Alliance Commitment and Control: SMEs from Developing Countries
Keith D. Brouthers
Temple University
Philadelphia, PA
George Nakos
Clayton College and State University
Atlanta, GA
Lance Elliot Brouthers
University of Texas at El Paso
El Paso, TX
Paper presented at the Academy of International Business
46th annual meeting, Stockholm, Sweden, July 10-13. 2004
Alliance Commitment and Control: SMEs from Developing Countries
SMEs from developing countries tend to prefer to expand internationally through
alliances. However, there is little research examining how to manage alliances once
formed. In this study we combine commitment and control theories to explain how
alliance commitment and process controls can lead to greater alliance performance.
When tested on samples of developing country SMEs from two distinct regions we find
support for our theoretical predictions. We discuss the managerial implications of using
commitment and process controls in SME international alliances.
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Alliance Commitment and Control: SMEs from Developing Countries
Alliance research indicates that many alliances fail, are short-lived and do not
meet partner expectations (Johnson, Korsgaard & Sapienza, 2002; Shamdasani & Sheth,
1995). Yet, for small and medium sized enterprises (SMEs) alliances may be one of the
few options available for international expansion (Karagozoglu & Lindell, 1998). The
reason for this is that SMEs tend to have few excess resources that can be applied to
international activities (Zacharakis, 1997). Second, SMEs typically have very little
international experience; they lack knowledge and expertise in issues of international
business such as managing differences in culture, distribution and price that may
significantly impact international performance (Qian, 2002; Karagozoglu & Lindell,
1998). Third, because of their small size, lack of resources and experience, SMEs may
suffer from information asymmetries relating to finding, negotiating and attracting
potential alliance partners (Karagozoglu & Lindell, 1998).
For SMEs from developing countries these limitations may be accentuated since
they may not have the economic and political environment within their home country to
provide support (Cook, 2001; Weaver & Dickson, 1998). SMEs from developing
countries may lack the support of an organized national export policy; an essential
component to international success for SMEs from industrialized countries (Katsikeas,
Piercy & Ioannides, 1996). Hence, when SMEs from developing countries want to
expand into international markets they are more dependent of alliance partners for the
success of their international ventures. This dependency may create problems of
opportunism and free riding, leading to an alliance that will be short lived and perform
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poorly. As Aulakh, Kotabe and Sahay (1996: 1006) state: “the critical determinant of
partnership success becomes the ex post maintenance of the partnership.”
The question that SMEs from developing countries need to answer is how to
manage international alliances and achieve their goals and objectives. Based on
commitment theory (Johnson, Korsgaard & Sapienza, 2002; Cullen, Johnson & Sakano,
1995; Anderson & Weitz, 1992; Beamish & Banks, 1987), we suggest that SMEs from
developing countries can achieve alliance success by taking a long-term orientation
toward their international alliances (Boyle, Dwyer, Robicheaux & Simpson, 1992) and
using process controls to safeguard against opportunism (Bello & Gilliland, 1997; Aulakh
et al, 1996).
Commitment theory suggests that taking a long-term perspective helps improve
alliance performance because the expectation of continuity leads to a level of satisfaction
in the alliance and partners do not look for alternatives (Aulakh et al, 1996; Boyle et al,
1992; Anderson & Weitz, 1992). Commitment helps reduce opportunism which
influences the need for other types of control and improves alliance performance
(Beamish & Banks, 1987).
Research suggests that commitment can be reinforced through supporting
organizational control mechanisms which also help minimize opportunism and improve
alliance performance (Aulakh et al, 1996; Beamish & Banks, 1987). Through process
controls focal firms attempt to influence alliance partner behavior and help to alleviate
problems of opportunism because the focal firm is involved in decision making and
assumes a supportive posture in the alliance (Bello & Gilliland, 1997). Process controls
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reward long-term orientation and organizational commitment, potentially enhancing
alliance performance (Bello & Gilliland, 1997; Aulakh et al, 1996).
