Strategic alliances play a very important role in

increasing the organizational skills and resources of

SMEs (Colombo et al., 2009) especially during

international expansion (Fernhaber et al., 2009; Yu,

Gilbert, and Oviatt, 2011). Alliances provide SMEs

with the ability to gradually expand operations

abroad (Ulubasoglu, Akdis, and Kok, 2009).

Through foreign market alliance participation,

SMEs can access and utilize knowledge/resources

provided by partner companies which helps them

overcome resource constraints (Chetty and

Campbell-Hunt, 2003; Yuet al., 2011). Participating

in alliances can also provide legitimacy to foreign

SMEs in new markets (Chen and Huang, 2004).

A firm’s ability to utilize alliance resources has

been characterized as social capital and it plays an

168 G. Nakos, K. D. Brouthers, and P. Dimitratos

Copyright © 2013 Strategic Management Society Strat. Entrepreneurship J.,8: 167–182 (2014)

DOI: 10.1002/sej