The transition from alliance networks to multilateral alliances in the global airline industry.
| Autor | Lazzarini, Sergio G. |
INTRODUCTION
A recent trend altering patterns of interfirm interaction has been the formation of alliances among multiple autonomous firms, which collaborate among themselves and compete against other groups of firms for both clients and members (Gomes-Casseres, 1994, 1996). Evidence of the formation of such groups pervades the literature, including industries as diverse as computer and microprocessors (Vanhaverbeke & Noorderhaven, 2001), telecommunications (Joshi, Kashlak, & Sherman, 1998), financial services (Domowitz, 1995), automobiles (Nohria & Garcia-Pont, 1991) and global airlines, which are the focus of this study (Hanlon, 1999; Lazzarini, 2007; Lazzarini & Joaquim, 2004). Linkages between international airline carriers, for instance, imply that travelers will have several substitute routes to reach a particular destination, serviced by groups of firms exploiting complementary legs. The emergence of associations between multiple firms has led some scholars to propose that the locus of competition has shifted from firms to groups of firms that collaborate with one another (Gomes-Casseres, 1996).
One way of analytically demarcating the membership of a firm in those alternative groups is to observe the structure of bilateral or dyadic associations between firms, such as pair-wise agreements or equity stakes (Nohria & Garcia-Pont, 1991; Vanhaverbeke & Noorderhaven, 2001). In this sense, Gomes-Casseres (1996) defines an alliance network as a group of "separate companies linked through collaborative agreements," though "not all the companies in a group have to be linked directly to all the others" (p. 65). For instance, an airline carrier may develop an agreement to offer joint connections with two other international carriers, which may or may not have a direct agreement with each other. Moreover, a firm in a technology-intensive industry may develop an R&D project with another firm, which may in turn create a marketing agreement with a third party, and so forth. Using Das and Teng's (2002) characterization, alliance networks are simply a "collection of several alliances" among players in a certain industry (p. 446). Multiple-firm collaboration in an alliance network is therefore implicit because there are no formal terms guiding the joint action of firms, even though pair-wise ties may be, to some extent, formalized.
In some circumstances, however, a restricted group of firms decides to formalize their mutual association in a multilateral alliance composed of overarching agreements applicable to all members of the group (Doz & Hamel, 1998). Instead of a collection of several alliances between firms, a multilateral alliance is a broad multiple-firm alliance. Multilateral alliances often involve formal entities to manage the affairs of the group (such as decision-making committees) and even common investment in brand names and technology platforms. In the airline industry, multilateral alliances are exemplified by global groupings such as the Star Alliance, Oneworld and SkyTeam, in which carriers develop broad agreements to share traffic, pursue joint operations, and develop common marketing programs, thus going beyond webs of agreements negotiated on a largely bilateral basis.
Therefore, this paper attempts to answer the following research question: Why do firms involved in an alliance network decide to formalize their association in a multilateral alliance? In other words, what determines the chosen governance structure of the network as a whole? Even though there is a great deal of studies analyzing governance choices in dyadic alliances (e.g. Gulati, 1995; Pisano, 1989), research into the organization of interfirm networks has been scant. For the most part, the literature has downplayed the role of formal controls and contracts in alliance networks, arguing that extensive interfirm linkages allow for informal mechanisms of governance that promote cooperation (Granovetter, 1985; Uzzi, 1996). Studies analyzing processes of network formalization, on the other hand, have generally treated the formation of multilateral alliances as an evolutionary process in which joint action is institutionalized over time (e.g. Doz, Olk, & Ring, 2000). Consequently, most research into networks has not described conditions in which multilateral agreements will emerge because scholars have rarely pointed out factors that may or may not trigger the formalization of networks.
