Informal Interfirm Relations and Alliance Formation; a multiple case study of interfirm cooperation of young SMEs in the computer programming services sector in Amsterdam

The notion that a firm’s social connections guide its interest in new alliances, and provides it with opportunities to realize that interest, is closely rooted in the process of alliance formation. Alliance formation and the role that social connections play are therefore central to this thesis, in order to gain insight into the interplay between social networks and economic motivations. The objective of this study is to explore the role that informal interfirm relations play in alliance formation of young SMEs in the computer programming services sector in Amsterdam. This should provide better insight into to what extent and how these relations influence the alliance formation process. Close attention is being paid to the institutional context in which the informal interfirm relations develop. This allows for the closer look at associations, a subdivision of this institutional context. Linkages between organisational practices of firms and the institutional infrastructure of a region can be studied in more detail because of the focus on associations. Based on the empirical data gathered by semi-structured interviews held with twelve entrepreneurs the following conclusions can be made. Firstly, informal interfirm relations affect alliance formation between SMEs in the computer programming services sector in Amsterdam to a large extent since in more than half of the cases in which the selected firms entered into an alliance, the partners maintained an informal relation prior to forming an alliance together. Secondly, informal interfirm relations do affect alliance formation of young SMEs in the programming services sector in Amsterdam directly because a closer look at the objectives of alliances between partners that did previously maintain an informal relation shows a homogenous picture: the objective was the same in all cases, namely to develop a product. Alliances between firms that did not maintain an informal relation before however, all had objectives that can be categorized as existing product-related. Thirdly, the influence of the 'philosophy of partnership' on the alliance formation process is insignificant; it remains a pronounced view on the value of cooperation with other companies yet without pivotal impact. Finally, a firm's 'philosophy of partnership' does not affect the context and nature of the informal interfirm relations (IIRs) in a specific direction, but it does seem to make the companies’ informal interfirm behaviour more proactive. Some careful observations can be made. Firstly, the lack of a ‘philosophy of partnership’ in all but one of the young SMEs that do enter into alliances, and the fact that the objectives of alliances of companies that previously maintained an informal relation are so different from the objectives of alliances between companies that did not maintain an informal relation before, raise some questions regarding the sequence of identified stages of the alliance formation process. All facts considered give the impression that a motive to form an alliance does not always precede the actual onset of alliance formation between firms. This might point to a reality in which the objective of an alliance is designed to fit the complementarities that become apparent after a ‘cultural fit’ is recognized. Secondly, the disparity in alliance objectives might hold some clues about the role the product and required knowledge for innovation play in the alliance formation process. The competitive advantage of some of the young SMEs studied is their ability to implement software products fast. These SMEs do not focus on innovating their product, but on improving their service to retain their competitive advantage. When they do innovate it appears that quite a few of the interviewed SMEs -to a large extent- rely on their main supplier’s website for knowledge that they might use to innovate. These two factors might explain why some companies don’t cooperate with other firms at all –and are not inclined to do so in the near future- and why others do enter into alliances with objectives categorized as existing product-related. Limited informal interfirm behaviour might also be caused by these factors. Lastly, the role of associations in informal interfirm relational behaviour of young SMEs in the computer programming services sector in Amsterdam seems limited.