The Impact of Collaboration between Firms on Advancing Technology - Literature review Example

Literature review

Firms make great stride if they work together in collaboration. The benefits associated with firms that are in collaboration have been analyzed and theories developed. However, the success of the collaboration will depend on the contribution of the players. Three theories have been identified to support this research. Resource dependency theory, argues on the ground that firms will collaborate to afford resources out of their reach. Therefore, the theory believes that if firms share the resource they have, growth of the firm will be witnessed. The other theory is the transaction cost theory. The theory bases its argument on cost reduction and profit enhancement. Based on this theory the growth of a firm depends on the how the firm is able to minimize cost to enhance its profit. Organization learning theory the third theory on this research, bases its argument on the fact that advancement of a firm depends on the innovation. Organization collaboration leads to the transfer and exchange of knowledge among the firm.

2.1Resource dependency theory

Organizations might not be in a position to afford all resources requisite in the production exercise. This therefore, calls for collaboration between firms that have different resource base and could help each other. The theory asserts that, a particular resource might be vital for the success of a company, but is out of reach for that given company or rather risky investing in that particular resource (Conrad, 2000, p.92). Therefore, firms opt to spread risk by forming collaboration, so that each firm tackles a small portion of the risk. In addition to that, scarcity of resources has been associated with collaboration between firms. For the continuation of business a firm that has a given resource will be allocated a specific task for the benefit of all parties involved in the collaboration (Caglio, & Ditillo, 2008, p. 137). However, this theory relies on the assumption that all firms that have entered into collaboration will not be interested in acquiring the resource considered scarce. Therefore, if indeed the resource is the leading factor of the collaboration. This means if all firms in the collaboration acquire their own the collaboration will be terminated.

2.2Transaction cost theory

According to (Dietrich, 1994, p.103), it is the desire of all business ventures to keep the cost of transaction as low as possible while still maintaining the quality of their output. Firms observe activities that are performed by all members in the given collaboration and aim at eliminating duplication of activities. This move therefore cuts the cost that each individual firm would have incurred by engaging in such activity. This theory relies on the assumption that all firms in the collaboration trusts each other and can share crucial facts. However, this is not always the case because firms fear the instances of take-over and compromising competitive edge of a particular firm. This has forced firms to retain certain information and opt to perform specific tasks on their own even if it is duplication. Uncertainty in the market always impact on transaction cost, therefore, if firms collaborate transaction cost incurred will be stabilized benefitting all firms in the collaboration.

2.3 Organization learning theory

This theory was developed by Chris and Schon, but modified by Cohen, and Sproull. The degree of creativity in an organization is associated with the quality of products and services of that given company, which is influenced by the existence of a research and development team of a firm. According to (Hady Farag 2009, p. 59) Diversity in creativity brings firms with common goal together (collaboration). In the process one firm is able to learn new idea to better its operations. A firm might be good in research and development, but weak in management. Thus theory advocated for the collaboration of firms to reinforce their weakness to meet the needs of the market. Critics consider this as the best ideology of collaboration at the same time criticizes it on the aspect of competitive edge (Surowiecki, 2004, p. 158). The theory recognizes enhancement of knowledge through technology, therefore, provides a framework for this research. It is thus advisable for a firm to consider to what extent they can share certain information for the sake of enhancing innovation among the firms in the collaboration. According to (Cohen, & Sproull, 1996, p.74) the absorptive capacity of a firm will determine the learning capability to enhance an innovation for the success of the collaboration.

New Model developed from the theories

Figure 1.2

Elements of the new model

• Resource sharing
• Bargaining power
• Staff efficiency
• Profit enhancement
• Cost reduction
• Knowledge
• Growth

2.4 Analyzing and criticizing the developed model

The above discussed theories support collaboration among firms, however not all elements presented by each theory are in line with this research. Therefore, some elements from the three theories have been selected while others discarded when developing this new model. Technological firms tend to be in a competition, this is the reason for patent infringement cases affecting most of these firms. In collaboration firms will understand specialization of one of their own and aid in the reinforcement of the idea.

2.4.1 Cost reduction and minimize duplication

Transaction cost theory, emphasizes the need to reduce cost of operations that cuts the profit level of an organization. One way of reducing cost is ensuring smooth flow of operations from one stage to another. Bureaucracy that arises due to differences among corporations makes it a challenge for a firm to progress and has been linked to the increased cost of operation. Aligning these operations creates room for a collaboration to excel as a team (Arifioğlu, 2000, p.73). The theory identifies the instances of effort being duplicated within an organization. This result to unnecessary cost implication to a firm thus affects a company’s operations. Firms that have been able to form collaboration have identified activities that can be performed jointly to reduce cost to be incurred. This approach was criticized by (Day, 2004, p.17), arguing that this might hold a firm hostage to other firms, such that it cannot perform certain activities without approval from members in the collaboration. It might turn into a conflict among the firms demanding their space of operation as it was before the collaboration. Cost reduction has an impact on the income level of a firm, therefore if a firm is able to cut down its cost of operation, definitely its profit will enhance. Cost reduction and profit enhancement are influenced by the workforce available in an organization. According to (Geroski, Masson, & Shaanan, 1986, p.112), if the workforce is made-up of a dedicated and innovative team then costs will be reduced and reflected by an increment in profit. They further criticized a policy that infringes the rights of employees, claiming that it will impact negatively on the employees’ desire to be creative in advancing technology.

