The Uncertain Role of Alliances as part of the Strategic Armoury of the Dominant Firms in the Global Pharmaceutical Industry

PhD Thesis QUT School of Management

Monique Beedles

Abstract

The thesis aimed to address the gap in the strategic management literature whereby theories about the significance of alliances have been forwarded and accepted without adequate empirical evidence being provided to support their central thesis. The alliance activity of the dominant firms in the global pharmaceutical industry was studied and no consistent link was found between the involvement of these firms in research and development alliances and their performance over a range of indicators. The finding is not compatible with much of the current strategic management literature, which asserts that alliances are an essential part of the strategy of successful firms and that without these collaborative agreements, firm failure is inevitable.

Further to this finding, four of the firms were examined through detailed archival analysis over a longitudinal historical timeframe to determine the role of alliances in the overall strategy of each firm. The strategic perspective taken in the research gives a holistic view of each firm through consideration of their alliance activity as well as a range of other important factors such as their acquisitions and divestments, executive changes, patents and marketing approvals, stock offerings, buy backs and legal proceedings. The results of this analysis show that successful firms may use one or more of a range of strategic tools to ensure their continued profitability and ultimate survival. As an alternative to alliances, mergers or acquisitions may be used or as a third alternative, firms can choose to develop their internal resources. These findings support the concept, espoused by core management theorists, that strategy is unique.

To address the lack of evidence in the literature, this research sought to gather evidence that would elucidate the nature of the connection between alliance activity and performance. For the dominant firms in the pharmaceutical industry the evidence has shown that the role of alliances in the performance of these firms is uncertain and that there is no empirical basis for claims that alliances are essential to firm success.

While further research may show that alliances are indeed imperative for small firms without the necessary capabilities, particularly those related to their human capital, to develop internally or the resources to grow through acquisition, there is no certainty that the dominant firms in this industry are forced into such imperatives. The smaller and newer biotechnology firms gain their competitive advantage through their innovative capacity to produce potentially valuable new molecules. However, these firms do not possess within their human capital the complete range of skills, nor do they possess within their infrastructure the physical capabilities required to materialize from the promising molecule a marketable pharmaceutical product. In order for the promise of their innovations to be realized they must seek external inputs. This could come in the form of venture capital, but the investments required are so large and the risk for the investors so great that this path is rarely followed. Instead these firms enter into a dependency relationship with a larger, more resource rich firm. In this way the large numbers of firms potentially involved in the industry are dominated by a small number of firms who have the means to maintain for their own benefit the established dependency relationships.

These dominant firms retain their strategic choice and may select from a range of options. Indeed it is the very dominance of these firms that creates the dependence of the smaller firms upon them. These conclusions should force a rethinking of the approach to theory development in this area, and for business decision makers, the findings should encourage revision of their strategy using a holistic, firm based perspective, through a recognition that the outcome of strategic decision making is always contingent upon the context in which the decisions must be made.