Technological Relatedness, Uncertainty, and R&D Alliance Formation

Prior studies on R&D alliances have assumed that technological complementarity is a subset of or a moderate level of technological similarity. This study suggests that technological similarity and complementarity are two distinct concepts and affect firms’ decision-making in R&D alliance formation differently. While firms conduct local searches to identify alliance partners that possess similar areas of technological knowledge, they also conduct relatively distant searches to identify alliance partners with complementary areas of knowledge. As such, R&D alliances focusing on technological similarity bear low project-specific uncertainty regarding the outcome of an alliance, whereas those driven by technological complementarity involve high project-specific uncertainty. Based on this observation, we investigate the impact of technological similarity and complementarity on the likelihood of R&D alliance formation between established pharmaceutical companies and biotechnology ventures within the biopharmaceutical industry. We find that while technological similarity is positively associated with the formation of late-stage R&D alliances, technological complementarity is positively associated with early-stage R&D alliance formation. We also find that in the presence of high uncertainty regarding an established pharmaceutical firm’s future performance, the positive effect of technological similarity on the likelihood of R&D alliance formation is amplified. However, the positive effect of technological complementarity on the likelihood of R&D alliance formation is diminished.