4.1 Partner Selection Criteria in the Exploratory Stage
The early phase of an industry life cycle, when the market is still emerging, represents by
definition a change from status quo. It is characterized by high degree of both technology
and market uncertainty (Nelson & Winter, 1982) and requires product or service innova-
tions from the firms participating in creating the market. Resources forming the basis for
previous competitive advantages may not be valuable in the emergent market if changes
are competence-destroying (Tushman et al., 1986) and hence uncertainty about what the
right and what the wrong resources are prevails. Thus, early entrants face the risk of be-
ing displaced in the market, because of wrong or unlucky technical or market choices.
Under these conditions, there are three key reasons why aspiration levels may
take precedence over resource endowments as criterion for partner selection. First, an
emergent market represents a change from status quo, and firms that have been successful
in the previous market may not want things to change. Thus, firms, which, as a result of
their success, have strong resource endowments, may expend resources to deter entry and
market development. They may do this by entering into alliances only to learn and to de-
lay the development of the new market, so they can extract the remaining profits from the
existing market. In addition, firms with strong resources may refrain from early entry and
wait until initial uncertainties have been resolved because they are confident that they
have the strength (such as financial resources for heavy marketing spending) to capture
the market even in late entry. Strong firms can also seek to reduce risks by adopting an
option perspective on entry decisions (Miller & Folta, 2002). While this may be advanta-
geous for the firm in question, it is not in the interest of a potential partner, as it implies
less than full commitment. Second, early entry involves risks due to high uncertainty
about technologies and future demand and firms with strong aspirations are more inclined
to take risky actions than firms with strong resource endowments. Firms with strong re-
source endowments often have a valuable brand name and hence have more to loose from
taking risky actions than firms with no brand name. Sullivan (1991) found that because
brand equity is a key resource for incumbents they tend to enter later than new-name
brands. Moreover, extension of brands with large customer bases to new technical sub-
field typically happens later than extension of brands whose base is small. Third, in the