Environmental Shocks and SME Alliance Formation Intentions in an Emerging Economy: Evidence from the...

Environmental Shocksand SME AllianceFormation Intentions inan Emerging Economy:Evidence from theAsian Financial Crisisin IndonesiaLouis D. MarinoFranz T. LohrkeJohn S. HillK. Mark WeaverTulus Tambunan

Environmental shocks can occur when emerging country governments open their marketsto outside influences. We extend research conducted primarily in mature economies on howmanagers react to environmental shocks by evaluating how environmental shock type, afirm’s strategic orientation, and its slack resources affected strategic alliance formationintentions during and immediately following the Asian Financial Crisis. Results from twoIndonesian small- and medium-sized enterprises (SME) samples show that these factorsinfluenced alliance intentions, although not always in ways that were consistent with previ-ous research findings in more mature markets. Overall, our results provide critical insightsinto emerging market firms’ strategic actions, particularly related to key managerial motiva-tions for SME alliance formation.

How do small- and medium-sized enterprises (SMEs) in emerging economiesrespond when faced with rapid, often unforeseen, changes in their external environments?These “environmental shocks,” resulting from major shifts in technology, economicforces, political regimes, or, in some cases, from natural disasters, can create substantialuncertainty in these firms by changing an industry’s “rules of the game” (Tushman &Romanelli, 1985; Wright, Filatotchev, Hoskisson, & Peng, 2005). Firms that do notrealign their strategies with the new environmental realities resulting from these shockscan face performance declines that threaten their long-term viability (Fischer, Lee, &

Please send correspondence to: Louis D. Marino, tel: (205) 348-8946; e-mail: [email protected]

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Johns, 2004). At the same time, radical environmental shifts may also create opportunitiesfor entrepreneurial firms to move in new strategic directions or even challenge for marketleadership (Tripsas, 1997; Zammuto & Cameron, 1985).

SMEs in emerging markets may be especially vulnerable to rapidly changing envi-ronments due to the firms’ lack of resources and the frequently underdeveloped institu-tional “safety nets” to help buffer a shock’s effect in these economies (Sawyerr, 1993).Scholars have frequently studied how SME managers, in general, contend with thesechanges (e.g., Covin & Slevin, 1989), including severe shocks (Meyer, 1982). Thisresearch has shown that one strategic response to increasing uncertainty is to establishstrategic alliances (Hitt, Ahlstrom, Dain, Levitas, & Svobodina, 2004), which can improvelong-term survival chances by enhancing an SME’s skills, augmenting resources,spreading risk, providing new market access, or enhancing reputation (Varadarajan &Cunningham, 1995). Research has also noted, however, that strategic alliances can createproblems for SMEs, including losing a competitive advantage to or creating dependenceon an alliance partner (Hamel, 1991; Miles, Preece, & Baetz, 1999). Although always athreat, these issues may be even more acute in a volatile, emerging market whereenvironmental changes make information verification and contract enforcement moredifficult, which, in turn, may encourage a partner’s opportunistic behavior (Luo, 2007).Thus, SMEs are only likely to form alliances when managers perceive advantages willoutweigh disadvantages (Harrigan & Newman, 1990).

Despite this attention in the literature, with few exceptions (e.g., Tan & See, 2004),most studies have examined SME reactions to environmental change in mature econo-mies. Given that (1) vast differences can exist between environmental and firm charac-teristics in mature and emerging economies (Hoskisson, Eden, Lau, & Wright, 2000;Wright et al., 2005) and (2) both characteristics likely impact how or even whethermanagers respond to external changes (Chattopadhyay, Glick, & Huber, 2001; Mone,McKinley, & Barker, 1998), research examining SME strategies for coping with environ-mental shocks in emerging economies appears warranted.

To address the impact of the contextual characteristics on the strategies of SMEs inemerging economies we examine how the onset of a shock, the Asian Financial Crisis,affected strategic decision making in SMEs within an emerging economy, Indonesia.Despite occurring a decade ago, the Crisis provides an ideal setting to examine how suchshocks affect SME actions both because of its severity (e.g., it interrupted years ofcontinuous growth that caused political and economic upheaval across the region) andbecause the problems experienced in Asia mirror those in other emerging (e.g., EasternEuropean and Latin American) economies where movements from shielded to marketeconomies have or potentially could produce such shocks (Marer, 1991). In addition,given that shocks are, by definition, difficult to predict, the opportunity to conduct anatural experiment following the onset of the Crisis provides a unique opportunity tostudy managerial crisis reaction (cf. Meyer, 1982).

We begin by highlighting critical events during the Asian Financial Crisis in Indone-sia. Next, we review research related to managerial reactions to environmental shocks, ingeneral, and then formulate hypotheses related to how SME managers in an emergingmarket should react to a major economic shock like the Crisis. In addition, we examinekey environmental- and firm-level characteristics that may affect this reaction with aparticular focus on whether managers intend to cope with a shock by seeking strategicalliance partners. Employing two samples, we first examine managers’ environmentalperceptions collected immediately following the Crisis’ onset (September–November1997) when the economy experienced temporary disequilibrium following a major cur-rency devaluation. We then evaluate these intentions after the Crisis had fully developed

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(February–March 1998) when the government made permanent changes to open theeconomy to foreign competition. Examining reactions at these two crucial times yieldsimportant insights as to how both firm characteristics and managerial perceptions ofenvironmental uncertainty during times of temporary and permanent shock situationsaffect strategic decision making and alliance intentions in an emerging market.

An Environmental Shock in Indonesia

Indonesia, a sprawling archipelago of over 13,000 islands (600 inhabited) in southeastAsia, has a population of 200 million people. Over 85% of the population is Muslim,though notable Hindu, Christian, and Buddhist minorities also exist. The Chinese, inparticular, are very active commercially, and although they only comprise about 3% of thepopulation, they may control 75% or more of the country’s wealth (Chavez, 1997).

Events in Indonesia from 1997 to 1998 provide an opportunity for examining SMEcrisis reactions in an emerging market. The country’s problems occurred as part of theAsian Financial Crisis, which began in July 1997 with the floating and rapid 18%depreciation of the Thai baht. Shortly thereafter, the Philippine peso and the Malaysianringgit depreciated by 30%. On August 14, the Indonesian government floated the rupiah,which immediately lost value (Sender, 1997). Seeking to restore confidence and respondto International Monetary Fund (IMF) stipulations for $23 billion in credit, the govern-ment announced major reforms (Liebhold, 1998). In response, the rupiah stabilized atabout 4,000 per U.S. dollar, and the Crisis, having barely started, appeared over.

