Strategic choices of exploration and exploitation alliances under market uncertainty

Abstract

Purpose The purpose of this paper is to provide a better understanding of what drives firms’ choice between exploration alliances and exploitation alliances by examining the role of organizational slack and its interaction with market uncertainty. Design/methodology/approach An empirical study is conducted based on 1,614 alliances formed by 581 US biotechnology firms, and the hypotheses are tested using a zero-inflated multilevel Poisson model. Findings The results indicate that firms’ strategic choice to pursue exploration or exploitation alliances is a reflection of organizational intention and adaptation to environmental turbulence. More specifically, firms with more financial slack tend to form more exploration alliances and fewer exploitation alliances. However, under high market uncertainty, firms with financial slack tend to establish more exploitative partnerships and avoid exploration collaborations. Originality/value This paper contributes to the literature on exploration–exploitation alliances, which tends to fall short of providing an understanding of why organizations pursue such alliances. By identifying the impact of organizational slack and its interaction with market uncertainty, this study shows that organizations are able to respond to environmental change, and those with capabilities are likely to craft their strategic choice configurations based on their own characteristics.