Complementary partner resource contribution strategic alliances can combine complementary resources, create product diversity, and integrate company operations. 9 Wahyuni 2003 (n 3) 10. 10 ibid 12. There are several theories that provide useful insights into strategic alliance formation as a co-operative strategy. These are: the economics theory, game theory, strategic management theory and organization theory.11 Economics theory provides four perspectives to the understanding of strategic alliances; these are: market power, transaction cost, agency, and increasing returns theory. Market power theory: strategic alliances can be used to gain market power, thereby maintaining or enhancing competitiveness and modifying market position.12 Literature makes a distinction between offensive and defensive coalitions according to the partner’s intention in forming an alliance.13 Transaction cost theory: Transaction cost (search, information, negotiation, implementation and enforcement costs) can determine the choice between the market and the firm (or, in other words, hierarchy), ie whether an undertaking buys something or produces itself.14 However, between the extremes of market and firm there are ‘hybrid’ contracts or forms, which extend beyond traditional market contracts without reaching the other extreme, the hierarchy of firms.15 Strategic alliances represent transitional cooperation forms, with specific characteristics, between the market and firm.16 Parties to the alliance agree to handle certain transactions between each other, thereby omitting the market. However, they abstain from integrating their whole activity into one centralised, hierarchical organisation.17 Agency theory: this theory is concerned with the ability of principals to ensure 11 ibid 17-38. 12 Tari 1998 (n 5) 26; X Xxxxx and X Xxxxxxxx, Strategies of cooperation: managing alliances, networks, and joint ventures (OUP 1998) (Child and Xxxxxxxx 1998) 17. 13 See XX Xxxxx, ‘The internationalization of capital’ (1972) 6 The Journal of Economic Issues 91. 14 XX Van den Xxxxx and XX Xxxxxxxxx, European Competition Law and Economics (2nd xxx Xxxxx & Xxxxxxx 2006) (Xxx xxx Xxxxx and Camesasca 2006) 94. See in particular XX Xxxxx, ‘The nature of the firm’ (1937) 4 Economica 386. See also XX Xxxxxxxxxx, Markets and hierarchies: analysis and antitrust implications (Free Press 1975).
