Research on Benefit Distribution Model of Industry Technology Alliance
Bin Dai
School of Business, China West Normal University, Nanchong, China
(daibin_2001@163.com)
Abstract - This paper has conducted a comparative
analysis on basis of existing distribution patterns of
industrial technology alliance firstly, and then has
constructed a benefit distribution model of industrial
technology alliance based on "royalty payment pattern”. At
last, the paper has tested reasonableness of the benefit
distribution model through the example analyses. The main
contribution of the paper is expanding study of benefit
distribution model from “two members” to “multiple
members”.
II.
BENEFIT DISTRIBUTION PATTERNS OF INDUSTRY
TECHNOLOGY ALLIANCE ANALYSIS AND CHOICE
When distributing benefits in cross organization like
strategic alliance, we usually have three patterns, such as
“royalty payment”, “hybrid payment” and “fixed
payment” [10]. Every distribution pattern above all has its
advantages and disadvantages, and the specific as is shown
in table I.
Keywords - Industrial Technology Alliance, Fixed
Payment; Royalty Payment, Mixed payment, Benefit
Distribution model, Game Theory
I.
INTRODUCTION
Since “The guidance about promoting the
construction of industrial technology innovation strategy
alliance” issued jointly by the ministry of science and
technology, education and other six departments in
December 2008, industrial technology innovation strategy
alliance (referred to as “industrial technology alliance” in
this paper) has gradually become an important
organizational form in industrial technology innovation
activities in China. Industrial technology alliance usually
faces greater risks due to “the nature, objectives, and
cultural diversity between different members”,
“opportunistic behavior” ，
“uncertainty operation
environmental” and etc. The survey data by McKensey
also confirmed that alliance risk is common [1]. Against
that background, the special research on risk prevention
and control problems of industry technology alliance is
very necessary.
Because alliance member for more benefit through
joining the alliance, so the key of effective prevention and
control alliance risk is constructing a scientific benefit
distribution model in the alliance and distributing benefits
reasonably according to the model. Scholars at home and
abroad has conducted some related researches, such as:
Dong-chuan Sun [2], Shu-yi Zhang [3], Wen-jun Zheng [4],
Chen Ju- hong [5], Luo Li [6], Wen-jun Wang [7], Yong Lei
[8]
and Luis A. Guardiola [9]. But the above researches
limited to only two members in an alliance. Because of
this, we will try to build an benefits distribution model
which suitable for more members in an alliance by using
related theories such as “game theory”, so as for
theoretical support to the practice of industry technology
alliance benefit distribution.
TABLE I. ADVANTAGES AND DISADVANTAGES OF THREE
DISTRIBUTION PATTERNS
Fixed
payment
pattern
advantages
Simple and easy
operate.
to
Royalty
payment
pattern
Embody the “risk and
benefit
sharing”
principle, play effective
incentive on alliance
members.
Mixed
payment
pattern
Avoid
the
capital
pressure of initiators
brought
by
fixed
compensation
mode,
bound initiators and
general
members
together.
disadvantages
Difficult to reflect “risk
and benefit sharing”
principle, can’t stimulate
non-core members
Difficult to determine
scale coefficient
of
benefit
distribution
reasonably, and difficult
to
quantify
the
contributions of alliance
members.
complicated relatively.
According to above analysis results and the actual
situations, this paper decides to construct benefit
distribution model based on “royalty payment pattern”.
III.
A.
BUILDING BENEFIT DISTRIBUTION MODEL OF
INDUSTRIAL TECHNOLOGY ALLIANCE
basic assumption
Assumption 1: n ( n  2 ) members in an industrial
technology alliance, and they are equal status.
Assumption 2: the total cost of alliance includes two
parts, the materiality and the immateriality (intangible
costs), and can be expressed as:
Ci  Ci 0  Ci1 , (i  1,2,..., n)
（1）
C
In （1）, i 0 means material costs, such as alliance
working capital, tangible assets and intangible assets
C i1 means immaterial cost, and it relates
the effort levels of alliance member i [10].
C i1 is positively correlated of the
Assumption 3:
effort levels of alliance member i , and also increasing
discount etc.;
speed up along with the efforts increasing. According to
above assumption, immaterial cost
C i1 of alliance
member i can be expressed as:
Ci1   i ei2
In (2),
i
(
maximization model, and solve initial distribution scale
coefficient
S i of the alliance members; Finally, adjust to
S i (adjuxt)
determine the final distribution benefits ratio
through internal consultation mechanism in the alliance.
1) Individual profit maximization model building
and solving
According to relevant mathematical knowledge, we
can build the individual profit maximization model, as
follows:
max E  i   E Ri   Ci

s.t.E  i    i 0 , i  1,2, n
（5
）
（2）
i  0
) means immaterial cost
e
coefficient of the alliance member i , i means the effort
level of alliance members participating in the alliance.
Assumption 4: the relative contribution coefficient of

alliance member notes for i , which decided by the
relative importance of resource which be putted into the
alliance cooperation by alliance members.
Assumption 5: Profit available for distribution of the

e
alliance decided by i and i , the specific function
relations between them can be expressed as:
R  1e1 ,  2 e2 ,,  n en   i 1  i ei  
n
（3
）
In (3),  means exogenous random variables, such
as the influence of “market fluctuations” for the

distribution benefits;
obeys the normal distribution.
Assumption 6: if the distribution coefficient of
alliance member i notes for
distribution benefits notes for
Ri
Si

