When Friends Are Near Foes: The Choice of Steering Committees to Govern Nonequity Alliances

Knowledge leaking to rivals through alliance partners nearby the rivals has received scant scholarly attention thus far despite the importance of this topic, and it remains unknown as to how to manage this type of risk, hereinafter referred to as the partner-rival co-location risk, in nonequity alliances. This study argues that forming a steering committee can help tackle the risk, and there is a positive relationship between the partner-rival co-location risk and the likelihood of setting up a steering committee in a nonequity alliance; further, this relationship is moderated by two key conditions, i.e. the breadth (alliance scope) and depth (reciprocal interdependence) of interaction between allying firms. Drawing upon the agglomeration, knowledge management, and alliance governance literature, we developed a set of hypotheses and tested them on a sample of 499 nonequity alliances formed between the U.S. pharmaceutical firms (focal firms) and biological firms (partners). Empirical results confirm our conjectures. This research advances the alliance literature significantly and provides important insights for managers.