Hierarchy orientation in equity alliances: core capabilities perspective

Whether protection of core capabilities requires a greater level of control, i.e. ownership, even if it is at the cost of lower flexibility, is investigated.

Abstract

Purpose The aim of this paper is to investigate whether protection of core capabilities requires a greater level of control, i.e. ownership, even if it is at the cost of lower flexibility. Despite the significant research interest in equity alliances, knowledge of strategic orientation of acquiring companies is still incomplete. Design/methodology/approach The study examines two main generic organizational forms, hierarchy and market, their benefits and threats for acquiring companies while protecting their core capabilities in equity alliances. Findings The protection of core capabilities is becoming an important strategic objective in the processes of forging equity alliances which are based on ownership and legal relationships. Ownership brings more control over core capabilities which mean competitive advantage through hierarchical organizational structure on the one hand but less flexibility as otherwise benefited in market organizational structure on the other. Research limitations/implications Further studies are required in order to corroborate the assessment of presented organizational forms and to explore these relationships over a longer period of time. Practical implications The topic is relevant for designing strategies in acquiring companies or those companies becoming a part of global networks. Better understanding of strategic orientation and concept of control could significantly enhance the success rate in M&A activity. Originality/value The paper explores as to when and why a certain organizational structure, hierarchy or market, is the preferred one for companies. This paper intends to give executives practical, hands‐on advice for conducting M&A activity.