The role of contracts and trust in R&D alliances in the Dutch biotech sector

Abstract This study explores the value of trust as a construct in understanding how Ref) alliances collaborate over time. A review of literature leads to specific expectations on alliance coordination mechanisms needed to be applied by high-tech companies to secure effective cooperation. I pose trust as a prerequisite for knowledge sharing and innovative performance (Rolland and Chauvel 2000; Norman 2004; Gilsing and Nooteboom 2006) in addition to traditional modes of governance such as contracts and other formal control mechanisms. As such it is crucial to understand the link between knowledge transfer, trust and alliances in knowledge intensive and innovative industries. Based upon an exploratory comparison in the human health industry in The Netherlands between two groups of companies in respectively the start-up and mature stage of their organizational life-cycle an exploration is made on how trust can be used to gain a better understanding of how transaction costs influence RoD alliances. The exploratory findings suggest that in high dynamic markets companies use trust as an informal coordination mechanism for R&D alliances. However, trust does not reduce the necessity of contracts. Trust reduces the uncertainty between alliance partners and the frequency of interaction, but it does not result in an increase of asset specific investments. Still trust can result in a decline of overall transaction costs of R&D alliances. I conclude that trust is a useful construct in extending our understanding on how RoD alliances collaborate over time and emphasize the value of incorporating reputation in the discussion around trust.