(
n
i 1
), the
, so that:
（4）
B. model building and solving
According to the “economic man hypothesis”, the
ultimate goal of the alliance should be “overall profit of
alliance maximization” in making benefit distribution
scheme of industry technology alliance. However, it must
take “the individual profit maximization” as the
prerequisite because the existence of “bounded rationality”
[11]
. Based on the above analysis, this paper confirmed the
mentalities about constructing Alliance benefits
distribution model: firstly, to construct alliance members
individual profit maximization model, and determine the
e
is the minimum profit of the

alliance member i, if the profits of member i below i 0 ,
member i will choose to quit alliance.
Take (1)-(4) into (5), get the expected profits for the
members i, as follows:
E i   ERi   Ci  S i  i 1  i ei  Ci 0  ai ei
n
Use
E  i 
E  i 
ei i  1,2,, n  for a derivative:
ei  S i  i  2ai ei
to
E  i  ei = 0, so S i  i  ai2 ei = 0, get:
ei  S i  i 2a i i  1,2,  , n  1
（
）
Make
When i = n，
e n  (1  i 1 S n ) n 2an
n 1
Above calculation results show that: when effort level
e
Si  1
Ri  S i  R

i
 i0
Among them:

i
e
level of alliance members
; Secondly, take
into
the corresponding formulas to construct the overall profit
of the members i is i , the members i achieved
individual profits maximization.
2) Overall profit maximization model building
and solving
According to relevant mathematical knowledge, we
can build maximization model for alliance overall profit,
as follows:
max E    E R   n Ci
i 1

s.t.E  i    i 0 , i  1,2, n

ei  ei* , i  1,2, n

（6
）
Take (1)-(4) into (6), we can get the expected profits
of the whole alliance:
E   i 1  i ei  i 1 Ci 0  i 1 ai ei2
n
Use
derivative:
n
n
，
E   to S i (i  1,2, n) for a partial
2
n
1
 e1
 
 S  e  S  1  2a1 e1  2a   n  2a n en  2a
1
1
1
n
 1
 
n
1
  2  2a 2 e 2 
  n  2a n e n 

2a 2
2a n
 S 2



 



  n 1  2a n 1en 1  n 1   n  2a n en  n
2a n 1
2a n
 S n 1





  n  2a n e n  n
 S n
2a n
(7)










Take




ei  S i  i 2a i
e  (1  i 1 S n ) n 2an
(i = 1, 2,..., n-1) and
n i

n
into (7) , order it 0, we can
see:
 12
 n2
 n2
12


S

S




1
n
2a n
2a1 2a n
 2a1
2
2
 
n
 n2
 22
2

 S2 
Sn  

2a n
2a 2 2a n
 2a 2


 2
2
2
2
 n 1  S 2   n S n    n 1   n
 2a n 1
2a n
2a n 1 2a n

S  S    S  1   n
2
n 1
 1
n


0

 22

2a 2



1

 n2
 12

 
2
a
2
an
1

 n2
 22

  2a  2a
2
n



2
2
   n 1   n
 2a
2a n
n 1

1 n


n


2
n 1
2a n 1



2a 2



1
 n21
2a n 1


2a n 
2
n 

2a n 

 n2 
2a n 

0 
  12
2 
 n 

 2a1 2a n 
2 
  22
 n 

 2a 2 2a n 



2
 n2 
  n 1
  2a  2a 
n 1
n 

1 n




n
（9
）
3) Deciding
ultimate
benefit
distribution
coefficients
The above quantitative analysis determined the initial
distribution benefits scale coefficients of alliance
members. It should transit the negotiate mechanism in the
alliance to adjust initial scale coefficient on the base of
quantitative analysis, so as to determine the final alliance

S * adjust .

T
S i 0 (i  1,2,, n) means benefit
n
i1 Si 0  0
Among them:
distribution ratio of alliance members, and
.
4) example analysis
Next, the example analysis is for the inspection of
reasonableness of industrial technology alliance benefit
distribution model. For the sake of simplicity, this paper
takes only two members in the case as an example. The
parameter values of benefit distribution model in this
example analysis are as shown in table II.
TABLE II.
SIMULATION PARAMETER VALUES OF ALLIANCE
BENEFIT DISTRIBUTION IN THE MODEL
1
2
1
2
0.62
0.56
0.6
0.4
Take data in table II into (9) respectively, the
calculation of available:
 2 12
0.56  (0.6) 2
S1 

 0.67
2
2
 1  2   2 1 0.62  (0.4) 2  0.56  (0.6) 2
（8）
From (8), we can get S
*
S *  S1* , S 2* ,  , S n*
T


2
2
1
S * adjust  S1*  S10 , S 2*  S 20 ,, S n*  S n 0
 n2 

2 a n   S1 
2
n   S2 


2a n      


  
 n2   S n 1 


2a n   S n 

0 














0
 n2 
benefit distribution ratio, notes for
Above equations can be converted into:
  12

 2a1

 0

 
 0


 1
  12

 2a1

 0

 

 0

 1

for:

S 2  1  S1  0.33
With the negotiate mechanism in the alliance to
adjust the initial scale coefficient, it determines scale
coefficient as (0.6, 4) eventually.
IV.
CONCLUSION
Because alliance member for more benefit through
joining the alliance, so the key of effective prevention and
control alliance risk is constructing a scientific benefit
distribution model in the alliance and distributing benefits
reasonably according to the model. In view of this, This
paper comparatively analyses the existing distribution
model firstly, and with “royalty payment mode” as the
foundation constructs benefit distribution model of
industrial technology alliance, and at last, verifies its
reasonableness through the example analysis. The study
shows that the benefit distribution coefficient of alliance
*
member ( S ) decides by the immaterial cost coefficient


( i ) and the relative contribution coefficient ( i ).The
main contribution of this paper is developing the
corresponding research to the alliance situation of
“members more than two”, thus for this constructed model
more close to the benefit distribution practice of industrial
technology alliance.
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