The Impact of Learning through Strategic Alliances on Firm Diversification Decisions in Non-Diversified Economies: Evidence from Saudi Arabia
A New Knowledge-Based Approach

Abstract

Until recently, our understanding of thought and practice in the strategic management and international business literature was based on Western countries. However, scholars have realized that these theories may be misjudged if not tested and validated for developing countries and even for non-diversified economies. Saudi Arabia is considered the largest economy in the Middle East but it has received little attention in the management literature (Alnatheer and Nelson, 2009). One of the important topics currently in the Saudi context is a diversification strategy among Saudi firms. Particularly, the Saudi private sector’s contribution to economic diversification and growth is relatively small and under expectations compared to countries with similar economic structures e.g. Norway, Chile and Indonesia (Hertog, 2013; Kayed and Hassan, 2011). Hence, what a strategic asset is needed by Saudi firms in order to successfully implement a diversification strategy is knowledge such as know-how and know-that. Knowledge can be obtained through a few methods and strategic alliances among these which can allow partners to access each other’s knowledge bases, allowing them to gain dynamic capabilities. Also, the study of Saudi’s context responds to recent calls made in the international strategic alliance literature (e.g., Gomes et al., 2016) which emphasizes to broaden the geographic focus of international alliance research from Western economies such as North America and Asia to the Middle East. Therefore, Saudi firms could implement a diversification strategy after acquiring knowledge related to opportunities to diversify and how to diversify through strategic alliances with various global firms.

This thesis develops and tests a theoretical model to examine how Saudi partners in international strategic alliances learn from foreign multinational enterprises (MNEs) and how this learning impacts the host country partners’ subsequent diversification decisions. The analysis shows how the absorptive capacity of the knowledge seeker (i.e. the Saudi partner) and the disseminative capacity of the knowledge holder (i.e. the foreign MNE) affect the type of organizational learning needed to underpin diversification decisions. The thesis investigates the phenomenon through three studies. These studies show in general that learning from foreign MNEs influences the organizational learning needed to underpin the knowledge seeker’s diversification decisions. On the one hand the relationship between absorptive capacity and disseminative capacity and on the other that between organizational learning and diversification strategies are impacted by the nature of the knowledge the foreign MNE brings to the host country, the partners’ commitment to the alliance, and intensive communication within the host country. The proposed hypotheses are tested on a sample of Saudi companies.

In the first study, the results from a survey of 55 Saudi companies suggest a significant positive relationship between organizational learning from international strategic alliances and diversification decisions. In addition, the relationship between disseminative capacity and organizational learning is positive and strong. However, the empirical results do not support the hypothesis that the relationship between absorptive capacity and organizational learning should be positive. Furthermore, the study examines the effects of moderators on the relationship between absorptive and disseminative capacities and organizational learning, but only moderators on the side of the foreign partner are revealed and they are either statistically non-significant or negative.

The purpose of the second study is to investigate in depth the non-significant results for absorptive capacity and how each capacity has a different level. Of the 7 cases analysed, it is found that some Saudi partners obtained significant knowledge and achieved the required learning objectives with some difficulty, or at least had to make substantial efforts to achieve the learning objectives. In addition, the results indicate that the foreign partners were willing to share knowledge and had a strong ability to transfer it. Furthermore, the study shows that the partners had various levels (weak, medium or strong) of each capacity. Each level is defined based on the dimensions of intent and ability to learn (on the side of the Saudi partner) and willingness and ability to share (on the side of the foreign partner).

The focus of the third study is on the diversification decision, and particularly the chronological structure of the impact of knowledge on this decision. The explorative results from a case in Saudi Arabia show how the absorptive capacity of the knowledge seeker (i.e. the Saudi partner) and the disseminative capacity of the knowledge holder (i.e. the foreign MNE) affect the organizational learning needed to make diversification decisions. It also breaks ground by revealing the chronological progress of the knowledge dynamics within an international strategic alliance and how they impact a decision by the host country partner to diversify. Three states of the diversification decision are considered: non-diversified, planning to diversify and diversified. The results show that the boundaries of each state are flexible and it is not necessary for a firm to pass through all these states in order to formulate the decision.

The data are collected using a questionnaire survey and interviews with Saudi firms in a variety of industries, including oil, gas, petrochemicals and construction. This thesis contributes to our understanding of firm diversification in a non-diversified economy and breaks new ground by examining the role that international strategic alliances play in this process. The implications for research, scholars, managers, policymakers and limitations are discussed. Recommendations are made for future research on international strategic alliances and diversification.