Carefully chosen partnerships with larger companies allow young firms to gain access to additional resources and markets, according to a study from researchers at the University at Buffalo School of Management.
“Partnerships offer many mutual benefits; established companies can tap into a start-up’s cutting-edge technologies and innovative potential, while young firms acquire knowledge and status from experienced partners,” Ramin Vandaie, PhD, assistant professor of operations management and strategy at the University of Buffalo School of Management, stated in a press release.
There is a caveat — too many outside partners will weaken the firm’s internal capability and the cost of maintaining all the alliances will exceed the benefits.
“More is not necessarily better,” Vandaie stated. “We found the benefits of alliances with larger companies do not increase proportionally with the number of partners, but instead start to level off and turn negative as more partnerships are formed.”
The research also showed that highly specialized firms experience greater benefits from interfirm alliances than more generalist competitors.
“Small, specialized firms that have the opportunity to align with larger firms should put their expansion plans on hold to gain the benefits of those partnerships,” Vandaie added. “Later, they can use their newly developed capabilities as a basis for growth and a more reliable path to expansion.
Vandaie R. Organization Science; 2014;http://dx.doi.org/10.1287/orsc.2014.0925.