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Introduction
Over the past decades, the biotechnology industry has experienced enormous developments in terms of networking and strategic alliance formation. The increasing need for technological learning, innovation, and knowledge creation has triggered the necessity for inter-firm collaboration. According to Gottinger and Umali (2010), strategic collaboration involves cooperative agreements for reciprocal task sharing through joint undertaking of research, production, and marketing whilst maintaining individual corporate identity during the life of the alliance (p.101). In the past decade, biotechnology companies have realised the dire need to engage in inter-firm alliances to converge and integrate complementary skills from different, but important entities. In a bid to achieve sustainability in the biotechnology industry, alliances and networking become inevitable especially in easing the burden of cost on research and development for new technological opportunities.
For instance, Sytch and Bubenzer (2008) note that the first biotechnology firms, viz. Genentech and Biogen, which were established in 1976 and 1978 respectively, experienced early success majorly due to alliances with different research and pharmaceutical labs. This move compelled other firms to form alliances for survival and development. Therefore, this research will explore why exogenous factors such as reciprocal technology sharing influence the biotechnology industry to enter inter-organisational pacts. By doing so, this paper will be answering the question on why and when networks are essential in enhancing sustainability in the biotech industry.
Activities that biotech undertake
Biotechnology involves technological applications that utilise biological organisms, procedures, or systems to enable industrial manufacturing of specific products (Powell 1998, p.238). Modern biology has become widely diversified in integrating other disciplines such as chemistry, physics, and mathematics. The array of varied knowledge has been used in the biotechnology industry resulting in major contributions to the healthcare and general welfare of humanity. Biotechnological advances have influenced several industrial undertakings that include production of chemicals, human and animal food, environmental restoration, and alternative sources of energy coupled with pharmaceutical and veterinary products (Sytch & Bubenzer 2008). The aforementioned activities are carried out in major areas of biotech applications, which include fermentation technology, genetic engineering, biological fuel generation, and medicine production.
Fermentation technology has recently realised major advancements and interest by most biotech firms due to its competitive edge and demand of products. Medically fundamental drugs, protein boosted foods, and agricultural inputs add to some of the products acquired through the fermentation technology. In genetic engineering, biotechnology has been applied in genetic recombination to come up with genetically modified organisms that are more adaptive to the ever-changing climatic conditions. Apparently, the biotech industry has successfully harnessed hydro, wind, solar, geothermal and nuclear power. As fossil fuels become increasingly depleted and expensive, biotech is extensively networking to come up with highly economically and attractive alternatives. In the industry of medicine production, antibiotics have been produced to control diseases. Biotech industries have encountered the challenge of achieving commercial significance due to the production costs and at times, the drugs might be toxic to humans or animals. Therefore, this array of activities coupled with economic and technological challenges highlights the need for networking for innovation and survival (Oliver 2009).
The essence of inter-firm collaborations
Since its inception, biotechnology has influenced nearly all aspects of humanity. Biotechnology has substantially improved healthcare, assisted preserve the environment, reorganised industrial competition, influenced policy-making, and restored ethical order. However, the impetus to this success can be acknowledged to firms adoption of inter-organisational ties. In the biotech industry, both exogenous and endogenous concerns of alliance ties have indicated positive results in the planning, growth, technological learning, and reputation of the firm. In a bid to stay relevant and competitive in the manufacturing sector, biotech has established some key reasons to maintain organisational ties and networking. Biotech firms collaborate with complementary firms to outsource specialised workforce in a bid to enhance product innovation and share costs of production (Gulati, Sytch & Mehrotra 2008). They also collaborate to design, produce, and market new products whilst strengthening their reputation.
Converging needs
Biotech firms embrace the rich exchange of core technologies as well as sharing the cost burden. For instance, the medical biotech industry faces major shortcomings. Dealing with the human body and diseases is undoubtedly complex and expensive. Unlike other high-tech firms, the biotech product processing chain goes through thorough scrutiny. Most biotech projects take more than ten years to become ready for the market (Powell 1998). This aspect translates to high costs of production and the risks associated might be very detrimental for a single firm to bear. Other external challenges include costly regulations, lack of competitive edge by new firms, and the influx of products in the market. However, inter-organisational ties provide the solution since the financial burden is distributed across several partners. Some of the partners specialise on designing and production, while others may concentrate on tapping and developing new technology, while others can do the marketing. The convergence of ideas and information leads to the production of high-qualitygoods, which command competitive advantage in the market (Oliver 2009).
Exploitation and exploration
In a bid to survive and remain competitive, firms must keep pace with the latest technology. Since the field of biotechnology is very diverse, updating the emerging technology can be very tasking for a single firm. However, firms achieve this goal forming alliances with complementary firms in areas of research and development. For instance, the pharmaceutical sector ensures a high number of research and development alliances to develop and commercialise new drugs since the demand is ever rising (Gottinger & Umali 2010). Exploitation involves engaging ties with other firms to gain knowledge and edge to new opportunities. This goal is achieved after clearing technological uncertainties via strengthening the existing technologies. Biotech firms deal with complex issues pertaining to human wellbeing, which calls for specific information that provides tacit details on a specific process. Therefore, trust and durable relations govern such alliances before they can share core technology details. Exploration goes beyond efficiency of current endeavours as it entails forming alliances that focus on new technologies, innovations, and production of alternative products. This aspect requires extensive networking with research labs and pharmaceutical industries to maintain standards and reputation (Powell 1998).
