Corporate performance drivers in vertical downstream alliance portfolios: The Korean defense industry

Abstract

In this study, we examine the impact of portfolio configuration on corporate performance in a technological vertical downstream alliance portfolio. First, we explore whether differences in characteristics such as innovativeness, reputation, and bargaining power between a focal firm and its partners affect corporate performance. Second, considering these differences between a focal firm and its partners, we analyze whether an alliance portfolio structure spanning structural holes or a densely embedded network is preferable. We examine 44 leading Korean defense firms over the period 1995-2010 using the two-step generalized method of moments. Our principal arguments emphasize that differences between a focal firm and its partners (in terms of innovativeness, reputation, and bargaining power) affect corporate performance differently. This concept contrasts that of previous studies, which argued that allying with dominant partners is generally better. The arguments also emphasize that the alliance portfolio structure should differ depending on the differences in terms of the three capabilities between a focal firm and its corporate partners.