Given the frequency with which such shocks often occur in emerging economies,local managers can become desensitized to them, even viewing them as more the rule thanthe exception (May, Stewart, & Sweo, 2000). Thus, the Crisis’ onset could have beenviewed within Indonesia as just another temporary economic setback. Unfortunately,impending elections in 1998 made President Suharto reluctant to carry out promisedreforms, and, in December 1997, the IMF withdrew its support. The rupiah quicklydropped to 16,500 per U.S. dollar in January 1998 (Sender & McBeth, 1998). The IMFannounced another bailout, this time totaling $43 billion, but only after the governmentpromised it would enact major economic changes (Shari, 1998). Although other subse-quent devaluations occurred, the IMF package enabled the rupiah to stabilize at about10,000 per U.S. dollar at the end of April 1998. This stabilization, however, resulted fromgovernmental policies that significantly and permanently changed the economic land-scape as foreign competition barriers were removed to satisfy IMF demands.

The Crisis significantly affected both Indonesian commerce and society. Theeconomy lost approximately 6 million jobs as inflation cut domestic demand (Cohen,1998a), and business confidence fell as Suharto family activities, valued at about$40 billion and nurtured by 30 years of cronyism, faced increasing scrutiny (Euroweek,1998). Ethnic unrest, a problem even during good economic times, erupted as the Chinesecommunity was held partially responsible for the crisis (Cohen, 1998b). Althoughlarge Indonesian business conglomerates benefited at times from the major economicreforms, smaller Indonesian firms bore the brunt of the economic belt-tightening policies(Mursitama, 2006). Many firms, large and small, proceeded cautiously and delayedexpansion projects to preserve cash reserves (Tripathi, 1997).

These events illustrate how firms in emerging markets, in general, must contend withenvironmental shocks. Although these markets represent the greatest growth potential intoday’s world marketplace, this potential comes at a price—uncertainty, resulting fromdisruptions not usually encountered in mature markets including rapid political change

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from a coup d’etat (such as occurred to Thailand’s Prime Minister Thaksin Shinawatra in2006) or economic shocks (such as Russia cutting off natural gas supplies to Georgia andUkraine, or recent hikes in petroleum prices). Natural calamities such as earthquakes ortsunamis can also paralyze commerce.

Such disruptions are particularly egregious to emerging market entrepreneurs, whomust evaluate the severity of such shocks and how they can disrupt commercial relationswith both domestic and, in some cases, foreign companies. These entrepreneurs may beless aware how such shocks are perceived in the global economy, and they may lack theformal business education needed to make an informed analysis. To examine these issues,we review extant research on managerial reactions to environmental shocks in the nextsection.

Managerial Responses to Environmental Shocks

With limited exception (e.g., Fischer et al., 2004; Tan & See, 2004), environmentalshocks like the Asian Financial Crisis have primarily been studied in the macroeconomicsfield (e.g., Ozler & Rodrik, 1992). Extant research has paid less attention to how theseshocks affect managerial perceptions and firm strategies, despite the recognition that suchshocks increase managerial uncertainty and threaten firm survival (Fischer et al., 2004).

The fundamental nature of a firm’s relationship with its external environments, ingeneral, has long interested organizational researchers. Scholars have recognized that aninherent tension exists resulting from the environment’s simultaneous roles in providingcritical resources and creating considerable uncertainty for a firm (Pfeffer & Salancik,1978; Thompson, 1967). Empirical research has demonstrated how environmental uncer-tainty impacts a wide variety of organizational factors including structure (Sutcliffe &Zaheer, 1998), environmental scanning (Daft, Sormunen, & Parks, 1988), and allianceformation (Street & Cameron, 2007). Cumulative findings support Thompson’s (1967)premise that the reduction of environmental uncertainty remains a fundamental challengefor complex organizations.

The means by which managers attempt to reduce this uncertainty, however, remainsan ongoing debate in the literature. Indeed, studies have posited opposite managerialreactions wherein managers focus internally or externally in attempts to reduce uncer-tainty resulting from environmental change and/or organizational performance decline(Ketchen & Palmer, 1999; Mone et al., 1998). On the one hand, studies have found thatwhen confronted with what they perceive as an increasingly uncontrollable environment,managers turn their focus inside the firm, a domain where they exercise greater control(Barker & Patterson, 1996). This “threat-rigidity” response often prompts them to cen-tralize authority, rely heavily on past decision routines, restrict outside information flow,and, in some cases, escalate commitment to failing strategies (Staw, Sanderlands, &Dutton, 1981). For example, Cameron, Kim, and Whetton (1987) found that firms in amature economy exhibited a rigidity response when facing increasing environmentalinstability. Organizational turnaround research, including recent work in emerging econo-mies (e.g., Bruton, Ahlstrom, & Wan, 2003), also largely supports this internal focus as aninitial step following a firm’s performance decline, with any strategic changes that man-agers implement being primarily incremental (Arogyaswamy, Barker, & Yasai-Ardekani,1995). Some emerging markets studies have also noted managers’ tendency to focusinternally to overcome external uncertainty created either by ongoing institutional defi-ciencies in capital, product, technology, or labor markets (Khanna & Palepu, 2000) orenvironmental shocks (Tan & See, 2004).


Given this internal focus, we would expect that SMEs may avoid alliances followinga shock for two reasons. First, although such alliances can provide several benefits, theycan also create problems by exposing SMEs to uncertainty arising from a partner’s futurebehavior. Second, seeking partners requires having an external rather than the internalfocus posited by threat rigidity (Marino, Strandholm, Steensma, & Weaver, 2002).

Alternately, other theoretical perspectives suggest that when faced with increasinguncertainty, managers attempt to actively manage critical resource dependencies andgather additional information so as to reduce uncertainty. Two in particular, resourcedependency theory (RDT) and information process theory (IPT), both posit this externalfocus. First, based on original works in the sociology and political science, RDT positsthat managers try to cope with external dependencies in order to acquire and maintaincritical resource flows (Pfeffer & Salancik, 1978). One strategy that firms use to reduceenvironmental uncertainty and gain access to necessary resources is to establish inter-organizational linkages such as non-equity alliances, joint ventures, and minority equityholdings (Park, Chen, & Gallagher, 2002). For example, Steensma, Marino, Weaver, andDickson (2000) found that as technological uncertainty increased, SMEs increasinglyformed technology alliances.