Previous scholarship has tended to concentrate on the antecedents to commitment
(e.g., Geyskens, Steenkamp & Kumar, 1999). Here we focus on the consequences of
commitment by building on previous organizational commitment (Cullen et al, 1995;
Boyle et al, 1992) and process control (Bello & Gilliland, 1997) research. More
specifically we explore (1) the impact of organizational commitment on alliance
performance, (2) how commitment influences the use of process controls in alliances, and
(3) the impact of process controls on alliance performance. Our empirical contribution
examines SMEs from developing countries and looks at how commitment and process
control contribute to international alliance performance.
THEORY
Alliances are agreements between two or more companies to achieve a specific
goal or objective (Shamdasani & Sheth, 1995). Alliances take many forms and include
both equity based agreements, such as joint ventures, and non-equity forms of cooperation; distribution, licensing or consortium agreements (Weaver & Dickson, 1998;
Shamdasani & Sheth, 1995). SMEs that want to sell their products or services in foreign
markets tend to prefer alliances over other forms of international activity because
alliances provide market access and local knowledge; resources not usually available to a
SME. Alliances may also provide other resources (government contacts) and expertise
(customer knowledge) lacking in foreign SMEs. Finally, alliances are preferred because
they reduce the risks of international expansion (Saxton, 1997; Tallman & Shenkar,
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1994). Recent research has shown that the majority of internationalizing SMEs consider
international marketing alliances essential to the success of the company (Karagozoglou
& Lindell, 1998).
Research suggests that despite the popularity and importance of alliances, we
have a very limited understanding of how to manage them (Aulakh et al, 1996;
Shamdasani & Sheth, 1995; Gulati, Khanna & Nohria, 1994). This lack of management
know-how may explain the high failure rates of international alliances. To help fill this
knowledge gap Geyskens, Steenkamp and Kumar (1999) prepared a meta-analysis of the
literature on alliance satisfaction and identified the antecedents to commitment.
Reviewing ninety-three empirical studies, they found that factors such as trust, conflict,
partner communication behaviors and dependency all influenced the level of commitment
in alliances. They suggest however, that little is known about alliance performance and
how commitment may influence alliance performance.
Recently, several scholars have applied commitment theory to alliance
management research. To date the results of this research, while limited, has been very
promising (e.g. Aulakh et al, 1996; Shamdasani & Sheth, 1995; Anderson & Weitz,
1992). Building on this new research stream, we discuss commitment theory and how
firm commitment and control can be combined to improve international alliance
performance.
Commitment
Beamish and Banks (1987) suggest that alliances may be a more efficient form of
international operation if there is a long-term commitment to venture success.
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Commitment can be defined as the willingness to maintain a stable relationship and the
degree to which an alliance partner expects the alliance to continue into the future
(Shamdasani & Sheth, 1995; Cullen, Johnson & Sakano, 1995; Anderson & Weitz, 1992;
Boyle et al, 1992). As Skarmeas, Katsikeas and Schlegelmilch (2002: 759) state
“commitment consists of a rather diverse set of factors including desire, willingness,
sacrifice behavior, expectation of continuity, belief, and importance of the relationship”.
When alliance partners view an alliance as a long-term commitment they are less likely to
take advantage of the other partner or withhold cooperation and are more likely to act
unilaterally to benefit the long-term prospects of the alliance for all partner firms (Cullen,
Johnson & Sakano, 1995; Gulati et al, 1994).
Commitment leads to an increased effort and concentration on the alliance by
alliance partners helping the alliance achieve its goals and objectives (Johnson,
Korsgaard & Sapienza, 2002; Saxton, 1997; Shamdasani & Sheth, 1995; Anderson &
Weitz, 1992). Morgan and Hunt (1994) found that commitment leads to increased
interfirm cooperation. When a firm is committed it wants the alliance to work (Cullen,
Johnson & Sakano, 1995; Anderson & Weitz, 1992). Interfirm cooperation may increase
knowledge creation and learning leading to a more successful alliance (Johnson,
Korsgaard & Sapienza, 2002; Skarmeas et al, 2002).