Criteria used by biotech firms in choosing a partner
Based on financial capabilities
Choosing the right partners for a biotech firm needs technical and tactical procedures since it is one of the key strategic decisions that a firm can make (Villeneuve 2006). Many of the determinants leading to alliances in biotechnology are endogenous. Such motives are linked to the high costs of product development in biotechnology and the highly unpredictable returns. The criterion of partner selection is highly motivated by the priorities that organisations put in place (Arino & Reuer 2006). The cost of product development has exposed most biotech firms to stiff competition from large corporations in terms of funding and marketing, which requires the formation of networks and alliances. This aspect is inevitable for survival since the skills and information cannot be applied in the absence of the expensive technology.
Based on reputation and legitimacy
For the start-up biotech firms, joining partnerships is almost inevitable. Their growth relies largely on their vast ability to trigger a partnership with established organisations. However, the management first seeks to know the reputation of the established company before getting into any alliance (Ranada 2003). If the consumers have appreciated its previous dealings, the reputation is probably high and the probability of the start-up company gaining the same status through association is high. When the products are legitimate, reputation grows strong and the start-up company has the advantage of learning by doing. When the reputation is compromised, the start-up firms will not only evade association, but also other complementing firms. Biotech industries, when they realise steep competition from established rivals, tend to join efforts to avoid compromise of standards due to unhealthy competitions (Pangarkar 2003). This move ensures that the product quality is advanced coupled with improving standards.
Factors that affect alliance duration
Many factors ranging from management issues to the attainment of primary goals of an alliance affect the partnership duration. In most cases, inter-organisational alliances are designed to last for long periods, since exchange of crucial information and technology needs a clear foundation of trust (Pangarkar 2003). However, since the issue of opportunistic haggling and poor governance may occur along the way, the possibilities of immature partnership are high. Most biotechnology firms initiate partnerships without prior partnership experience, thus bringing exceedingly great levels of managerial uncertainty to the alliance (Arino & Reuer 2006). This aspect may lead to early termination of the contract to avoid inter-organisational haggling, which may damage the reputation of both companies. Other aspects include failing project, many of the biotechnological activities are characterised by extreme uncertainties. If partners feel that the project they are undertaking might end up failing, they may decide to terminate it at early stages to avoid losses or production of substandard products. On the other hand, partnership may last for long period since most biotech activities take long period to mature (Gottinger & Umali 2010). In addition, the nature of the activities is complex and it utilises specific assets and capital, which are meant to suit a specific task, and thus they cannot be redeployed to other situations.
Exiting strategic alliances
Under certain conditions, partners may discover neutral or deteriorating consequences, and thus they trigger the urge to exit an alliance (Villeneuve 2006). Breaking up is not easy if companies lack an exit plan. Managers should ensure that the alliance agreement involves an exit clause. Prior planning during engagement can save managers the exit grief and maintain the companys reputation.
Conclusion
The formation of alliances to support product innovation has persisted in the biotechnology industry and it will expand to meet the need for firms to exploit and explore the innovative edge of complementing industries. By learning from past alliances and organisational arrangements, managers have identified the need to set clear partnership agreements as well as defined exit clauses. Biotech industries have realised economic opportunities and success that could have proved hard to achieve in the absence of inter-firm collaborations.
Reference List
Arino, A. and Reuer, J., 2006: Strategic alliances: Governance and contracts, Palgrave Macmillan, Basingstoke.
Gottinger, H. and Umali, C., 2010: Strategic alliances in biotechnology and pharmaceuticals, Nova Science Publishers, New York.
Gulati, R., Sytch, M. and Mehrotra, P., 2008: Breaking Up is Never Easy: Planning for an exit in a Strategic Alliance. California Management Review, 50(4), 147-163.
Oliver, L., 2009: Networks for learning and knowledge creation in biotechnology. Cambridge University Press, Cambridge.
Pangarkar, N., 2003: Determinants of Alliance Duration in Uncertain Environments: The Case of the Biotechnology Sector. Long Range Planning, 36(3), 269-284.
Powell, W., 1998: Learning from collaboration: Knowledge and Networks in the Biotechnology and Pharmaceutical Industries. California Management Review, 40(3), 228-240.
Ranada, V., 2003: Early-Stage Valuation in the Biotechnology Industry. Web.
Sytch, M. and Bubenzer, P., 2008: Research on strategic alliances in biotechnology: an assessment and review,in Patzelt, H. and Brenner, T. (eds.) Handbook of Bioentrepreneurship, Springer, New York, 105-131.
Villeneuve, F., 2006: Corporate Partnering: Structuring & Negotiating Domestic & International Strategic Alliances, Aspen Publishers, New York.
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