Second, IPT posits that as environmental uncertainty increases, so do managers’needs to acquire and process information (Daft et al., 1988). Thus, to reduce uncertainty,managers seek additional information to aid their interpretations of the external environ-ment. To date, studies have employed IPT to explore how both large and small firms reactto increasing environmental uncertainty. For example, sampling Fortune 500 firms, Bergh(1998) found that in diversified corporations encountering increased uncertainty, manag-ers often focused on improving information quality by acquiring strategically relatedunits. In contrast, examining smaller firms lacking resources for acquisitions, Dollingerand Golden (1992) found that firms employed less resource-intensive strategies (i.e.,forming strategic alliances) to gather additional information. Further, Sarkar, Echambadi,and Harrison (2001) found that firms that used alliances to identify and respond to marketopportunities had higher performance, and this relationship was stronger both in unstablemarket environments and for smaller firms.

Some emerging market research, to date, also supports this external focus to copewith uncertainty. For example, employing RDT, Peng and Heath (1996) posited thatemerging market firms will respond to uncertainty resulting from major economicchanges by increasingly forming external links with other firms so as to gain access tocritical resources and overcome the lack of institutional structures (e.g., property rights) inemerging markets. Moreover, in their study of Korean SMEs, Tallman and Shenkar (1994)found that these firms used strategic alliances to both gather information and gain accessto critical resources. Taken together, the findings of both the RDT and IPT schools suggestthat highly uncertain situations may prompt firms to seek external alliances (Eisenhardt &Schoonhoven, 1996). Thus, we believe that in environments affected by an environmentalshock, firms’ needs to secure necessary resources and information flows will override theirfear of relational uncertainty and will encourage them to adopt an external focus and seekalliances.

Hypothesis 1: For SMEs operating in an environment affected by an environmentalshock, perceived environmental uncertainty will be positively related to allianceintentions.

In sum, we expect environmental shocks to affect an emerging market SME’s strate-gic actions because the market may lack the institutional structures to contain the conse-quences associated with shock-induced changes such as monetary fluctuation, fiscal

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policy change, and regulatory adjustment (Luo, 1997). As noted, however, how and theextent to which managers respond to the shock remain an ongoing debate in the organi-zational literature.

Given evidence supporting both sides of the debate, we suggest that other importantfactors often not examined in emerging market research, to date, may impact SME actionsfollowing an environmental shock and help clarify how an SME is likely to react.Consequently, we augment the general hypotheses above by suggesting three contingen-cies that may impact how managers react: expected shock duration, firm strategic orien-tation, and firm slack level. The first of these, defined as how long managers expect theshock to affect their firm, may impact managerial reactions because it provides differentmotivations about whether to implement major strategic changes. The second, defined ashow entrepreneurial or conservative a firm is, may also affect managerial response to ashock by affecting whether managers routinely emphasize external or internal actions(Chattopadhyay et al., 2001). The third, defined as a firm’s excess resources relative to itsresource demands (Cyert & March, 1963), may impact how, and even whether, managersrespond to a shock because these resources may help buffer a firm from environmentaltrends. In addition, extant research suggests that slack level may have a direct or moder-ating effect on subsequent strategic actions (Cheng & Kesner, 1997). We, therefore,examine each of these factors, in turn.

Expected Shock DurationExtant research has noted that how and whether managers react to environmental

change may depend on the type of change they think they face. Studies have classifiedchange both based on its expected duration, temporary versus permanent, and its shape,continuous versus discontinuous (Meyer, Brooks, & Goes, 1990; Tushman & Romanelli,1985). First, temporary change may result from short-term jolts such as labor union strikesor economic recession, whereas permanent changes may be prompted by factors such asregulatory or technological changes (Smith & Grimm, 1987). Managers can often adjustto the former by making incremental, short-term changes (e.g., layoffs) whereas the lattermay require sweeping strategic change (e.g., entering new product markets) for a firm torealign with its environment (Zammuto & Cameron, 1985). Second, continuous changes(e.g., demographic shifts) are less disruptive than discontinuous ones (e.g., economiccrises) because firms can slowly adjust strategies to incremental changes in industrycircumstances (Meyer et al., 1990). In contrast, discontinuous changes are more traumaticand usually involve severe disruptions in a firm’s environment.

Environmental shocks may be temporary or permanent, but, by definition, they resultfrom discontinuous change. When faced with a sudden shock, managers must reactquickly and decisively to ensure a firm’s continued viability because implementing small,incremental changes, even in large numbers, often will not produce changes necessary toadjust to new environmental realities (Romanelli & Tushman, 1994). For SMEs, however,such wholesale changes may be especially problematic, because even though they enjoystrategic flexibility (Chen & Hambrick, 1995), they often lack resources necessary tocontend with major environmental shifts (Carter, 1990). Thus, as noted, strategic alliancesmay present SMEs with an attractive option to contend with environmental shocks. Asalso discussed previously, however, both managerial reaction (e.g., an internal versusexternal focus) and the cost/benefit calculus of alliances (threat of partner opportunismversus resource access) may affect whether managers seek alliances for their firms.

We suggest one possible contingency affecting alliance decisions is whether managersperceive the environmental shock to be temporary or permanent because alliances, in


general, and different alliance types, in particular, offer different costs and benefits interms of risk, investment requirements, and strategic flexibility. Specifically, alliances canrange from long-term contracts that require a minimal investment to equity joint venturesthat require much larger resource commitments. This investment level in an alliance, inturn, impacts the alliance’s flexibility. Non-equity agreements primarily benefit SMEs byproviding access to critical inputs without forcing firms to commit extensive resources.Similarly, the terms of the agreement improves alliance flexibility, because the shorter theagreement term, the quicker a firm can redeploy assets to adapt to uncertainty (Auster,1994). Thus, the risk associated with entering into a strategic alliance that does not meetthe needs of a changing environment is reduced.

SME managers facing an environment they believe is undergoing a temporary shockare likely to have a relatively high degree of confidence in the potential future states of theenvironment. Although managers may not be able to specifically predict which future statethe environment will result, the set of potential future states is relatively definable, andmanagers can employ strategic alliances to position their firms favorably regardless ofhow the temporary shock plays out. Given an SME’s limited resources, however, they areoften unable to afford large losses when the uncertainty is resolved. Thus, if managersseek alliances to contend with increased uncertainty, they should favor non-equity alli-ances that both require a lower resource investment and afford higher flexibility than doequity agreements (Auster, 1994).