Commitment can reduce partner interest in other activities or searching for other
partner organizations (Aulakh et al., 1996; Morgan & Hunt, 1994). Both opportunistic
and switching behaviors increase alliance costs. When a firm is committed to an alliance
it will desire to keep such costs to a minimum (Shamdasani & Sheth, 1995; Morgan &
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Hunt, 1994). Alliance partners therefore tend to refrain from self-seeking behaviors, like
shirking or withholding resources, and do not search for alternative partner organizations.
Commitment may also impact customer perceptions, when this commitment to a
long-term relationship is communicated though actions of partner organizations (Morgan
& Hunt, 1994; Anderson & Weitz, 1992). Customers may perceive greater value and
loyalty in alliances where commitment exists (Morgan & Hunt, 1994). Greater customer
value perceptions and loyalty tends to result in greater success (Anderson, Fornell &
Lehmann, 1994).
From a transaction cost perspective (Williamson, 1985), commitment to a longterm relationship can reduce behavioral uncertainties, that otherwise drive up transaction
costs and would create problems in an alliance. Commitment decreases opportunism
because partner organizations have a long term perspective and do not take actions that
sacrifice long-term gains for short-term benefits (Aulakh et al., 1996; Shamdasani &
Sheth, 1995; Morgan & Hunt, 1994). Commitment to continuity (or long- term
orientation) can provide benefits that reduce the need for more direct (equity based)
controls (Skarmeas et al, 2002; Beamish & Banks, 1987).
Hence, commitment can increase cooperation and reduce costs which should
result in better alliance performance (Skarmeas et al, 2002; Cullen, Johnson & Sakano,
1995). Commitment may also lead to greater customer loyalty and value perceptions,
resulting in greater alliance performance (Morgan & Hunt, 1994).
Several studies have found a significant relationship between level of
commitment and alliance performance for multinational enterprises (Skarmeas et al,
2002; Aulakh, Kotabe & Sahay, 1996; Beamish & Banks, 1987). Although for
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developing country MNEs from Korea, Lee and Beamish (1995) found no significant
relationship.
The literature investigating SME commitment and alliance performance is not
well developed. Karagozoglou and Lindell (1998) examined the success factors in a
small sample of U.S. high-tech SMEs. They found that these firms considered each
international alliance to be very important for the success of the firm. In a study
examining U.S. SMEs involved in network relationships, Sherer (2003) found that when
network partners displayed a high degree of commitment to the survival of the alliance, it
showed better performance. In a study of 201 US exporting manufacturing firms – the
vast majority of which were SMEs – Leonidou et al. (2002) found that companies
expressing a high degree of commitment to the relationship with their foreign distributor,
reported a more satisfying and harmonious long-term relationship in comparison to firms
reporting low commitment. Based on the theoretical arguments and limited empirical
evidence discussed above we hypothesize that:
H 1. For SMEs from developing countries greater alliance commitment will
lead to greater alliance performance.
Control
Beamish and Banks (1987: 4) suggest that long-term commitment can be
“reinforced with supporting interorganizational linkages such as …control systems”.
Control systems can be used to help minimize self-seeking behavior of alliance partner
organization and/or can help increase alliance performance by creating supportive
behaviors. Generally two types of controls can be used in alliances, output controls and
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process controls (Bello & Gilliland, 1997; Celly & Frazier, 1996; Aulakh et al, 1996;
Gencturk & Aulakh, 1995). Output controls focus on alliance results and consist of
monitoring the outputs of the alliance, such as sales levels or profits. Process controls
focus on alliance behavior and consist of influences on selling procedures, promotional
activities, product development practices, and daily marketing programs (Bello &
Galliland, 1997; Gencturk & Aulakh, 1995).