I fill this void by offering hypotheses that are initially tested using data from 75 global airlines and their alliances. The airline industry has seen a surge in alliances between carriers, in part because regulatory barriers prevent access to global resources and markets through the outright acquisition of domestic airport facilities or carriers (Hanlon, 1999). Thus, alliances have become a crucial mechanism for carriers to internalize interfirm externalities in the form of international traffic flows. Initially, carriers sought to create bilateral associations involving either equity stakes or pair-wise alliances such as codesharing (whereby two carriers combine routes as a single composite product to customers) and marketing agreements (joint frequent flyer programs and combined promotion efforts). Observing patterns of bilateral partnering in the industry, analysts have long noted the existence of alliance networks corresponding to groups of bilaterally tied firms servicing a web of routes and competing with carriers offering alternative connections (Whitaker, 1996).
In the mid 1990s, however, carriers began to create formalized groups competing for traffic (Star Alliance, Oneworld, SkyTeam etc.). These groups correspond to multilateral alliances because agreements are applicable to all partners and are broad in nature. For instance, they involve full marketing cooperation with respect to frequent flyer programs and promotion (including investments in a common brand name), in addition to joint access to airport facilities controlled by individual members. They also offer comprehensive codesharing agreements comprising several routes instead of bilateral agreements comprising few routes. Estimates indicate that these multilateral alliances contributed to almost 60% of global air traffic in 2001, representing 203.3 billion dollars in revenues (Baker, 2001). Therefore, although focusing on the airline industry may prevent the generalization of empirical results to other contexts, it nonetheless provides a rich setting for an empirical examination of how alliance networks may or may not evolve into multilateral alliances.
The paper proceeds as follows. In the next section, I develop testable hypotheses grounding the theory discussion in the context of the airline industry to facilitate understanding and to provide a more direct link to the empirical analysis. I next describe the methods employed to test the hypotheses, and then discuss the results. Concluding remarks follow.
HYPOTHESES
My theory employs the network as the unit of analysis (Dyer & Singh, 1998). In particular, I build upon the recent body of knowledge analyzing multiple-firm alliances. Scholars have described the emergence of such groups and discussed the motivation for firms to engage in multiple-firm networks (Dhanaraj & Parkhe, 2006; Gomes-Casseres, 1994; Lorenzoni & Ornati, 1988). In a given industry, one can typically observe several multiple-firm alliances competing against each other for both clients and members. Initially, empirical studies attempted to observe such networks in different industries and demarcate the boundaries of groups (e.g. Nohria & Garcia-Pont, 1991; Vanhaverbeke & Noorderhaven, 2001). More recent empirical research has attempted to examine the performance implications of membership, i.e., what happens if firms decide to participate in a multiple-firm alliance and how firms may attain different gains depending on their individual characteristics (e.g. Lavie, Lechner, & Singh, 2007; Lazzarini, 2007; Rowley, Baum, Shipilov, Greve, & Rao, 2004).
Competing groups of firms pursuing joint action are also referred to as constellations, although scholars have used this term in different ways. Some have characterized constellations as alliance networks (Gomes-Casseres, 1994, 1996), while others have characterized constellations as multilateral alliances (Das & Teng, 2002). A possible way to reconcile those different views is to consider alliance networks as constellations that are implicitly or informally organized, and multilateral alliances as constellations that are explicitly or formally organized (Lazzarini, 2007). In this sense, I contribute to this literature by proposing a theory describing factors that will affect the governance of multiple-firm alliances. In particular, I analyze how such groups may evolve from informal alliance networks to formal multilateral alliances. I do not intend to discuss the formation of dyadic ties and alliance networks mainly because past research has examined this issue in detail (Gimeno, 2005). Instead, I take networks as given and describe factors that might influence the benefits of formalizing interfirm linkages in a multilateral alliance: the profile of resources available in the group and the overall structure of the alliance network. This theory is detailed next.
Profile of Resources in the Network
At the most fundamental level, the benefits of interfirm cooperation largely depend on the possibility to internalize positive externalities emanating from multiple firms. The possibility of capturing those externalities increases when members hold complementary resources, i.e., when the use of a resource increases when it is jointly used with other resources supplied by partners (Lavie, 2007). This tends to occur when firms have specialized roles and hence contribute to the network with diverse resources that can be combined with one another (Grandori & Soda, 1995). For instance, an airline carrier can capture...
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