As noted, in Indonesia, the initial shock, although rather severe, appeared to beshort-lived. In terms of the environmental changes discussed above, the initial economicshock was caused by inflation, the rupiah’s depreciation, and the IMF’s imposition ofstringent economic controls. Although these events had some social and political reper-cussions (e.g., riots and Suharto’s resignation), they only temporarily disrupted theeconomy given that the currency quickly stabilized. Thus, we would expect SMEs wouldprimarily seek non-equity alliance partners during this time period because such arrange-ments provided both additional resources and strategic flexibility in responding to futureenvironmental states. More generally,

Hypothesis 2: For SMEs operating in an environment affected by a temporaryenvironmental shock, perceived environmental uncertainty will be positively relatedto non-equity alliance intentions.

In contrast, when faced with more permanent environmental change, SMEs mustoften make major strategic changes to survive (Zammuto & Cameron, 1985). Thus, afterrecovering from the initial shock and making some incremental changes to stabilize thefirm, managers often need to make more long-term, adaptive strategic changes (Pearce &Robbins, 1993). If managers pursue an alliance in response to environmental changes,however, the nature of these alliances may differ from those sought to contend withtemporary change. Specifically, as noted, when facing temporary change, managers arelikely to believe that they can predict the potential range of future environmental states.In contrast, when facing permanent change, they are less likely to believe that they canaccurately predict future environmental conditions, resulting in higher uncertainty (cf.Milliken, 1987). Based on both RDT and IPT, they are likely to seek stronger agreementsboth to ensure a continued resource flow and to gather information about the changedenvironment (cf. Tallman & Shenkar, 1994). Thus, SMEs operating in an environmentimpacted by a permanent shock may be more likely to seek equity alliances that entailmore significant resource investment and provide tighter coupling with partners.

As noted, in Indonesia, the follow-up shock, although rather short-lived, resulted inpermanent structural changes as the rupiah stabilized at significantly lower levels relative

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to major currencies and the government implemented changes that opened up theeconomy to foreign competition. Thus, we would expect SMEs would be more likely toseek new equity alliance partners during this time period. More generally,

Hypothesis 3: In SMEs facing permanent effects from an environmental shock,perceived environmental uncertainty will be positively related to equity allianceintentions.

Firm Strategic OrientationAlthough environmental factors may be expected to significantly impact alliance

intentions, extant research indicates that firm-level factors will also affect alliance forma-tion and use (Eisenhardt & Schoonhoven, 1996). These characteristics can influencealliance formation because they impact managers’ cognitive biases that influence theamount and type of information employed in making strategic decisions (Daft et al.,1988).

When faced with a massive environmental shock, perceived environmental uncer-tainty is expected to significantly increase (Meyer et al., 1990). Yet, due to individualdifferences, managers across different firms are unlikely to perceive these changes equally(Miller & Friesen, 1982). One factor that has been shown to influence key managers’perceptions and interpretations of the external environment is the firm’s strategic posture(Dickson & Weaver, 1997; Tyler & Steensma, 1998), which can range from entrepreneur-ial, characterized by risk taking in the face of uncertainty, to conservative (Covin & Slevin,1991).1 The willingness to take risks or employ a proactive strategy in the face ofuncertainty (i.e., a high entrepreneurial orientation) is not necessarily associated withexploiting inherently risky situations but rather may be associated with perceiving oppor-tunities where those with lower entrepreneurial orientations perceive greater uncertainty(Palich & Bagby, 1995). Managers with more entrepreneurial strategic postures are,therefore, expected to better tolerate perceived uncertainty than those with less entrepre-neurial postures.

In terms of alliance use, research has shown that SMEs with higher entrepreneurialorientations are more likely to form alliances, in general, suggesting that managers inthese firms tend to focus more on alliance benefits rather than risks (Marino et al., 2002).Following an environmental shock, one particular important benefit alliances can provideis to increase options in terms of products, technologies, or skills that will allow firms tobetter adjust to uncertain future environmental situations (cf. Kogut, 1991). Thus, weexpect that more entrepreneurial firms in this situation would generally pursue morealliances.2

Hypothesis 4: Following an environmental shock, entrepreneurial orientation will bepositively related to its strategic alliance intentions.

1. It is important to stress here that when we refer to entrepreneurial orientation, we are using this to describethe strategic posture of a firm’s enterprise strategy rather then the characteristics of any single individual.2. Given that research has only demonstrated a link between entrepreneurial orientation and total allianceusage (e.g., Marino et al., 2002), rather than a specific (e.g., non-equity versus equity) alliance type, weformulated a general hypothesis to investigate this link. In addition, extant research has yet to examine the linkbetween slack and alliance intentions; thus, we follow a similar course for the slack-alliance intentionhypothesis below. As noted in the Methods section, however, to gain additional insight, we investigateddifferences between alliance types for both hypotheses.


Organizational SlackAn SME’s resource levels may also affect how its managers respond to environmental

shocks (Meyer, 1982). Although some heretofore valuable resources may become obso-lete following major economic transitions in emerging markets (Wright et al., 2005),managers can often redeploy more general resources in response to new environmentaldemands (Tan & Peng, 2003). One such resource involves organizational slack level,defined as the difference between total resources and demands on those resources, whichmanagers can use both to stabilize and adapt a firm in times of crisis (Cyert & March,1963). Slack, thus, serves as a cushion of excess resources that firms can use in adiscretionary manner to counter threats (Bourgeios, 1981).

Following a shock, firms having sufficient slack resources to “cushion the blow”through actions such as drawing down cash reserves or laying off excess personnel mayconsider multiple options in making strategic decisions because they can often buffer coreoperations and, in turn, postpone or even avoid making major strategic adjustments(Thompson, 1967). In contrast, firms lacking these resources may have fewer options, and,thus, must often quickly find solutions to respond (Chattopadhyay et al., 2001). In one ofthe few empirical studies examining slack in emerging market firms, Tan and Peng (2003)found that higher liquidity improved subsequent performance for organizations facingeconomic transition in China.

Although little research has empirically examined the connection between firm slacklevels and alliance decisions, we can posit, based on RDT, that firms with higher slacklevels can maintain their autonomy, and, in turn, eschew alliances with other firms,whereas those with lower slack may need to seek important resources externally viaalliances (Pfeffer & Salancik, 1978). For example, previous research has noted that firmswith higher slack levels were more likely to react with defensive (i.e., threat rigidity)responses following the onset of the Asian Financial Crisis in Singapore (Tan & See,2004), which, in turn, would suggest that these firms would also seek fewer alliances asthey search for remedies inside rather than outside the firm. This effect may be particularlypronounced on managerial alliance intentions following a shock given that volatilemarkets may increase the risks of engaging in alliances (e.g., increasing likelihood ofpartner opportunistic behavior) because of rapidly changing circumstances (Luo, 2007).Thus, following an environmental shock, we expect that firms with higher slack levelswould generally pursue fewer alliances, in general.