Output controls focus on monitoring the results of partner efforts and tend to shift
risk to the partner firm (Celly & Frazier, 1996). Because of this, partner firms often feel
isolated and alone which encourages self-seeking behaviors that may damage the longterm prospects of the alliance (Aulakh et al, 1996). Output controls do not promote
cooperation or knowledge sharing; firms do not have the incentive to work together to
achieve alliance objectives (Bello & Galliland, 1997; Celly & Frazier, 1996). Output
controls are normally demotivational because of potential environmental uncertainties
that create ambiguous cause and effect relationships; alliance partners are held
responsible for factors outside their control (Celly & Frazier, 1996).
Contrary to this, process controls are used by firms to monitor partner behavior
and direct that behavior toward specific goals and objectives (Bello & Gilliland, 1997;
Aulakh et al, 1996). Firms that use process controls assume some of the risks involved in
international expansion which encourages long-term behavior from partner organizations
(Aulakh et al., 1996). Process controls provide a supportive atmosphere in the alliance,
reducing the motivation for self-seeking behavior and encouraging greater cooperation
and knowledge sharing (Bello & Gilliland, 1997). Because developing country SMEs
have few alliance partner alternatives, process controls may provide an effective means to
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garner partner support, guard against opportunism, and develop a long-term relationship
because this control method signals the importance of the alliance to the firm and the
willingness to share risks (Celly & Frazier, 1996).
Morgan and Hunt (1994) found that commitment leads to greater partner
acceptance or adherence to specific requests or policies. Because process controls rely on
partner cooperation in responding to specific requests and situations, greater alliance
commitment may lead to an increased use of process control systems.
Hence, in alliances where commitment is high process controls may be preferred
because they reinforce the long-term orientation of the alliance, they reduce the
occurrence of opportunistic behavior, and they help increase cooperation between
alliance partners.
H 2. For SMEs from developing countries greater commitment will lead to
greater use of process controls.
Because process controls influence the behavior of alliance partners, they may
lead to increased alliance performance (Bello & Gilliland, 1997; Aulakh et al, 1996).
The reason for this increased alliance performance is that partners using process control
methods tend to exchange knowledge directly and share information which can result in a
better match between foreign market knowledge (possessed by one partner) and product
specific knowledge (possessed by another partner). This exchange of knowledge results
in better performance than could be achieved by either alliance partner alone because
each partner may lack knowledge in one or more critical areas (Bello & Gilliland, 1997).
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The foreign partner may have product specific know and brand or niche
advantages, however they may lack knowledge on how to reach the customer in new
foreign markets or how to properly position the product to achieve sales. In certain
countries access to distribution networks may be restricted or government intervention
might influence buying patterns. Allying with a local partner organization can help
foreign firms circumvent these issues.
Likewise, target market firms may have good knowledge of potential customers,
access to distribution channels and government influence, yet they may lack product
specific knowledge or technical/brand advantages. An alliance that utilizes process
controls can help both partner organizations achieve their objectives by sharing the
expertise of each organization, pooling knowledge to increase alliance benefits (Bello &
Gilliland, 1997).
Despite these potential benefits, the limited empirical evidence connecting
process controls with performance is weak. Cavusgil and Zou (1994) found that in
alliances where greater direction and support were involved, performance increased.
Saxton (1997) found that in alliances with shared decision making, performance was
significantly higher. Gencturk and Aulakh (1995) examined the use of process controls
for MNE subsidiaries and found greater process controls lead to greater
intraorganizational performance. Solberg (2001) examined Norwegian SMEs and found
some evidence of the use of process controls in export alliances leading to greater
performance. However, neither Bello and Gilliland (1997) nor Aulakh et al (1996) found
empirical support for the use of process controls leading to better alliance performance.
Despite the limited empirical support for this perspective, as the theoretical literature
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suggests we believe that for SMEs from developing countries the use of process controls
in their international alliances will lead to greater alliance performance.
H 3. For SMEs from developing countries greater use of process controls will
lead to greater alliance performance.
