Applicability of the Theoretical Approaches to the Present Study

The present study develops a multi-theoretic framework of the mechanisms of value creation in interorganizational relationships and of the key factors influencing those mechanisms. The integrative use of several theories in building the models is justified by numerous studies suggesting that a multi-theoretic approach is required to understand the complexity of interorganizational relationships (Gulati 1998, Osborn &

Hagedoorn 1997, Park et al. 2001, Smith et al. 1995:19). I believe that the relationships between start-up companies and their corporate investors with a mix of strategic and financial objectives are by no means less complex than other potential interorganizational relationships and thus require ideas from several theories to be

properly understood. In this study, I build the models applying primarily the resource-based and the knowledge-resource-based views, and the social capital theory. Ideas from other theoretical approaches are used to complement these theories. Table 2-10 summarizes the primary applications of the reviewed theoretical approaches in the present study.

The use of these theoretical approaches is explained below in more detail.

Table 2-10 Application of the selected theoretical approaches in the present dissertation

Theoretical approach Application in the present study

Resource-based view Predictions as to the role of interorganizational resource

combinations for value creation; the role of complementarities in value creating resource combinations

Knowledge-based view Predictions as to the importance of knowledge acquisition for value creation; factors affecting knowledge acquisition

Social Capital Predictions as to the role of social capital facilitating resource and knowledge acquisition and endorsement

Resource dependence perspective

Supportive role: Predictions as to the reliance of technology-based new firms on external resources

Asymmetric information and signaling theory

Supportive role: Predictions as to the conditions influencing the strength and value of endorsements

Agency theory Supportive role: Predictions as to the incentives of corporate investors to add value

Transaction cost economics Supportive role: Predictions as to the role of transaction costs between the focal venture and it’s potential customers and partners influencing the value of endorsements by prominent corporate investors

In the present study, the resource-based view (Barney 1991, Penrose 1959, Peteraf 1993) is used to derive predictions on the influence of complementarities in resources influencing the motivations of large corporations to deepen the relationship beyond pure financial relationship. Although some of the first papers on resource-based view focused on the internal resources possessed or directly controlled by the firm, later research has increasingly recognized the role of interorganizational relationships in building bundles of resources that are valuable, rare, non-imitable, and hard to substitute (Chung et al. 2000, Das & Teng 2000, Deeds & Hill 1996, Eisenhardt &

Schoonhoven 1996, Lado et al. 1997, Rothaermel & Deeds 2001). The resource-based view has been used to explain the potential value of external resources and also the factors influencing creation of interorganizational relationships. Complementarities between two firms have been identified as a key factor in creating value through combination of resources and thereby making one firm an attractive partner for another (Eisenhardt & Schoonhoven 1996, Park et al. 2001). To quote Eisenhardt and Schoonhoven (1996:147): “cooperation requires resources to get resources.” In this sense, resource-based view takes a more proactive approach to resource acquisition than resource dependence perspective (Pfeffer & Salancik 1978), which well acceptably suggests that firms, especially small firms, are dependent on their environment for acquiring critical resources. However, the resource dependence perspective provides less understanding on how resources are used to create value and what enables resource combining interorganizational relationships (Park et al. 2001).

Organizational economics, especially agency theory and game theory, provide further understanding of the motivation of partners to collaborate and not to under-invest in the relationships (Alvarez & Barney 2001).

The line between the resource-based view and the knowledge-based view as a newer outgrowth of the resource-based view is not very clear because of the broad definitions of key concepts in these literatures (Eisenhardt & Santos 2000). I make a distinction between the two by considering separately on one hand concrete resources like distribution channels and production facilities and on the other hand knowledge of markets, competition, and technologies that help ventures make better use of their scarce resources (Penrose 1959). Knowledge-based view has been applied extensively in research examining knowledge transfer over organizational boundaries (Kogut &

Zander 1992, Lane & Lubatkin 1998). I apply knowledge-based view to develop hypotheses on the importance of knowledge acquisition for value creation and to determinate the factors affecting the knowledge acquisition.

While knowledge-based view recognizes the problems in transferring knowledge (especially tacit knowledge) over organizational boundaries (Kogut & Zander 1992, Lane & Lubatkin 1998), social capital theory helps to understand factors facilitating the transfer of knowledge and opportunities for collaboration over organizational boundaries (Nahapiet & Ghoshal 1998, Yli-Renko et al. 2001a). Extant research has found social capital (particularly social interaction) to be an important facilitator of resource and knowledge exchange (Nahapiet & Ghoshal 1998, Tsai & Ghoshal 1998, Yli-Renko et al. 2001a).

Besides facilitating resource and knowledge acquisition, interorganizational relationships have also been found to create endorsement benefits (Podolny 1993, 1994, Stuart et al. 1999, Stuart 2000) and to reduce the problems from asymmetric information (Booth & Smith 1986, Megginson & Weiss 1991). These endorsement benefits have been shown to be particularly valuable when the quality of the focal company is uncertain (Stuart et al. 1999, Stuart 2000). In the present study, sociological theories on interorganizational endorsements (Stuart et al. 1999, Stuart 2000) are supplemented with ideas from asymmetric information and signaling theory as well as from the transaction cost economics. Asymmetric information theory argues that the more uncertainty there is about the true quality of the venture, the more valuable certification is likely to be. It also argues that the more costly the signaling is for the focal firm, the more credible the signals are. Transaction cost economics argue that when asset specificity and switching costs are high, there will be a high need for safeguards against opportunism and uncertainty in exchange relationships. Considering prominent partners as certifiers against opportunism and other risks, the value of interorganizational endorsements is likely to be higher when there are high transaction costs between the start-up company and its potential customers and partners (Swaminathan et al. 2001).