Overcoming Institutional Divides: Historical Ties, Economic Integration Policies, and the Selection of Partners for International Technological Alliances

While management research documents a strong negative effect of institutional distance on cross-border interactions, we know relatively little about whether and how firms can overcome this snag. Using transaction costs and institutional arguments we posit that the negative effect of institutional distance on selection of international alliance partners will be weaken by the extent of informal (i.e., colonial duration) and formal (i.e., economic integration policies) ties between home-countries of prospective partners. The relative strength of these ties will reduce uncertainty and risks, as well as provide better mutual knowledge of partners’ cognitive, normative, and regulatory backgrounds. Empirical results based on a panel of firms in the global tire industry and addressing endogeneity issues confirm these predictions. Our findings offer a more comprehensive view of international partner selection for alliances, attesting the role of institutions in this process and their interplay with the macro context of organizations which includes historical links and current economic policies.