METHODOLOGY
To test the relationships between alliance commitment, the use of process
controls, and alliance performance, data were collected from SMEs in two distinct types
of developing countries. First, we collected data from SMEs in Greece. Greece is a
lesser developed country with membership in the European Union. As an EU member
Greece benefits in a number of ways including (1) direct financial assistance from EU
structural funds, (2) open access to a wealthy market of almost 350 million consumers,
and (3) a potential reduction in political and economic risk that membership in a wealthy
group of countries brings. Because of these benefits Greece’s economy has improved
dramatically over the past 22 years moving from a per capita income of less than $4000
per year to its present per capita income $15, 873 (Mohyuddin, 2003). Hence, the
nominal per capita income in Greece is approximately 65 percent of the European Union
average.
Second, we collected data from a group of SMEs from English speaking
Caribbean countries. These Caribbean countries are not members of any major trade
group – the long established CARICOM regional trade group has been largely dormant in
recent years – but have advantageous geographic proximity to both the North and South
American markets and political and psychological connections to the former dominant
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colonial power of the region, the United Kingdom. Development efforts in the
Caribbean, lead mostly by IMF and World Bank initiatives have been less successful than
in Greece. Over the past 22 years per capita income growth has varied in the different
island nations, but in general has been very low. For example, GNP per capita in the
largest English speaking Caribbean nation, Jamaica, went from $1250 in 1981 to
approximately $2800 in 2001, while in the same period per capita GNP in the more
successful Barbados increased from $3,442 to $8,717 (UN, Statistical Yearbook, 2001;
Statistical Abstract of the World, 1994). Hence, the SMEs included in this study
represent firms from two very distinct developing market environments.
Data Collection
Because there were no available lists of developing market SMEs involved in
international alliances, we decided to use lists of exporting firms. These lists would
provide us with firms that (1) had international experience and (2) had as a minimum
developed non-equity based alliances through which they sold their products/services in
foreign markets. Our sample of Greek firms came from two sources (1) the list of SMEs
that participated in the 1997 Europartenariat hosted by Greece, and (2) a list of exporting
firms provided by Greek chambers of commerce. The Europartenariat initiative is a
European Commission program launched for the first time in 1987 to assist poorer
regions of the European Union to advance economically. It is designed to assist SMEs
from all over the European Union to establish relationships with their counterparts in the
host regions. Out of the list of participating companies we selected 300 companies, the
ones with active international sales. To that number we added 300 additional SMEs
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taken from Greek exporter lists. From these 600 companies, 400 firms were selected
randomly to receive our questionnaire.
The questionnaire was translated from English to Greek, the language of the
managing directors of the SMEs. Then it was back-translated into English by an
independent translator to ensure its validity. The final questionnaire was mailed to the
managing directors of the 400 randomly selected companies. Two more mailings of the
questionnaire were sent out in the next seven weeks. Following the three mailings 119
usable questionnaires were collected, for a response rate of approximately 30 percent.
In this study we also examined exporting companies from various industries and
sectors in the Caribbean islands of Barbados, Dominica, Jamaica, Grenada, St. Lucia, and
Trinidad and Tobago. Six islands were used to obtain an adequate sample size of
exporting companies. Total population of these combined islands is approximately
twelve (12) million inhabitants.
A sample of three hundred and six (306) companies was identified from the
1993/1994 edition of Caribbean Exporters: A Directory for Caribbean Exporters,
published by Caribbean Export Development Project, and the 2000 Trinidad and Tobago
Exporters Directory, published by the Tourism Company of Trinidad and Tobago.
Companies were selected based on every 5th company in the Directories, except in the
case of Dominica were all of the forty (40) exporting companies were used. The
countries chosen were rooted on comparable economic status to the Commonwealth of
Dominica.
Caribbean data were collected with a questionnaire mailed to the Managing Director or
General Manager of each company. Three weeks after the first mailing a reminder was sent
along with copies of the previous correspondence and a questionnaire. Three weeks later another
15
follow-up letter with questionnaire was sent. A total of 100 questionnaires were returned of
which 83 provided usable responses (the remaining 17 were returned because of bad addresses or
because the firm was no longer active internationally).
Dependent variables
All independent and dependent variables focused on the largest (sales volume)
international alliance for each respondent organization. Our dependent variable, alliance
performance was operationalized using four seven-point Likert-type questions taken from
Aulakh and Kotabe (1997). Two financial indicators measured alliance performance
relative to domestic performance for a) sales and b) profit contribution to the company.
