Strategic Alliances for Environmental Improvements

Abstract

This article articulates a conceptual framework characterizing strategic alliances for environmental improvements. Drawing on the integrative perspective of the resource-based view of the firm and institutional theory, this study examines firms’ varied motivation to form strategic alliances for environmental issues and suggests that these alliances are typically either competency- or legitimacy-oriented. The author characterizes the structural configurations of these alliance types from alliance learning, partner diversity, and governance structure dimensions. These variances in structural configurations explain why competency-oriented alliances, characterized by exploration learning, diverse partners, and nonequity structure, may facilitate firms to pursue more proactive environmental strategies. This conceptual framework is supported empirically by a sample of 74 firms that participated in 146 environmental alliances in the United States from 1991 to 2007.

Keywords

strategic alliance resource-based view of the firm institutional theory alliance learning alliance diversity alliance governance alliance configuration environmental strategy

The increasing uncertainty and complexity of the global business environment in the last decade have led to the rapid proliferation of strategic alliances. Such strategic alliances are short- or long-term voluntary collaborations between organizations, involving exchange, sharing, or codevelopment of products, technologies, and services to pursue a common set of goals or to meet a critical business need (Gulati, 1998). While previous research has recognized the importance of strategic alliances, these studies have traditionally focused on assessing the economic aspects of interfirm relationships (Mitchell & Singh, 1996). Strategic alliances, however, include both interfirm alliances and cross-sector alliances, and alliances have been formed not only to address economic concerns but also to deal with complex environmental issues such as climate change, alternative energy, waste management, and recycling. Thus it is important to understand why firms align for complex environmental issues and how strategic alliances facilitate firms to pool resources and competencies from diverse partners to jointly tackle these complex environmental issues.

In explaining why businesses form alliances, previous studies have tended to rely on a single theoretical lens, such as transaction cost theory, resource-based view of the firm (RBV) or institutional theory, to investigate the motives of alliance formation. While contributing to a basic understanding of how strategic alliances operate, the single-lens approach fails to capture fully the strategic, economic, environmental, and social factors that motivate firms to participate in strategic alliances. As such, previous scholarship has tended to treat participation in strategic alliances as a dichotomous variable (firms either participate or do not participate), thus failing to address important nuances concerning alliance formation. As yet, little is known whether there are variations among alliances and the implications that different types of alliances may have for improving the natural environment. For instance, some environmentally focused alliances may develop because of external institutional pressures, whereas others may form because of new market opportunities. These variations may lead to significant differences in an alliance’s ability to achieve meaningful environmental improvements.

This article the nuances of alliance formation for environmental issues by exploring three central research questions:

Research Question 1: Why do firms form strategic alliances for environmental issues?

Research Question 2: What are the structural configurations of these alliances?

Research Question 3: Which of these strategic alliances encourages firms to adopt more proactive environmental strategies?

In addressing these questions, the next section of this article abstract integrates RBV and institutional theory to access firms’ motivations for participating in strategic alliances. A new typology of strategic alliances is thus developed based on alliance orientation. The subsequent section specifically explores the theoretical links between (a) the varied alliance orientations and their structural configurations, and (b) the implications that these varied structural configurations may have for firms to adopt more (or less) proactive environmental strategies. Data, research design and statistical models are explained in the method section: 146 observations were collected through archival data representing 74 firms’ participation in 146 environmentally related alliances between 1991 and 2007 in the United States. This article abstract concludes by sharing the research results and discussing the academic and policy implications of the study.

