...growth (e.g., and Baden-Fuller, 2004; Ranft and Lord, 2002; Simonin, 1999). Companies such as Cisco Systems and Microsoft, for example, have strong histories of pursuing alliances and acquisitions each year to gain knowledge necessary for rapid new product development and market entry. Understanding the relative performance of acquisitions and alliances as a means to access knowledge as firms enter new markets is important for effective strategic management.

Concurrent with this wave of activity in acquisitions and alliances, researchers have increased attention to the knowledge-based view describing the firm as an efficient generator, integrator and processor of knowledge (Grant, 1996). New knowledge may be generated internally, but also may be accessed from external sources through acquisitions and alliances (Grant and Baden-Fuller, 2004; Hagedoorn and Duysters, 2002; Inkpen, 2000; Inkpen and Dinur, 1998; Ranft and Lord, 2000). Extant research has examined processes accessing external knowledge in alliances (e.g., Inkpen and Dinur, 1998) and in acquisitions (e.g., Ranft and Lord, 2002).

In addition, a firm's preference for alliances or acquisitions when pursuing new knowledge has been examined (e.g., Hagedoorn and Duysters, 2002). Other research examines how an alliance designed to access new knowledge may lead to subsequent acquisition of the alliance partner (e.g., Hagedoorn and Sadowski, 1999). Existing research, then, emphasizes that both modes of new market entry, acquisition and alliance, play a part in how a firm builds its knowledge base.

In this study we set out to offer a direct comparison of the relative performance of acquisitions and alliances as firms enter new markets that vary in their degree of knowledge-intensity. Specifically we investigate (1) how the level of knowledge-based resources and expertise required in a new market influence market projections of firm performance and (2) the relative performance of acquisitions and alliances as means to enter markets with varying conditions of knowledge intensity. New market entry represents a fertile area for the study of knowledge-based resources, because when firms enter new markets, knowledge-based resources can play a significant role in the entry outcomes (Marsh and Ranft, 1999). In the next section, we describe the conceptual foundations of our study and develop specific hypotheses.

CONCEPTUAL FOUNDATIONS

The knowledge-based view has grown out of the resource-based view that broadened the definition of a firm's resources to include not only physical and financial capital, but also human capital and knowledge (Penrose, 1959). Knowledge-based resources of a firm represent a specific type of resource, which, when combined with the firm's financial, physical, and other resources, creates the opportunity to generate rents (Conner and Prahalad, 1996). According to the knowledge-based view, a firm's knowledge assets and capabilities are critical to the firm's ability to create value. At its core, the knowledge-based view highlights firms as generators, repositories, and integrators of knowledge (Grant, 1996; Kogut and Zander, 1992).

Knowledge-based resources vary from physical resources in several ways which make their development, access, and integration with other resources challenging. First, knowledge-based resources may be tacit, or difficult to codify (Chowdhury, 2005; Nonaka, 1994; Winter, 1987). Because tacit knowledge cannot be written down or captured in an explicit form, it creates characteristic ambiguity that restricts the firm's ability to identify and control relevant variables that can lead to rapid accumulation of knowledge, and its transfer is impeded both within and between firms (Simonin, 1999; Szulanski, 1996). Because tacit knowledge is difficult to transfer, it is grounded in action and developed through experience (Cook and Brown, 1999; King and Ranft, 2001; Polanyi, 1962). Therefore, greater time, cost, and uncertainty is associated with the transfer of valuable, tacit knowledge (Grant, 1996; Kogut and Zander, 1992).

Second, knowledge-based resources are intimately connected with and dependent upon the human and social capital of the firm whether they take the form of assets or "stocks of knowledge" or dynamic capabilities, the "know-how" of managing and integrating resources (Grant, 1996). These types of resources can be derived from a firm's intellectual capital, which often resides in a firm's human capital (Luthans and Sommer, 2005; Youndt and Snell, 2004). For example, firms in high-tech industries such as computer software or biotechnology depend upon specific knowledge assets that reside in experts in the firm. The knowledge-based capabilities that take the form of dynamic capabilities can be very socially complex, because they reside in communities of practice, in a supra-ordinate memory system of relations between individuals (Brown and DuGuid, 1991), in the transactive memory of individuals' relationships (Brandon and Hollingshead, 2004) and their patterns of communication.

The implications of the tacitness and social complexity of knowledge-based resources are that these types of organizational capabilities are built over time and through repeated action (Cook and Brown, 1999; King and Ranft, 2001). The role of repeated action highlights the role of time in developing and leveraging knowledge-based resources, a third characteristic that differentiates knowledge-based resources from other types of resources. Because prior related knowledge reduces search costs and increases the ability to recognize and apply new knowledge in a firm, a path dependency in knowledge development occurs that can create time compression diseconomies (Dierickx and Cool, 1989). Time compression diseconomies can contribute to early-mover advantages because later entrants cannot accumulate the same amount of knowledge over a shorter time period.

Our final point examines the industry context of knowledge-based resources. Prior research has shown that industries vary in the level of knowledge-based resources necessary to compete and may be considered more or less "knowledge-intensive" (Coff, 1999, 2002). As Coff points out, knowledge is an input for all industries, but industries vary greatly in the amount and type of knowledge-based resources they require. For example, "although a motel chain and a pharmaceutical firm might...

NOTE: All illustrations and photos have been removed from this article.



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