Hypothesis 5: Following an environmental shock, an SME’s slack resource levelwill be negatively related to its strategic alliance intentions.

Slack InteractionsAlthough a firm’s slack resource levels may impact how its managers respond to

increasing environmental uncertainty, some research suggests that the whether managersemploy slack as a buffer to environmental change or use it to fund innovation may dependon (1) the type of environmental change experienced and (2) the firm’s strategic orienta-tion. First Chattopadhyay et al. (2001) found that a firm’s slack level positively moderatedhow its managers responded to different environmental changes, enhancing both inter-nally and externally focused responses depending on the type of environmental threatmanagers perceived.

Second, research suggests that managers may have different motivations aboutemploying slack based on what Penrose (1959) termed their “entrepreneurial ambition.”

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Specifically, when a firm employs a more conservative strategy (e.g., one focusing onenhancing operating efficiency), its managers may be more likely to invest slack to bufferits “technical core,” thereby reducing the need for major strategic change (Cheng &Kesner, 1997). In contrast, when a firm employs a more proactive strategy (e.g., onefocusing on prospecting for new markets), its managers may be more likely to use slackto fund these initiatives (Mishina, Pollack, & Porac, 2004).

As noted, little research exists examining the direct or moderating link between slackand alliance use. Based on findings from previous research, however, we posit thatfollowing an environmental shock, an SME’s slack levels will magnify managers’responses to environmental changes and provide them additional resources to invest in afirm’s current strategy. Thus,

Hypothesis 6a: Following an environmental shock, an SME’s slack resource levelwill positively moderate the relationship between perceived environmental uncer-tainty and strategic alliance intentions.Hypothesis 6b: Following an environmental shock, an SME’s slack resource levelwill positively moderate the relationship between its entrepreneurial orientation andstrategic alliance intentions.

Methods

SampleTo examine our research questions, we sampled 1,000 manufacturing companies in

the Indonesian manufacturing sector. We used a randomized process sampling SMEs in allindustry subgroups across all provinces focusing on size and industrial classificationrepresentativeness. We considered a survey appropriate in this context because we wereinterested in perceptual uncertainty measures (Boyd, Dess, & Rasheed, 1993). Weemployed a key informant design, and addressed surveys to each firm’s owner or generalmanager. To ensure that the respondent was a key informant, we limited the sample tofirms having at least six, but not more than 500 employees. Theoretical support existssuggesting that firms of this size are extensions of the individuals in charge (Lumpkin& Dess, 1996). We developed mailing lists using the 1997 Manufacturing IndustryDirectory, issued by the Indonesian government.

We employed a mailing process that resulted in two samples, each facing a differentenvironmental situation. Sample 1 resulted from mailing questionnaires to SMEs inNovember 1997. A follow-up mailing was sent to the firms who did not respond within20 days. It quickly became apparent to the research team that a lower than expectedresponse was related, in part, to drastic changes from the environmental shock. Recog-nizing the unique and valuable opportunity this represented, the team decided that asecond wave of data collection would be valuable to determine how the shock impactedSMEs. Thus, we chose to delay until March 1998 to collect Sample 2, because it wasdeemed far enough from shock’s onset that managers would have had time to react to theCrisis, but the event would be recent enough to still influence managerial perceptions. Toensure that length of time since the environmental shock would not contaminate ourresults, the team set a cutoff date of December 1, with surveys received after that timeincluded in Sample 2. For this latter sample, a combination of mailed and hand collectedsurveys based on telephone appointments was used to increase the response rate.


Response AssessmentOf the 1,000 surveys, 110 (11%) were returned as undeliverable due primarily to

either faulty addresses or business closings. Of the remaining 890 survey’s 137 or15.4% were returned prior to the cutoff date for Sample 1. From the second mailing,148 surveys were returned, resulting in 285 total returned surveys for an overallresponse rate of 32%. Of the returned responses 14 (3 from Sample 1 and 11 fromSample 2) were excluded from the analysis due to missing, incomplete, or inconsistentdata. This process resulted in a total of 271 (134 in Sample 1, 137 in Sample 2) usableresponses or 30.4%.

One hundred fifty three (91 in Sample 1, 62 in Sample 2) or 56.5% of the firmscurrently used strategic alliances. Responses by each industry subgroup are presented inTable 1.

Telephone surveys of 40 nonrespondents suggested that their nonresponse resultedprimarily from survey length and the feeling that it did not apply to their firms. Weasked for number of employees and whether a firm exported to compare them withrespondents, and no significant differences resulted, reducing concerns of nonresponsebias.

MeasuresTo allow us to focus on the effects the environmental shock would have on Indonesian

managers, we used a previously tested model developed by Dickson and Weaver (1997) toguide our model development. To adapt this model to an emerging economy undergoingan environmental shock, we took two additional actions. First, Dickson and Weaveremployed current alliance use as their dependent variable. In contrast, we employed firmintentions to use strategic alliances in the future because, noting that intentions impactplanned behavior (Fishbein & Ajzen, 1975), previous studies have called for additionalresearch examining the process managers employ when forming their initial opinions, andin turn, intentions regarding future alliance formation viability (Auster, 1994; Tyler &Steensma, 1998). Thus, this research is primarily concerned with how perceived environ-mental uncertainty influenced these intentions.

Table 1

Firm Response by Industry

Industrial subsector Sample 1 Sample 2

Food, beverage, tobacco, and kindred products 30 29Wood and wood products 5 8Printing 0 8Rubber products 3 15Metal product machines, tools, and other capital goods 20 4Textiles and leather products, including footwear 9 32Electronic computer components and instruments 9 3Oil and gas equipment 1 1Transportation 1 1Others (e.g., plumbing fixtures, brass products) 57 36

Total 134 137

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Given the emerging market setting, we also reanalyzed all scales, including a factoranalysis for environmental perceptions and entrepreneurial orientation, as well as reliabil-ity analysis for each scale previously developed by Dickson and Weaver (1997). We detailresults of this analysis in the following sections.

