Reach out or reach within? Performance implications of alliances and location in biotechnology

The extensive literature on geographical clusters has argued that firms stand to gain from the knowledge spillovers and the easy availability of skills in regional agglomerations. At the same time, the research on strategic alliances, particularly in technology-intensive industries, views alliances as vehicles for the transfer of technology and knowledge. Does membership in a geographical cluster or a network of alliances - an alliance cluster - benefit firms equally? More importantly, does it matter whether firms form alliances with firms within their geographical cluster, or do they do better by reaching out beyond their cluster? In this paper, we investigate these and other related questions in the context of technology-intensive industries such as biotechnology and argue that the high-level knowledge sensing and acquiring needs of firms in such industries may require combinations of both kinds of knowledge-access mechanisms. We use the BioScan database to obtain 648 alliances for the period 1985-1998 among 248 public companies, and complement it with COMPUSTAT data to examine the effect of clustering and alliances on market value. Our results suggest that merely being part of geographical clusters is not enough, and nor is it adequate for firms to join alliance clusters. Rather, firms gain by forming alliances both within and beyond their geographical clusters, which highlights the complexities of acquiring technology-intensive knowledge and suggests that the acquisition of knowledge in technology-intensive settings is best achieved through mechanisms both formal and informal, both proximate and distant.