This time we bring you two papers from the Academy of Management’s Best Papers Proceedings. The AOM met for the last time in Boston this past August, and we will meet again next August in San Diego!!

The first paper is by Timothy Folta and Walter Ferrier of the Gaton College of Business & Economy at the University of Kentucky. It focuses on the role of national culture on a biotechnology firm’s willingness to commit to a partnership. In other words, do biotech’s tend to acquire, maintain, or dissolve their partnerships?

Drawing a sample of transactions from the North Carolina Biotechnology Center, the researchers looked at over 160 partnerships during April 1984 and December 1995. Just by looking at that data, it was clear that US firms had the highest percentage of partnership dissolutions (27%), while Japan and the UK had a high percentage of partnerships maintained (80% and 100% respectively). In the high end of partnership maintenance we also find Switzerland (63%), Germany (67%) and Sweden (67%).

Folta and Ferrier operationally defined "culture" using Hofstede’s (Hofstede, G. 1980. Culture’s Consequences: International Differences in Work Related Values. Beverly Hills: Sage) dimensions of uncertainty avoidance and cultural distance:

• Companies that come from cultures high in uncertainty avoidance (UA) worry about the future, are risk averse and are less willing to commit to a strategic direction, preferring instead to keep their options open by maintaining the equity collaboration rather than acquiring or dissolving their partnerships.
• Companies that come from cultures high in cultural distance shy away from the acquisition of other biotechnology companies because of anxiety over about operating in local markets and the difficulty in merging practices of heterogeneous firms. On the other hand, if culturally distant firms are already collaborating, it is expected that they will maintain their relationship for a long period of time in order to achieve ever greater integration.

Folta and Ferrier found that investing firms from high UA cultures are less likely to acquire their partners and dissolve their partnerships. These biotechs find value in flexibility in the presence of uncertainty caused by integration of different cultures and by rapid changes in technology.

The main question that is not explicitly answered is, what cultures are high in UA or cultural distance? Another interesting thing to look at is the role of culture in a biotech’s entering or leaving a partnership, because what has been determined is that firms from cultures high in UA will tend to stay partnered up, and not what factors prompted those firms to enter a partnership in the first place.

Contact Timothy Folta or Wally Ferrier with your questions or comments, or contact me if you think I missed important points of this paper.

The second paper is brought to us by Ha Hoang of the Weatherhead School of Management at Case Western Reserve University. It argues that a biotechnology firm’s participation in a network of information and technology exchange is a determinant in subsequent equity activity, which means that those companies with high network centrality are more attractive for investors and acquirers, like big pharmaceutical companies.

Networks are a critical resource for ongoing innovation and research capability. Because research and development are oriented towards the future, an investor or acquirer that has

long-term, strategic plans for a particular biotech company will tend to look at the network centrality of the target as a factor that determines the action to be taken. Often times, the result is an acquisition, since it involves substantive expense and blending of different cultures. Acquirers expect that the acquisition will pay off over the long term. On the other hand, if the investors have a short-term, quick return on investment approach, they will tend to pay less attention to a biotech’s network centrality and more attention to factors like financial status (which is normally a good thing to consider when acquiring or investing on a company anyway).

Looking at a sample of over 600 biotechnology and diversified companies, and hospital and university laboratories, Hoang confirmed the following hypothesis: the network centrality of a firm is a key factor determining acquisitions in Biotechnology.

My question is, will the slow encroachment of big pharma stifle the fluid, collaborative and pretty much academic relation among biotechnology companies? Will it bring along its messy property rights issues, cutting the information flow and destroying networks that make biotechnology such a fun and interesting enterprise?

Contact Ha Hoang with your questions and comments, or myself if you so wish.