Future Alliance Intention. We asked each key informant to indicate whether their firmintended to use any of ten different alliance types over the next 12 months. We then splitthese into nonequity and equity alliances (see Appendix). This variable was codeddichotomously (0 = no, 1 = yes), and each alliance type was coded as the sum of thenumber of alliances that managers indicated they planned to use. We then summed theseresponses to create both a measure for both total alliance intentions as well as one for eachalliance type.

Environmental Uncertainty. To capture key informant’s perceived environmental uncer-tainty, we employed a scale that included items employed in previous perceived environ-mental uncertainty research (e.g., Khandwalla, 1977; Miller & Friesen, 1982). All itemswere measured using a 5-point Likert scale, and each was associated with one of fourconstructs underlying perceived environmental uncertainty including competitive uncer-tainty, general uncertainty, potential for future growth and profits (reverse-scored), andtechnological uncertainty. Each item, except of those associated with growth and profits,was worded to reflect higher uncertainty.

Although previous research has shown these scales have adequate reliabilities, theygenerally had not been applied to either firms in either an emerging economy or thosefacing an environmental shock. We, therefore, factor analyzed the items using a principlecomponents analysis with varimax rotation, retaining items that loaded with a score ofover .5 and had no significant cross-loadings. The factor analysis resulted in four factorswith eigenvalues greater than one and explained of 62.9% of the variance. Our factorloadings differed slightly from those of past research. For example, in our sample,perceptions of “General Unpredictability” grouped together on one factor. It is possiblethat in emerging economies, managers tend to perceive uncertainly more consistently intheir industry environment than do managers in the more mature economies whereresearchers have previously used this scale.

Entrepreneurial Orientation. The risk orientation of a firm’s strategic posture has beenshown to influence a firm’s propensity to pursue alliances (Tyler & Steensma, 1998).According to Covin and Slevin (1991), a firm whose management team has an entrepre-neurial strategic posture is characterized by “risk taking in the face of uncertainty” (p. 10).We measured this factor by using an entrepreneurial orientation scale based on thework of Covin and Slevin (1988, 1989). The eight-item, 5-point scale (Overall a = .75;Sample 1 a = .75.; Sample 2 a = .76) assessed a firm’s strategic posture by measuring thetendency of the firm’s managers to be risk taking, innovative, and proactive towardcompetitors (see Appendix). Previous research has shown this scale to be valid andreliable in cross-cultural settings (Knight, 1997).

Organizational Slack. Previous research has predominantly measured slack employingeither financial variables to capture either objective (e.g., liquidity) or perceived (high/low) slack. We employed perceived measures for three reasons. First, we focused onmanagers’ intended future actions, which may be more influenced by their perceptions ofcurrent resource levels than objective levels (Nohria & Gulati, 1996). Second, by employ-ing subjective measures, we were better able to gauge both current resource levels and


demands, thereby avoiding the potential bias arising from focusing only on the former(Mishina et al., 2004). Third, we employed subjective rather than objective slack measuresbecause respondents might have felt the latter too sensitive to reveal. Previous researchhas demonstrated that how executives subjectively rate their own firm’s financial situa-tion correlates highly with objective measures (Dess & Robinson, 1984). We, therefore,employed a scale asking the respondent to rate their current satisfaction with their firm’sslack level measured based on sales growth rate, cash flow, and ability to fund businessgrowth from profits (Bourgeios, 1981).

Control Variables. We also included three control variables in this study. First, to accountfor industry effects, we included indicator variables for each major industry group.Second, we dichotomously measured whether or not the firm engaged in internationalsales. Third, to account for the possibility that structural inertia, rather than our variablesof interest, was responsible for a firm’s intentions to use alliances, we also includedcurrent alliance use to control for the extent to which the firm’s dominant logic (Prahalad& Bettis, 1986), its preferred manner of doing business, simply favored the use of strategicalliances over other mechanisms to achieve firm goals. Managers indicated how many(0 up to 5 or more) times their firms had recently employed each alliance type. Wethen summed these responses using the same non-equity/equity classification as FutureAlliance Intentions (see Appendix)

Survey Translation. Consistent with Brislin’s (1980) recommendations, the survey,originally developed in English, translated into Indonesian, and then back translated toensure translation reliability. Additionally, industry-specific terminology was altered toensure its appropriateness for use in Indonesia.

Data Analysis. To test hypotheses 1 through 5, we employed OLS regression. To testhypothesis 6a and 6b, we employed moderated regression to assess whether the interac-tions between slack resources and both strategic posture and perceived environmentaluncertainty were significantly related to alliance intentions. In doing so, we first includedall variables as main effects and then introduced interaction terms created by multiplyingslack by strategic posture and perceived environmental uncertainty, respectively. We meancentered all three variables to reduce possible multicollinearity issues (Aiken & West,1991).

Results

Table 2 presents the means, standard deviations for each variable, as well as theintercorrelations among the variables. Examining this Table reveals that even thoughcurrent alliance use is significantly related to intentions to use future alliances, noevidence of multicollinearity exists among the variables. This conclusion is furthersupported by collinearity diagnostics in the regression equations used to test thehypotheses.

Results for hypothesis tests in temporary and permanent shock environments areshown in Tables 3 and 4, respectively. Hypotheses 1 stated that managers’ perceivedenvironmental uncertainty will positively influence a firm’s intentions to use alliances.Model 1 in both Tables 3 and 4 includes only control variables, and as a group, they aresignificant (p < .001 and p < .01, respectively) in both shock environments. Consistent

169January, 2008

Tabl

e2

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for

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171January, 2008

Tabl

e4

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with the dominant logic perspective, current alliance use has a strong positive relationshipwith future use in both. In Model 2, we add each dimension of perceived environmentaluncertainty. As shown in Table 3, in a temporary shock environment, competitive uncer-tainty is negatively ( p < .05) related to future alliance intentions, contrary to hypothesis 1.In contrast, shown in Table 4, in a permanent shock environment, future growth ispositively ( p < .05) related to future alliance intentions, providing some support forhypothesis 1. This mixed results support our contention that critical contingencies may beimportant to explaining future alliance intentions.

To test the effect of expected shock duration on future alliance intentions, we firstexamined each environmental variable’s relationship with both non-equity and equityintentions in a temporary shock environment (see Table 3). As shown in the Table, changein R2 is significant for equity ( p < .05) but not for non-equity alliances. Thus, hypothesis 2is not supported.