Two additional financial indicators measured alliance performance compared to
competitors in the foreign market for a) sales growth and b) market share. Factor
analysis confirmed that 2 performance measures existed Relative to Domestic (Cronbach
alpha =.91) and Relative to Competitors (alpha =.87).
Independent variables
Alliance commitment or long-term orientation was operationalized with three
seven-point Likert-type items adapted from Boyle et al (1992). The items tested the
companies’ orientation toward the specific alliance by focusing on the continuity of
relationships with the alliance partner; the type of relationship; and the expected
sustainability of the relationship. Factor analysis confirmed that all three questions
loaded on one factor (alpha =.86).
We measured the level of process control using questions derived from Bello and
Galliland (1997). Using three seven-point Likert-type questions we focused on the
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degree of influence the focal firm attempted on (1) promotional activities for the
company’s products; (2) methods for introducing new products; and (3) selling policies
and procedures for new products. Factor analysis confirmed that these three questions all
loaded on one factor (alpha =.95).
Control variables
We included five control variables that have been shown in studies like Lu and
Beamish (2001) and Qian (2002) to influence SME international performance. Because
of the incompatibility of accounting practices and exchange rate fluctuations, Firm size
was measured as the number of employees worldwide. Alliance sales concentration was
measured as the percent of alliance sales in the biggest international alliance compared to
total international alliance sales. These indicators were adopted from Aulakh and Kotabe
(1997) and Klein et al (1990). International experience was measured as the number of
years that the firm had been selling products outside its home country.
We created a dichotomous variable, Nationality, to control for potential home
country differences. Firms from Greece were coded one (1) while those from the
Caribbean were coded zero (0). Because we included both equity (joint ventures and
exports to company owned operations) and non-equity (license agreement and exports
through independent organizations) based international alliances in our study we
developed a control for the alliance type used by each firm. Respondents were asked to
indicate the precise type of alliance organization in the foreign country representing their
highest foreign sales. Equity alliances were coded one (1) while non-equity alliances
were coded zero (0).
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FINDINGS
To analyze the data, we used a two step method. In the first step we examined the
relationship between commitment and the use of process controls using multiple
regression analysis. The second step involved hierarchical regression analysis and
explored the relationship between commitment and process controls, and the two
measures of alliance performance. Prior to running any of the analyses we prepared a
correlation matrix. Table 1 contains descriptive statistics as well as the correlations
between dependent, independent and control variables. Substantial variability was
detected. None of the correlations appear to be large enough to warrant concern over
multicolinearity (Hair, Anderson, Tatham & Black, 1995).
*************************
Insert Tables 1 and 2 about here
*************************
We began our analysis by examining the relationship between commitment and
the use of process controls. We had suggested that in alliances where commitment was
high, the use of process controls would also be high. To test this we prepared a multiple
regression analysis (Table 2) and included numerous control variables that might
influence the use of process controls: firm size, international experience, nationality,
alliance concentration, and alliance type. The regression analysis was significant (p<.01)
with an R square value of .23. We found that the level of commitment was significantly
(p<.01) related to the use of process controls. As suggested by hypothesis 2, in alliances
with high alliance commitment, process control use was also high. We also found that
firm size and nationality were significantly related to process control use. Larger firms
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and companies from Greece tended to have higher process control usage. Hence, we
found strong empirical support for Hypothesis 2.
********************
Insert Table 3 about here
********************
In Table 3 we investigated the influence of commitment and process controls on
alliance performance. We used two different measures of alliance performance: (1)
compared to domestic operations and (2) compared to foreign competitors. Hierarchical
regression analysis was used so we could examine the added explanatory power of
commitment and process controls on alliance performance. We controlled for firm size,
international experience, nationality, alliance concentration, and alliance type. We found
that nationality (p<.01) and alliance type (p<.01) were significantly related to alliance
performance compared to domestic performance. We also found that when alliance
commitment and process controls were added to the analysis the explained variance
increased significantly (change in R square = .133; R square = .411). Both commitment
(p<.01) and process controls (p<.01) were significantly related to alliance performance
compared to domestic operations, as was the control variable alliance type (p<.01). It
appears that greater commitment and greater use of process controls leads to greater
alliance performance, providing support for Hypotheses 1 and 3.