Theory: Typology, Configurations, and Outcomes of Strategic Alliances for Environmental Improvements

This section articulates a conceptual framework characterizing the typology, structural configuration, and outcomes of alliances formed for environmental improvements

Alliance Typology: Competency-Oriented Alliances Versus Legitimacy-Oriented Alliances

The article integrates both RBV and institutional theory to explain alliance formation for complex environmental issues. From the RBV perspective, strategic alliances help firms access idiosyncratic resources and competencies from partners. They help to combine complementary assets owned by different organizations (Hagedoorn, 1993) to develop valuable organizational competencies. In doing so, strategic alliances may create competitive advantage opportunities for participants by offering a vehicle for some firms to shift existing practices toward creating the next-generation (Hamel, 1991) of technologies and business models. Given the ambiguities and uncertainty associated with environmental issues, strategic alliances can facilitate the flow of valuable information and opportunities to participating firms, thus increasing their ability to recognize and evaluate technological innovations in the marketplace. As such, the specialized skills and competencies that result from resource-based motivations are anticipated to yield strategic alliances that are decentralized, firm-specific, knowledge-based, and socially complex. Strategic alliances borne out of resource-based motivations are termed here competency-oriented alliances (COAs).

By contrast, firms’ decision to participate in strategic alliances is also shaped by institutional pressures that arise from regulators, industry constituents, and community constituents. These constituents exert coercive, mimetic, and normative pressures on firms within a common setting (DiMaggio & Powell, 1983). These pressures may prompt firms to participate in strategic alliances in an effort to gain social legitimacy and enhanced survival prospects (Baum & Oliver, 1991). Specifically, firms may strategically align with regulators on whom they depend for legal, physical, financial, or reputational capital (Baum & Oliver, 1991). To mitigate the threat of constituent sanction, firms from the same industry may align to collectively manage stakeholder perceptions and improve collective performance (Etzion, 2007). Moreover, community constituents (especially environmental NGOs) are imposing new roles on the firms (Hoffman, 2000), thus exerting institutional pressures on firms that may influence their decision to participate in a strategic alliance. Strategic alliances that are borne out of institutional pressures are termed here legitimacy-oriented alliances (LOAs).

The Structural Configurations of COAs and LOAs

This subsection characterizes COAs and LOAs across three structural dimensions—alliance learning, partner diversity, and governance control. The author synthesizes these alliance structural configurations with an integrative framework of RBV and institutional theory, and argues that COAs tend to be explorative, involved with diverse partners, and have flexible governance control, whereas LOAs tend to be exploitative, involve with homogeneous partners, and have equity governance control.

Strategic decisions in alliance formation involve a trade-off between exploitation and exploration, in that firms need to decide how resources are allocated to the deployment of existing competencies, as compared to the development of novel knowledge and resources (Park, Chen, & Gallagher, 2002). Resource-based firms emphasize the entrepreneurial rents that they can earn on extant assets and capabilities. They are willing to invest in exploration learning that require broad and uncertain searches of new opportunities to identify a variety of future options as the market changes (Park et al., 2002). Thus COAs tend to be associated with exploration learning since such activities help firms obtain “valuable, rare, imperfectly inimitable and non-substitutable” competencies that their competitors cannot compete with (Barney, 1991, p. 116).

Hypothesis 1a: Resourced-based motivation is more likely to be associated with firms’ participation in exploration alliances.

By contrast, taking uncertain environments as threats (Sharma, 2000), firms with institutional motivation may give more weight to the exploitation of their existing resources and relations since uncertainty and unpredictability are greatly reduced in such an alliance form (Podolny, 1994). At this stage, exploitative alliances tend to facilitate participants in applying successful practices into large-scale manufacturing, dissemination of existing technology, and standardization of the current routine to enhance efficiency. In doing so, exploitation learning may facilitate firms to spread their best practices across organizational or industrial boundaries, and participating firms may end up being more isomorphic or homogeneous.

Hypothesis 1b: Institutional motivation is more likely to be associated with firms’ participation in exploitation alliances.

The second structural configuration to differentiate COAs and LOAs is alliance partner diversity. Firms with resource-based motivation are more likely to participate in innovative activities with an aim to generate new competencies. They are more likely to be involved with cross-industry alliances since the locus of innovation frequently originates from outside the base industry (Kotabe & Swan, 1995; Powell, Koput, & Smith-Doerr, 1996). In some instances, the diverse alliance partners could come from different sectors (e.g. NGOs, universities, and governments). NGOs can be a source of external expertise and they tend to explore solutions to environmental problems (Christmann, 2000), and university (labs) tends to foster innovation and upstart companies (Rothaermel & Deeds, 2004). As such, diverse (cross-industry and cross-sector) partners may better provide the complementary assets for innovation, or entry of new markets, than can homogeneous partners (Sakakibara, 1997).

