X Jiang et al. /Journal of International Management 14(2008)173-189 However, there are also opposing views. For example, Beamish and Inkpen(1995)argue that prior ties facilitate the partners'acquisition of knowledge, which in fact increases the probability of alliance instability. Moreover, prior ties are likely to yield redundant information and knowledge that may increase resource similarity between partners. As noted earlier, this resource similarity will restrict the development pace of an alliance. Despite conflicting findings, we posit that prior ties are positive predictors of future relationship stability by providing a wide range of advantages and benefits for the partners(see Kim and Inkpen, 2005; Richards and Yang, 2007). Firstly, through learning from the success and failure of prior relationships, firms accumulate substantial experience and lessons on how to avoid past mistakes, how to manage partner relationships, and how to reduce risks in the future(Killing, 1983). They can anticipate some of the contingencies in advance and thereby prevent possible changes. Secondly, experience derived from repeated ties provides information about each others cultures, systems, structures and strategies, facilitating effective communication and mutual understanding(Saxton, 1997). The partners may be able to focus on strategies with the highest probability of success. Thirdly, repeated ties can engender close bonds and enhance mutual trust among partners(Gulati, 1995; Richards and Yang, 2007). This in turn discourages opportunism and reduces transaction costs(Parkhe, 1993). Over time, both partners find themselves to be interdependent and become extensively embedded in the collaborative relationship Proposition lc. Prior ties among partners will be positively related to alliance stability 4.2. Stage 2: structuring/negotiation In this stage, partner firms should decide on appropriate governance forms, moderated scope of collaborative activities. effective division of labor. and so forth 4.2.1. Alliance governance form Firms can choose from two primary alliance governance forms: equity and non-equity alliances. Osborn and Baughn(1990) point out that the governance mode within an alliance may indicate the motives of the partners and have a large impact on alliance evolution. For the same reason, Hennart(2006) argues that choosing an ex ante contract or an partners and predict the future alliance development and performance n type can impact subsequent behaviors of the equity JV is an important decision for alliance managers, and the chose quity JVs are found to be prevalently more suitable for complex relations that are exposed to greater risk of opportunism and behavioral uncertainty. For example, the"non-recoverable investments"and the mutual commitments in JVs create a mutual hostage situation that helps align the strategic goals of partners. This situation reduces relational risks, deters opportunistic behaviors and builds up high exit costs(Pisano, 1989; Parkhe, 1993).JVs are also found to be associated with more trust and confidence, higher levels of structural embeddedness and higher possibility of dispute resolution(Das and Teng, 2001). In this sense, JVs are an internally stable governance form. By contrast, non equity alliances that involve looser inter-connection and fewer commitments are more likely to go through instability and be more prone to failure. Proposition 2a. The presence of equity will be positively related to alliance stability 4.2.2. Alliance scope Firms must also decide on the area of the task or functional interface between them( Gulati, 1995). Generally, an lliance agreement may involve three separate functional areas or joint activities: R&D, manufacturing and marketing (Kogut, 1989; Oxley and Sampson, 2004). Alliance scope refers to the number of joint activities involved in an alliance. The scope of the joint activities can vary considerably in different alliances. For instance, some cooperative arrangements are limited to only a single activity (e. g, either r&d or manufacturing or marketing) while others involve more functional areas. The scope of the multiple-activity or mixed-activity alliance is broader than that of the single-activity alliance The chosen scope has critical significance for the subsequent dynamics of the alliance. For instance, Kogut(1989) finds JVs to be more unstable in highly concentrated industries, particularly when the functional scope extend marketing and after-sales service. Reuer et al. (2002)argue that it will be more difficult for firms to manage an alliance with broader scope, because it is accompanied by more uncertainty and more complexity about the implementation ofHowever, there are also opposing views. For example, Beamish and Inkpen (1995) argue that prior ties facilitate the partners' acquisition of knowledge, which in fact increases the probability of alliance instability. Moreover, prior ties are likely to yield redundant information and knowledge that may increase resource similarity between partners. As noted earlier, this resource similarity will restrict the development pace of an alliance. Despite conflicting findings, we posit that prior ties are positive predictors of future relationship stability by providing a wide range of advantages and benefits for the partners (see Kim and Inkpen, 2005; Richards and Yang, 2007). Firstly, through learning from the success and failure of prior relationships, firms accumulate substantial experience and lessons on how to avoid past mistakes, how to manage partner relationships, and how to reduce risks in the future (Killing, 1983). They can anticipate some of the contingencies in advance and thereby prevent possible changes. Secondly, experience derived from repeated ties provides information about each other's cultures, systems, structures and strategies, facilitating effective communication and mutual understanding (Saxton, 1997). The partners may be able to focus on strategies with the highest probability of success. Thirdly, repeated ties can engender close bonds and enhance mutual trust among partners (Gulati, 1995; Richards and Yang, 2007). This in turn discourages opportunism and reduces transaction costs (Parkhe, 1993). Over time, both partners find themselves to be interdependent and become extensively embedded in the collaborative relationship. Proposition 1c. Prior ties among partners will be positively related to alliance stability. 4.2. Stage 2: structuring/negotiation In this stage, partner firms should decide on appropriate governance forms, moderated scope of collaborative activities, effective division of labor, and so forth. 4.2.1. Alliance governance forms Firms can choose from two primary alliance governance forms: equity and non-equity alliances. Osborn and Baughn (1990) point out that the governance mode within an alliance may indicate the motives of the partners and have a large impact on alliance evolution. For the same reason, Hennart (2006) argues that choosing an ex ante contract or an equity JV is an important decision for alliance managers, and the chosen type can impact subsequent behaviors of the partners and predict the future alliance development and performance. Equity JVs are found to be prevalently more suitable for complex relations that are exposed to greater risk of opportunism and behavioral uncertainty. For example, the “non-recoverable investments” and the mutual commitments in JVs create a mutual hostage situation that helps align the strategic goals of partners. This situation reduces relational risks, deters opportunistic behaviors and builds up high exit costs (Pisano, 1989; Parkhe, 1993). JVs are also found to be associated with more trust and confidence, higher levels of structural embeddedness and higher possibility of dispute resolution (Das and Teng, 2001). In this sense, JVs are an internally stable governance form. By contrast, non￾equity alliances that involve looser inter-connection and fewer commitments are more likely to go through instability and be more prone to failure. Proposition 2a. The presence of equity will be positively related to alliance stability. 4.2.2. Alliance scope Firms must also decide on the area of the task or functional interface between them (Gulati, 1995). Generally, an alliance agreement may involve three separate functional areas or joint activities: R&D, manufacturing and marketing (Kogut, 1989; Oxley and Sampson, 2004). Alliance scope refers to the number of joint activities involved in an alliance. The scope of the joint activities can vary considerably in different alliances. For instance, some cooperative arrangements are limited to only a single activity (e.g., either R&D or manufacturing or marketing) while others involve more functional areas. The scope of the multiple-activity or mixed-activity alliance is broader than that of the single-activity alliance. The chosen scope has critical significance for the subsequent dynamics of the alliance. For instance, Kogut (1989) finds JVs to be more unstable in highly concentrated industries, particularly when the functional scope extends to marketing and after-sales service. Reuer et al. (2002) argue that it will be more difficult for firms to manage an alliance with broader scope, because it is accompanied by more uncertainty and more complexity about the implementation of X. Jiang et al. / Journal of International Management 14 (2008) 173–189 181