Built to last versus meant to end: Time bounds specification in strategic alliances

This article explores an important temporal aspect of the design of strategic alliances by focusing on the issue of time bounds specification. Time bounds specification refers to a choice on behalf of prospective alliance partners at the time of alliance formation to either pre-specify the duration of an alliance to a specific time window, or to keep the alliance open-ended (Reuer & Ariňo, 2007). For instance, Das (2006) mentions the example of the alliance between Telemundo Network and Mexican Argos Comunicacion (MAC). Announced in October 2000, this alliance entailed a joint production of 1200 hours of comedy, news, drama, reality and novella programs (Das, 2006). Conditioned on the projected date of completing the 1200 hours of programs, Telemundo Network and MAC pre-specified the time bounds of the alliance ex ante. Such time-bound alliances are said to be particularly prevalent in project-based industries, like movie production, construction, telecommunications and pharmaceuticals (Schwab & Miner, 2008). In many other instances, however, firms may choose to keep their alliances open-ended, not specifying a specific time bound at the time of alliance formation. The choice between designing open-ended alliances that are “built to last”, versus time bound alliances that are “meant to end” is important. Seminal works like Axelrod (1984), Heide & Miner (1992), and Parkhe (1993) demonstrated that the choice to place temporal bounds on a collaborative venture has important implications. More specifically, collaborations that have explicit, short term time bounds (i.e. what is termed a shorter “shadow of the future”) are more likely to experience opportunism (Axelrod, 1984), are more likely to focus on the immediate present (Bakker, Boros, Kenis & Oerlemans, 2012), and are less likely to develop trust (Parkhe, 1993) than alliances for which time bounds are kept indeterminate. These factors, in turn, have been shown to have important implications for the performance of alliances (e.g. Kale, Singh & Perlmutter, 2000). Thus, there seems to be a strong incentive for organizations to form open-ended strategic alliances. And yet, Reuer & Ariňo (2007), one of few empirical studies that details the prevalence of time-bound and open-ended strategic alliances, found that about half (47%) of the alliances in their sample were time bound, the other half were open-ended. What conditions, then, determine this choice?