Hypothesis 2a: Resource-based motivation is more likely to be associated with firms’ alignment with diverse partners.

On the other hand, institutional scholars (Oliver, 1997; Rivera, Oetzel, de Leon, & Starik, 2009) suggest that there is a wider array of legitimate responses to institutional pressure, which includes reactive manipulation, proactive opportunistic behavior, passive acquiescence, imitation and diffusion of legitimate competencies. In the alliance setting, firms with institutional motivations may seek to improve their legitimate position through same-industry alliances. They may conduct defensive lobbying with same-industry partners for relax mandates; adopt symbolic participation to minimize public concerns and threat; imitate the best practices in the industry by aligning with greener firms in the industry; and jointly leverage current industry competencies to enhance industry-wide legitimacy . Homogeneous partners (same industry) partners thus help firms obtain or restore legitimacy.

Hypothesis 2b: Institutional motivation is more likely to be associated with firms’ alignment with homogeneous (same industry) partners.

The third structural configuration to characterize COAs and LOAs is alliance governance, which refers to the contractual mechanisms that allow alliance partners to coordinate with each other. From governance perspective, alliances are ranged from equity to nonequity alliances (Dacin, Oliver, & Roy, 2007; Gulati, 1995). Equity alliances linked partners together by formal structures and may involve joint ownership (e.g., joint venture), whereas nonequity alliances “tend to be loosely coupled forms of organizing which involve less structure and joint ownership” (e.g., joint research and development; Dacin et al., 2007, p. 179). The entrepreneurial aspect of RBV suggests that firms with resource-based motivations tend to involve innovation and new product development. These firms tend to choose nonequity structure for the flexibility it offers for partnering firms to pursue innovation and competitive advantage.

Hypothesis 3a: Resource-based motivation is more likely to associate firms with nonequity alliances.

The flexible mechanism of nonequity alliances may encourage innovation in the product research and development (R&D) stage. However, after a technology has gone through pilot testing and proves to be technically and financially viable for commercial adoption, firms tend to choose equity alliances that secure commitment and certainty among partner firms (Kok & Creemers, 2008). Firms with institutional motivations tend to be associated with equity alliances since such alliance structure allocates the profit or benefit in accordance with equity shares (Dacin et al., 2007), thus helps secure a certain return in investment for firms.

Hypothesis 3b: Institutional motivation is more likely to associate firms with equity alliances.

Alliance Outcomes Associated With the Alliance Configurations

The understanding of the alliance orientation and structural configurations may lead us to explore the strategic implication of these alliances. That is, which of these strategic alliances may encourage firms to adopt more proactive environmental strategies? Proactive environmental strategies often require greater resource commitments to initiate significant changes in processes or entirely new production technologies (Hart & Ahuja, 1996). COAs may allow like-minded firms to pool resources and develop competencies for such an endeavor. Assessing the configurations of COAs and LOAs may help explain why some alliances have more proactive environmental outcomes than the others. Specifically, COAs, characterized by explorative learning, diverse partners, and nonequity structure, are more likely to be associated with more proactive environmental strategies, while LOAs, characterized by exploitative learning, homogeneous partners, and equity structure, are more likely to be associated with less proactive environmental strategies. The reasons are explained in detail below.

Alliance Learning: Exploration Versus Exploitation

Exploration alliances combine complementary competencies from heterogeneous partners to trigger innovation for new product development. The innovation stimulated by exploration alliances tends to create far-reaching, radical, and transformative changes to business models and markets. These innovations, in turn, enable firms to initiate change from their current environmental practices, to preempt regulatory mandates and to adopt proactive environmental strategies for competitive distinction. By contrast, exploitation alliances tend to target “the use and development of things already known,” rather than the “pursuing of knowledge, of things that might come to be known” (Levinthal & March, 1993, p. 105). These firms, therefore, are left in the same, or similar, resource position as they had before participating in the alliances, and they are less likely to adopt proactive environmental strategies.