Table 3 also shows the results of the analysis exploring alliance performance
compared to foreign competitors. First, we found that firm size (p<.05) and alliance type
(p<.01) influenced alliance performance. Second, we found that adding the influences of
commitment and process controls significantly increased the explanatory power of the
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regression analysis (change in R square = .152; R square = .268). Both alliance
commitment (p<.01) and process controls (p<.01) -- as well as control variables
international experience (p<.05) and alliance type (p<.05) -- were significantly related to
alliance performance compared to foreign competitors, providing additional support for
Hypotheses 1 and 3.
DISCUSSION, LIMITATIONS AND IMPLICATIONS
While SMEs are increasingly entering international markets, very little attention
has been paid to the importance of alliances in influencing their international
performance. Research suggests that alliances are the preferred distribution mode for
SMEs entering foreign countries because most SMEs are constrained by a lack of
sufficient resources to employ other modes of international activity. The data for this
study examined alliance behavior of SMEs originating in lesser-developed economies.
SMEs based in lesser developed nations may face some unique challenges. These
challenges originate in the inefficiencies associated with a developing economy and in
many cases the absence of an organized State export strategy. Also SMEs from
developing nations may encounter additional problems, such as economic and political
turbulence in their domestic markets that may distract them from their international
operations. In this study we suggested that alliance commitment and the use of process
controls can help SMEs develop more effective international alliances.
Our findings provided strong support for the theoretical impact of alliance
commitment on the use of process controls and the influence of alliance commitment and
process controls on alliance performance. We found support for all three of our
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hypotheses. First, we found that SMEs from less-developed countries that indicated
greater commitment to the international alliance reported higher performance. Hence, as
suggested by commitment theory, SMEs that make greater commitments to their
international alliances tended to create more successful alliances.
Second, our analysis showed that developing country SMEs with a strong alliance
commitment tended to enforce that commitment through the use of process controls.
Alliance commitment is only one factor that influences partner behavior and alliance
success. Because commitment is intangible, process controls may be used to show
partner firms that the focal organization is committed to the alliance and is willing to take
actions to support that commitment. Process controls may be a more tangible sign of
alliance commitment.
Finally, we found that SMEs using process controls reported better alliance
performance. As our theory suggested, process controls may help reinforce the
perception of commitment in an alliance. Process controls help show alliance partners
that the focal firm is committed to making the alliance work. This commitment then
motivates partner firms to take additional actions that result in greater alliance
performance.
Three of the control variables, size of firm, nationality and alliance concentration
were found to significantly impact the use of process controls. It appears that larger
SMEs and those based in Greece were more likely to use process controls. The third
significant control variable, alliance concentration showed that SMEs with less
concentrated alliance activities were more likely to use process controls.
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Several control variables were also significantly related to our two performance
measures. Alliance type was found to be significantly related to both performance
measures. SMEs involved in equity based alliances tended to report greater alliance
performance compared to those involved in non-equity alliances. Alliance concentration
was significantly related to performance compared to domestic operations while
international experience was related to performance compared to foreign competitors.
Limitations
Our study possesses a number of limitations inherent in this type of research.
First, although our findings were supported with data from two very different developing
country environments -- Greece, a member state of the European Union and the English
speaking Caribbean, a collection of small island states -- it is possible that other regions
of the world, developed or developing, may not exhibit similar behavior. Especially for
SMEs from developed economies receiving support either from the State or by their
cooperation with other domestic companies, alliance commitment and process control use
may not be as important. The second limitation is the utilization of a cross-sectional
sample. Because alliances are normally long-term ventures other research methods may
be needed to explore the changing relationship between alliance partners over the life of a
venture and how these changes may impact alliance performance.
