AN EXAMINATION OF OPPORTUNISTIC ACTION WITHIN RESEARCH ALLIANCES - EVIDENCE FROM THE BIOTECHNOLOGY INDUSTRY

Like a photographer trying to rake a perfect picture, an entrepreneur trying to increase the odds of survival must learn very quickly that f ocus Is everything. And what demands an entrepreneur's immediate focus is the development of new products. Entrepreneurial ventures depend o n the rapid creation of new products to gain access to early cash flow s, create legitimacy, grab early market share, and increase their odds of survival (Schoonhoven, Eisenhardt, and Lymman 1990). However, the increasing costs and complexity of new product development are making it difficult for entrepreneurial ventures to contain the assets needed for successful R&D within their boundaries, forcing them to reach bey ond their borders to access resources. Barley et at (1992) document th e use of more than 900 contractual research agreements within the biot echnology industry alone. Recent research has also found a positive re lationship between the use of alliances in the R&D process and the rat e of new product development (Deeds and Hill 1996; Shan, Walker, and K ogut 1994). This particular study focuses on the use of relational con tracts in the R&D process and extends the prior work an relational con tracts to create an explanatory model of the deterrents to opportunism within a relational contract. The article begins with a discussion of the traditional modes of deterring opportunism and of modes of deterr ing opportunism based on the development of a strong cross-boundary re lationship. From this discussion, hypotheses are derived that relate c ertain characteristics of the alliance (frequency of communication, st rength of contractual deterrents, hostage investments, age of the rela tionship, etc) to the level of opportunism within the relationship. Th ese hypotheses are then tested on a sample of 109 research alliances i n the biotechnology industry. We found significant evidence that a str ong relationship between the partners serves as a much more effective deterrent to opportunistic action than the creation of hostage investm ents or contingent claims contracts. In particular, the results for fr equency of communication and the background of the firm highlight the importance of the Top management team's understanding and involvement in the management of research alliances. The strong results for backgr ound congruence indicates the importance of shared expectations and un derstandings between the partners. The strong empirical results for th e hypothesized U-shaped relationship between age and opportunism provi de support for the existence of both a honeymoon period in the relatio nship and a liability of adolescence among research alliances. The dat a also suggest that the honeymoon period for an alliance will last abo ut 4.6 years. We also find that the honeymoon period for alliances tha t are of little importance to the future of the firm is only 4.1 years , and in our sample of alliances that were important to the future of the firm, the honeymoon period extended from 4.6 years to 6.1 years. ( C) 1998 Elsevier Science Inc.