Capability enhancement through cross-border contract manufacturing alliances: a study of Taiwanese information technology firms

Jao, Irwin (1996) Capability enhancement through cross-border contract manufacturing alliances: a study of Taiwanese information technology firms. Doctoral thesis, University of London: London Business School.

Abstract

Capability acquisition from multinational corporations is one of the most important means by which indigenous firms in developing countries can enhance operational capabilities. This research explores the determinants of capability enhancement in a cross-border alliance from the resource-limited partner's perspective. Focusing on contract manufacturing alliances between Taiwanese information technology suppliers and their foreign clients, the particular questions addressed in this study are: 1) Can capability transfer happen in a quasi-market, short-term, and asymmetric partnership such as a contract manufacturing alliance? 2) What factors affect the capability transfer process and alliance performance? 3) How can the existing theoretical framework be enriched and extended? The theoretical foundation of this study is based on the intersection of the literatures of the resource-based paradigm, cross-border strategic alliance, and international technology transfer. Because of this study's dual purpose of theory extension and theory testing, a modified framework of inter-partner learning is first proposed, and then a questionnaire survey is conducted, which is further complemented by six case studies, to answer the research questions. The results, mainly based on a survey of 187 cross-border contract manufacturing projects, demonstrate significant capability enhancement among Taiwanese suppliers, and such learning effects are not limited to manufacturing but also spill over into a full array of other firm-specific capabilities. Empirical evidence strongly suggests that knowledge or capability are difficult for the owners to retain once interactive cooperation such as contract manufacturing exists. From the supplier's perspective, the variables called partner's transparency and interpartner interaction appear to be two key determinants of a supplier's capability enhancement. The former signifies the importance of initial partner-selection, while the latter underlines the value of emerging relationship-management. In this research, constructs such as transparency and intent, proposed by previous research, are confirmed to be determinants of inter-partner learning. However, other project characteristics and relationship characteristics such as inter-firm diversity, trust, and mutual dependency are equally, if not more, important in the determination of a firm's capability enhancement. Although the existing inter-partner learning framework proposed by Flame! (1991) is validated in this study, a modified holistic framework significantly enhances its explanatory power. Such a holistic framework not only extends existing knowledge of inter-partner learning, it may also be used as a theoretical foundation for further research on important issues of capability enhancement through strategic alliances.