Hypothesis 4: Exploration alliances tend to be associated with more proactive environmental strategies.

Alliance Diversity: Heterogeneous Versus Homogeneous Partners

Diverse alliance (cross-industry and cross-sector) partners may instill new values and perceptions into the partnership, which may shift managerial perceptions related to environmental problems, and help build an innovative culture and a “shared vision” (Hart, 1995). “Shared vision” is critical for the adoption of more proactive environmental strategies since all functional units (including management, R&D, production, and marketing) must be mobilized and committed if a firm is to implement a policy of using clean technologies (Russo & Fouts, 1997). By contrast, when aligning with homogeneous (same-industry) partners, firms often have a lack of access to different knowledge and solutions offered by the diverse partners, and thus are less able to conduct higher order organizational learning and to stimulate radical innovation. Therefore, the resulting hypothesis is as follows:

Hypothesis 5: Diverse alliance partners tend to be associated with more proactive environmental strategies.

Alliance Governance: Nonequity Versus Equity Structure

Nonequity alliances allow firms to maintain their independence, innovativeness, and flexibility so that they can respond quickly to changing market conditions (Linnarsson & Werr, 2004). Such flexible alliance mechanisms may allow participants to make an early move to a new niche, preempt the market, and sustain market position through innovation and product differentiation. Since R&D intensity (especially radical innovation) is positively correlated with firms’ adoption of proactive environmental strategies (Arora & Cason, 1996), nonequity alliances are more likely to associate firms with more proactive environmental strategies. Conversely, equity alliances tend to exploit current competencies, and their rigid governance structure is seldom feasible for innovation development (Linnarsson & Werr, 2004). Such structure thus is less likely to facilitate firms to pursue more proactive environmental strategy.

Hypothesis 6: Nonequity alliances tend to be associated with more proactive environmental strategies.

Summarizing the above alliance configurations reveals a pattern where COAs that are more explorative, involve with heterogeneous partners, are nonequity based, and are more likely to engage firms for more proactive environmental strategies. The opposite is hypothesized for LOAs. How different types of alliance configurations affect firms’ postures toward environmental issues is illustrated in Figure 1.

Figure 1.

Conceptual Model—Strategic Alliances Facilitate Firms’ Adoptions of Environmental Strategies

Method

To test the developed conceptual model, this article uses archival data from four databases: the Securities Data Corporation (SDC) database, KLD Research & Analytics, Inc. (KLD) database, Compustat, and U.S. Patent and Trademark Office (USPTO) database. Specifically, alliance configuration and outcome data came from the SDC database (SDC is a division of Thomson Financial). Alliance learning is measured by the types of agreements (exploration vs. exploitation) firms signed in the alliance. Alliance diversity counts how diverse the partners are from different industries and sectors. Alliance governance is measured by whether firms signed joint venture (equity) agreement. The alliance outcome data also came from the SDC database. A content analysis is conducted to rank the environmental strategies that alliances involved along a proactive scale from pollution control, pollution prevention, product stewardship, to sustainable development (clean technology). Firms’ resource-based motivation is measured with patent data collected from the USPTO database. Firms’ institutional motivation is measured with environmental concern data collected from the KLD database. Compustat database is also used to collect firm-level control variables. Combining these four databases, the author derived a sample of 146 U.S.-based environmental alliances for the period 1991-2007, which involved the participation of 74 manufacturing and utility firms (distributed across SIC codes 20 through 49). A firm’s participation in a specific alliance is the subject of this study.

To address potential endogeneity issues, the conceptual model is predicted with two-stage estimation models, including the Heckman estimation model and two-stage least squares (2SLS). The general strategy of the Heckman model is to estimate the probability of firms’ selection of alliance configurations based on exogenous factors, and this estimated probability of selection computed in Stage 1 can be used as the independent variable in Stage 2 when predicting firms’ likelihood of adopting more proactive environmental strategies as a result of different alliance configurations. These two stages are estimated simultaneously. When both of the dependent variables (in the first and second stage model) are continuous, 2SLS are used. An endogeneity test is also conducted (the Durbin-Wu-Hausman test) for every two-stage models. Under the circumstances where two-stage estimation models are unnecessary, the OLS estimators are used because of their efficiency.