To test the effect of strategic posture in a temporary shock environment, we entered itin Model 3. As shown in Table 3, the change in R2 is significant for non-equity ( p < .05)but not for equity alliances. For non-equity intentions, strategic posture is positive( p < .05), which supports hypothesis 4.

To test the effect of slack level in a temporary shock environment, we entered it inModel 4. As shown in Table 3, the change in R2 is significant for equity ( p < .05) but notfor non-equity alliances. For equity intentions, slack is positive and significant, which iscounter to hypothesis 5.

To test for the interactions posited in hypotheses 6a and 6b, we conducted amoderated regression analysis (see, again, Table 3). As shown in the table, results indicatethat in a temporary shock environment, the interaction between slack and most of theenvironmental uncertainty variables is not significant. Thus, neither hypothesis is sup-ported.

To test the effect of expected shock duration on future alliance intentions in apermanent shock environment, we again examined environmental variables relationshipwith both non-equity and equity intentions (see Table 4). As shown in the table (Model 2,Equity intentions), the change in R2 is significant ( p < .05) with future growth positively( p < .01) and technical uncertainty negatively ( p < .10) related to future equity allianceintentions, providing mixed support for hypothesis 3.

To test the effect of strategic posture in a permanent shock environment, we enteredit in Model 3. As shown in Table 4, the change in R2 is not significant for either alliancetype. Thus, in the permanent shock environment, hypothesis 4 is not supported.

To test the effect of slack level in a permanent shock environment, we entered it inModel 4. As shown in Table 4, the change in R2 is significant for equity ( p < .05) but notfor non-equity alliances. For equity intentions, slack is positive and significant, whichagain is counter to hypothesis 5.

To test hypotheses 6a and 6b in a permanent shock environment, we again conducteda moderated regression analysis (see again, Table 4). As shown in the table, resultsindicate that in this environment, the interaction between slack and most of the environ-mental uncertainty variables is positive and significant ( p < .05), indicating that higherslack levels strengthen the link between environmental uncertainty and alliance intentionsfor both non-equity and equity alliances. The only exception is the interaction betweenslack and competitive uncertainty, which is negative ( p < .01) for both alliance types,indicating that higher slack levels weaken the link between this type of uncertainty andalliance intentions. In addition, the results indicate that slack-strategic posture interac-tion is marginally ( p < .10) significant. Thus, in a permanent shock environment,hypothesis 6a and 6b receive strong and weak support, respectively.

173January, 2008

Discussion

We conducted this study to examine how a major environmental shock affected thestrategic decision processes in emerging market SMEs. Results indicate that the relation-ship between perceived environmental uncertainty and alliance intentions differed acrossthe two Indonesian samples, which faced temporary and permanent shock environmentsfollowing the Asian Financial Crisis, respectively. The directions of these relationships,however, were not always as hypothesized based on previous findings from more matureeconomies.

Consistent with previous research in mature economies, our study confirmed that thestrongest factor in determining future intentions to use alliances is current alliance usage.Not surprisingly, firms that have more experience with alliances are more likely to employthem again in the face of environmental uncertainty. Despite this finding our resultsindicate that SMEs in emerging economies responded differently based on the type ofshock (i.e., temporary or permanent) they believe they face. Specifically, distinct environ-mental dimensions had differential relationships with alliance intentions depending onwhether SMEs faced a temporary or permanent shock environment. These differencessuggest that the temporary/permanent dimension is useful for investigating how managersrespond to environmental change.

While the positive effect of strategic posture on alliance intentions in the temporaryshock environment was consistent with extant research (e.g., Marino et al., 2002), thepositive relationship between slack level and alliance intentions was surprising given boththe widely accepted arguments of resource dependence theory (Pfeffer & Salancik, 1978)and the possible problems that alliances can create for firms (Hamel, 1991). Four potentialexplanations, separately or in tandem, may account for this counterintuitive finding. First,given that this relationship held for equity alliances in both environments, the results mayindicate that the severity of the shock may have prompted managers to consider employ-ing slack resources in a “prospecting” mode to develop new strategic options (Cyert &March, 1963; Singh, 1986). Alliances could offer one, albeit higher risk, avenue to helpdevelop these options, but a firm’s higher slack levels may encourage this risk takingbecause these firms have the resources to recover if the alliance turns out to be a mistake(Human & Provan, 2000). The negative interaction between slack and competitive uncer-tainty, although counter to hypothesis 6a, also seems to support this view. Second, theymay result, in part, from our focus on highly liquid (e.g., cash flow) slack measures. Moneet al. (1998) suggest that higher levels of uncommitted resources, in general, may helpstimulate innovation in firms facing declining performance, and the present results suggestthese innovative behaviors may include seeking alliances following environmentalshocks. Third, the results may support Eisenhardt and Schoonhoven’s (1996) conclusionthat better resource-endowed firms have an easier time finding alliance partners. Thus,combined with Hitt et al.’s (2004) finding that emerging market managers value a poten-tial partner’s financial resources, these results may indicate that managers in SMEs withhigher slack resources may recognize that their firms make more attractive alliancepartners. Fourth, they may reflect, in part, the propensity for many firms to horde slackresources (e.g., cash) to the best of their abilities during crisis situation (e.g., Zuckerman,2005).

LimitationsThe primary limitation of the research is that the respondents in temporary and

permanent shock environments are not the same because the chaos produced by the


environmental shock made tracking firms difficult (cf. Hoskisson et al., 2000). At thesame time, we were able to collect a sample in each environmental situation of suffi-cient size to conduct empirical analysis. We, thus, saw this limitation as important butless so than the opportunity to collect data and conduct a natural experiment in a crisisenvironment.

Second, the potential for common method variance is always a concern in survey data.In the present study, however, the questions employed were included as part of a largersurvey examining SME strategic issues. Thus, these questions were not the survey’s solefocus, and it would be difficult for respondents to ascertain a relationship between thevariables employed, minimizing the concern regarding this potential bias (Podsakoff &Organ, 1986). Empirical results showing that environmental uncertainty variables loadedon multiple factors, with no one factor explaining the majority of the variance, similarlyreduce this concern.

Third, the age of the data utilized in the empirical analyses could present a potentiallimitation in that it may affect the generalizability of the results. However, we believe thatthis concern is mitigated because the fundamental theoretical relationships we examine,(i.e., how firms with limited resources in an unstable environment respond to significantchange) are not temporally dependent, nor are they limited to the specific context weinvestigated. While the examination of firm-level responses to discontinuous change ischallenging due to the nature of the phenomenon, studies that have been able to explorethis important topic have significantly increased our understanding of how firms respondto uncertainty, regardless of the time, or context, of the change. For example, insightsgained from Meyer’s (1982) seminal examination of environmental change in SanFrancisco hospitals and Smith and Grimm’s (1987) study of change in the U.S.railroad industry are still widely cited in the literature and impact our understandingof how organizations respond to uncertainty.