Third, because of data collection issues commitment and control research tends to
rely on the responses of one member of international dyads (Bello & Gilliland, 1997;
Aulakh et al, 1996; Gencturk & Aulakh, 1995). However, this may limit the
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generalizability of findings since only one member of the alliance dyad provided
responses.
Implications
Despite these limitations, our study has important implications for managers of
SMEs that want to expand to international markets. Because the formation of an alliance
with a foreign company is almost always a necessity for a SME, a strong commitment to
the survival of this relationship is necessary for achieving success in these alliances. The
issue that SME managers need to address is how to make these international alliances
successful. Our study tends to provide two important insights in this area.
Companies that are not willing to fully commit to the relationship and
continually search for alternative opportunities with new potential partners will probably
be less likely to create long-term relationship necessary to achieve alliance success.
Furthermore, it appears that commitment to a relationship leads a company to greater
involvement in the operations of the alliance partner. Thus this greater cooperation acts
as a reinforcement of the commitment to the relationship and the long-term performance
of the alliance increases.
In summary, we found that alliance commitment was an antecedent of the
employment of process controls in developing country SME international alliances.
Moreover, we found that alliance commitment and process control were significant
predictors of international alliance performance. Overall, this research makes an
important contribution to our understanding of the roles that relationship commitment
and process control play in SME international success.
23
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27
TABLE 1
Correlation Table
1
2
3
4
5
1
.266** 1
-.058
-.091 1
-.031
-.283** .114 1
.382** .066 .032 .206** 1
.171** .087 .028 -.414** .141*
.241** -.017 -.218 .060 .246**
.229** .092 .321** -.128 .347**
.247** .160* -.045 -.089 .265**
Variable
Mean S.D.
Size of Firm
80.6 97.2
International Experience
18.7 15.5
Alliance Concentration
42.4 25.2
Nationality
0.58 .493
Alliance Type
0.27 .444
Commitment
5.33 1.37
Process Control
4.24 1.46
RTD Performance
3.99 1.92
RTFC Performance
3.85 1.53
RTD – Relative to Domestic
RTFC – Relative to competitors in the foreign country
*p<.05; **p.<.01
28
6
7
8
9
1
.308** 1
.430** .299** 1
.367** .407** .423** 1
TABLE 2
Regression Analysis: Determinants of Process Control
Commitment
.36**
(4.72)
Control variables:
Size of Firm
.13*
(0.13)
International Experience
-.05
(-0.63)
Alliance Concentration
-.26** (-3.87)
Nationality
.22** (2.72)
Alliance Type
.10
(1.34)
Constant
1.34* (1.92)
R square
.23
F/significance
8.86**
*p<.05; **p<.01; Standardized Betas reported; t-statistics in parentheses
29
TABLE 3
Regression Analysis: Performance
RTD Performance
Model 1
Model 2
Constant
2.29**(3.94)
-1.47*(-1.81)
Size of Firm
.09 (1.28)
.03 (0.40)
International Experience .02 (0.30)
.06 (1.00)
Alliance Concentration
.35**(5.44)
.37**(6.14)
Nationality
-.24**(-3.57)
-.11 (-1.54)
Alliance Type
.33**(4.72)
.24**(3.67)
RTFC Performance
Model 1
Model 2
2.98**(5.70)
-.08 (-0.10)
.13* (1.70)
.06 (0.81)
.08 (1.10)
.13* (1.84)
-.03 (-0.35)
.03 (0.44)
-.10 (-1.26)
.01 (0.06)
.23**(3.00)
.14* (1.93)
Commitment
.31**(4.35)
Process Control
.19**(2.83)
R square
.278
.411
.116
Change in R square
.133**
F/significance
13.71**
17.54**
4.65**
*p<.05; **p<.01; Standardized Betas reported; t-statistics in parentheses
RTD – relative to domestic operations
RTFC – relative to foreign competitors
30
.25**(3.17)
.28**(3.58)
.268
.152**
18.22**