2.4.2 Knowledge and Growth

Collaboration among firms is represented by diversity among the firms that form the collaboration. Therefore, this creates an opportunity for each firm to learn some ideas from each other. This theory, appreciates the value of diversity among organization for its capability on sharing and adopting better ideas. The quest for knowledge by an individual is determined by the need at a given time, the same case applies to organizations. Knowledge can be of managerial, scientific, or technological which has impact on the operation of a firm. Growth of a firm depends on the labor available in an organization and the labor is measured by the level of skills endowed by the staff. (Goodison, 2005, p.60), argued that knowledge alone cannot be the sole factor that might lead a firm to grow. Beside the staffs being equipped by the relevant skill, how they conduct themselves play critical role in the progress of the organization.

2.4.3 Staff efficiency

Labor being a valuable resource to a firm, thus it has to be exploited for the benefit of the organization. Knowledge that this theory asserts, ensures that employees become as efficient as possible. Efficiency of the staff will have an impact on the exploitation of other resources. It should be noted that, that in a collaboration knowledge sharing is a common phenomenon, however, its impact is not random but rather a gradual process (Stern, & Hicks, T. 2000, p.157).

2.4.4 Resource sharing and bargaining power

In a business, resource is a vital aspect and thus it dictates the progress of a firm. Therefore, inadequacy of resource by a firm hampers its progress and might lead to the collapse of a firm. This theory understands that firms have different resource base which are influence operations within the firm. Firms that are able to pull their resources together stand a high chance of excelling in their operations. (Marson, 2013, P. 498), held a divergent view claiming that some firms might contribute little compared to the level of benefit they will reap from the joint association. This poses a threat to the success of the collaboration due to difference that might arise among the members. One aspect that cannot be ignored when firms in a joint pull resources together is the fact that they enhance bargaining power. Resource sharing lowers costs of production and in this case lowers the selling price of products thus able to attract wide customer base. (Arkolakis, 2008, p. 174) criticized such move arguing that it is not a guarantee aspect since other players or competitors may establish ideas to lower production cost, thus influencing and attracting a considerable market share. Resource dependency among firm should be directed by a continuous monitoring program of the market and being responsive (Paley, 2007, p.95).

2.5 Application of the developed model to the research

Resources are always scarce and thus how well they are exploited will determine the possible return for a firm. Collaboration among firms seeks to ensure that available resources are shared and utilized efficiently among firms that form the collaboration. Available resources among the members in an alliance are utilized to the maximum to generate the maximum output. It is a common practice for firms in an alliance to share their resources be it knowledge, capital rather than sourcing from other parties which might be expensive (Arifioğlu, 2000 p. 85). Technological firms have to invest heavily in the research and development team and funding the research via the mainstream loans from bank might be challenge for a firm in advancing its technology. This is because research and development is not involved in sales, but rather creation of ideas that might fail to meet the customer satisfaction. Therefore, sourcing funds from firms in the collaboration will be cheaper and facilitate advancement of technology.

Technology is a process rather an end product because it keeps on enhancing with time. However this will depend on how the structure of the policy that led to the collaboration. According to (Andersen, 2002 p. 98), small firms take advantage of these large firms, by using its brand to market its product. This might turn to be a risk for large firms if the small firms engage in unethical business conduct, thus the chances of technology to advance or rather the collaboration to survive becomes slim. Technology being a process, learning is vital for firms to identify the weakness and strength in the technology it employs and reinforce if necessary. (Andersen, 2002 p. 149) further argued that collaboration that is formed between large firm and small firms exhibit take-over tactics. Large firms tend to be over-ambitious to take the place of small firms, as an act of increasing its operational level. This is a challenge on a healthy competition among the firms in the collaboration on enhancing technology. Large firms manipulate the policy on their benefit, thus leaving small firms with no other option than to be acquired. This phenomenon of acquisition in collaboration is a result of policies having loopholes.

(Slade, 2006, p.53) argued that technological field faces the highest rate of obsolescence and therefore, firms involved should have a reliable and brilliant research and development team. Resource dependency theory asserts on the need of resources be utilized by firms in a collaboration for the sake of each firm to prosper. Time is a key factor on technology, therefore, a firm that is in technological field need to understand the change in the industry. Collaboration among technological field will aid firms to understand what changes are occurring in the market and work towards advancing the available technology. According to (Wheelen, & Hunger, 2010, p.203), policy that is formulated for collaboration should state the framework on how the firms will interact on ensuring technology is advanced. They suggested that a good policy should indicate seminars or workshops that need to be attended by the firms in the collaboration led by the research and development team. These teams will debate and propose new ideas that can be employed to enhance technology employed by respective firms. (Carl, 2012, p. 56) observed that alliance may also aim to monopolize the market and the consumers will be on the receiving end when prices are fixed. Monopolizing a given market will definitely impact on the sales volume. This will be a tragedy for the collaboration if the firms decide to engage in price-setting activities. Consumers’ decision to buy is influenced by purchasing power, therefore, if the firms decide to increase price on their technological products, sales will reduce. This will have a negative impact on the advancement of technology, because revenue generated will decline thus a reduction in funding research and development team.

Resource sharing among firms brings firms close and work towards supporting each other. According to (Pennington, 2000, p.114), both vertical and horizontal integration among organization gives the firms an edge to win the market. Such collaboration thrives on the referral basis if the firms in the alliance handle different products or services. Accessing the market can be a challenge for small firms that are trying to penetrate the market. However, integration allows the firm to play their role within the chain and penetrate the market. Interdependence of technological firms is a common phenomenon, because an end product of one firm might be part of the components that need to be assembled by another firm. According to (Yee, & S.-C. 2013, p.91) technology firms should form alliance that will enhance their logistical operations. The interdependence gives a firm to have a ready market for its product. However, the policy that led to the collaboration need to spell out on how firms within the collaboration should engage on transaction. This is because rivalry can erupt among the firms in the collaboration thus the vision and mission of the collaboration disrupted. Steady revenue for a firm guarantees resources to explore on activities that will grow the firm. For instance, if technological firm enhances its revenue it will increase its supply towards research and development which will advance its technology.