Finally, we focused on managers’ intentions to form rather than actual allianceformation. Given both the direct link between intentions and planned behaviors (Fishbein& Ajzen, 1975) and our focus on how cognitive outcomes such as perceived environmen-tal uncertainty affect managers’ decision making as they contemplate alliance opportuni-ties (Tyler & Steensma, 1998), such a focus is appropriate. Future research, however,might extend the present results by studying whether, following a shock, environmentaluncertainty actually leads to future alliance formation. Along with factors examined in thepresent study, future research could also investigate factors such as suitable partneravailability (Eisenhardt & Schoonhoven, 1996).

Future ResearchThe research supports the growing body of work showing the multidimensional nature

of environmental uncertainty. In addition to the issues noted above, future research couldalso use the findings to evaluate outcomes of alliances and develop tools to assist inreducing the issues related to searching for partners. For example, government supportfor firms with lower entrepreneurial orientations may be needed in emerging economiesto gain the potential benefits associated with alliance formation, whereas higherentrepreneurial-oriented firms may choose to enter alliances to take advantage of theperceived opportunities. Programs that reduce the costs of alliances or increase thepotential for success could be developed to appeal to both groups.

Additional comparisons of Indonesia to other emerging economies could alsoaugment the findings. Replicating the current analysis may be difficult because

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environmental shocks, by definition, tend to be unpredictable. Other recent shocks,however, could be employed as follow-up studies to see if the current study’s findings holdacross different countries.

In addition, although our study drew heavily from extant emerging market research,we note that future research may need to further consider some issues within this context.For example, our view of temporary versus permanent change, although well grounded inthe literature and consistent with the events corresponding to the Asian Financial Crisis,may better align with time conceptualizations in more mature economies or Westerncultures than those in Indonesia. Thus, future research should explicitly test how thispotential difference might impact crisis reaction in emerging economies.3

Future research could also investigate whether the decade following the Crisis haschanged managerial perceptions in Indonesia regarding strategic issues such as allianceformation intentions (White, 2004). For example, Yeung (2006) noted that since theCrisis, traditional capitalism among ethnic Chinese in Southeast Asian countries, includ-ing Indonesia, has fundamentally shifted to a hybridization of traditional and globalbusiness practices. Thus, future research could investigate how or whether these trendshave affected strategic decision making with emerging market SMEs in the region.

Finally, future research could also examine whether firms form other external linksbeyond the strategic alliances investigated in the present study. Li (2005), for example,noted that firm alliances with other firms and links to local government officials representdistinct constructs, and both may be critical for competing in emerging economies. Thus,additional investigation into the value of political links for firms in crisis situations iswarranted.

Conclusion

How SMEs contend with sudden environmental shocks represents a critical researchquestion, particularly for firms competing in emerging economies where such shocks aremore prevalent. Results from the present study show that responses varied based onwhether the shock was expected to have a temporary or permanent effect on the industryas well as the SME’s strategic orientation and slack level. Results also indicate that thedirection of these effects did not always conform to what would be hypothesized based onprevious research findings employing samples from stable, developed countries. Overall,these results provide critical insights into SME strategic actions in emerging marketsparticularly in terms of key motivations for SME alliance formation.

Appendix: Survey Items

1. Future alliance intentionsWill your firm use any of the following types of alliances in the next 12 months?Non-equity (a = .80)—Outside contracting, licensing, long term agreements(marketing, distribution, production),Equity (a = .72)—Joint ventures with other small businesses, joint ventures withlarge companies, equity investments from other companies, technology alliances(R&D, product)

3. We would like to thank an anonymous reviewer for this insight.


2. Slack (a = .84)Please indicate the extent to which your company’ top managers are currentlysatisfied with your business unit’s performance on each of the following criteria(1 = not at all satisfied, 5 = highly satisfied).

Cash flow, sales growth rate, ability to fund business growth from profits

3. Perceived future industry growth and profit (a = .79)Please circle the numbers in the following scales that best describe the attributes ofyour company’s principal industry

a. Projected long-term(5 years or more)industry profits

Very low 1 2 3 4 5 Very high

b. Projected long-term(5 years or more)industry growth rate

Very slow 1 2 3 4 5 Very rapid

4. Perceived general uncertainty (a = .62)With respect to our industry . . .

a. Our company mustrarely change itsmarketing practices tokeep up with the marketand competitors

1 2 3 4 5 Our company must change itsmarketing practices extremelyfrequently (e.g., semi annually)

b. The rate at whichproducts/servicesbecome obsolete in theindustry is very slow(e.g., basic metals)

1 2 3 4 5 The rate of obsolescence is veryhigh (e.g., fashion goods,semiconductors)

c. Actions of competitorsare easy to predict

1 2 3 4 5 Actions of competitors areunpredictable

d. Demand and consumertastes are fairly easy topredict (e.g., milkcompanies)

1 2 3 4 5 Demand and tastes are almostunpredictable

5. Perceived competitive uncertainty (a = .64)How would you characterize the external environment within which your companyfunctions?

a. Rich in investment andmarketing opportunities

1 2 3 4 5 Very stressful, exacting, hostile;very hard to keep afloat

b. An environment thatmy company can controland manipulate to itsown advantage

1 2 3 4 5 A dominating environmentin which company initiativescount for very little

c. Minimal competitive intensitywithin the industry

1 2 3 4 5 Extreme competitive intensitywithin the industry

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6. Perceived technical uncertainty (a = .72)How would you characterize the external environment within which your companyfunctions?

a. An environmentdemanding little in theway of technicalsophistication

1 2 3 4 5 Technologically, a verysophisticated and complexenvironment

b. Virtually no R&D inindustry (e.g., bakery,publishing, real estate)

1 2 3 4 5 Extremely R&D orientedindustry (e.g.,telecommunications,pharmaceuticals)

7. Previous alliance experiencePlease circle the number of times your company has used each of the following typesof alliances (0 to 5 or more).Non-equity (a = .83)—Outside contracting, licensing, long term agreements (mar-keting, distribution, production),Equity (a = .76)—Joint ventures with other small businesses, joint ventures withlarge companies, equity investments from other companies, technology alliances(R&D, product)

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