Discussions and Conclusions

Essentially, eight out of the nine hypothesized relationships are confirmed in the data. The findings suggest that strategic alliances are formed because of firms’ motivation to enhance their resources and capabilities, in addition to their desire to address institutional pressures. Competency-oriented alliances (COAs), characterized with exploration learning, diverse partnership, and nonequity structure, tend to engage firms for more proactive environmental strategies. Conversely, legitimacy-oriented alliances (LOAs), characterized by exploitation learning, homogeneous partners, and equity structure, tend to engage firms for less proactive environmental strategies. These results indicate a path on which strategic alliances can be reconfigured from learning pattern, partner structure, and governance mechanism dimension to achieve more proactive environmental outcomes.

The article’s findings have important implications for research in RBV, institutional theory, alliance formation, and organizations and the natural environment (ONE). Consistent with the RBV of strategic alliance literature, my results suggest that COAs may involve diverse participants in R&D, technology transfer, and other explorative activities, which in turn help create rare, specialized, difficult-to-replicate resources and capabilities for the participating firms. By highlighting that COAs may be associated with more proactive environmental strategies Hart (1995) identified the interconnectedness and path dependence among the stages of proactive strategies, but failed to explain how firms can accumulate resources for that endeavor. This article develops Hart (1995) by indicating how COAs may help firms overcome conceptual, technical, and organizational obstacles to adopt more proactive environmental strategies. Consistent with legitimacy-based view of strategic alliances (e.g., Dacin et al 2007), my findings suggest that firms may conform to institutional expectation through exploiting current competencies, aligning with same-industry partners, and choose equity structure. This finding is consistent with institutional scholars (e.g. Christmann & Taylor, 2002), who argue that firms tend to align with partners from the same industry to defend their shared reputation.

This article also contributes to the alliance formation literature. The author’s research suggests that an integrative perspective of RBV and institutional theory is relevant in explaining firms’ nuanced choices related to alliance learning (exploration vs. exploitation), alliance diversity (diverse partners vs. homogeneous partners), and alliance governance (nonequity vs. equity structure). This knowledge helps explain what COAs and LOAs might look like and thus helps create a new typology of strategic alliances.

The research findings are also important to the field of management strategy and to policy makers and NGOs alike. Firms are increasingly adopting alliance strategies for both economic and political reasons. It is critical for firms to choose the right alliance partners and the right alliance configurations since constituents may judge firms by their alliance associations and by the type of alliances chosen. By knowing what types of alliances are more proactive in associating firms for more meaningful environmental improvements, firms can have a more informed selection of appropriate alliances that can preempt regulations, signal environmental stance, or explore new market opportunities.

Policy makers also increasingly use strategic alliances as self-regulation mechanisms to allow firms to voluntarily tackle environmental issues, rather than enforcing mandated regulation. Understanding what types of strategic alliances may lead to more proactive environmental outcomes may help policy makers allocate resources to support proactive alliance formation, management, and reconfiguration. For instance, since LOAs may be associated with less proactive environmental strategies, they may be less likely to lead to meaningful environmental outcomes than would COAs. As such, policy makers and NGOs may achieve stronger environmental outcomes by going beyond simply pressuring for environmental change among the regulated community and, instead, should align themselves with businesses to foster stronger learning and innovation opportunities that lead to more ambitious environmental outcomes.

Footnotes

Acknowledgements

The author wants to thank her PhD adviser Nicole Darnall and committee member Jorge Rivera for their guidance through this article’s development process.

This article was earlier successfully defended as a doctoral dissertation, in April 2010, under the supervision of Dr Nicole Darnall and committee members Mousouds Yasai, Jorge Rivera, Yan Ling, and Naoru Koizumi, and the author was awarded the doctor of philosophy degree at George Mason University in May 2010.

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

The author disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The author received $36,000 Provost’s High Potential Graduate Research Assistantship from George Mason University for her dissertation research.

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