Designing and renegotiating strategic alliance contracts

Executive Overview Research on strategic alliances structuring has been dominated by a concern for the choice between equity or non-equity agreements. However, little attention has been paid to other structuring aspects, such as the choice of the contractual provisions that will regulate the relationship. Contract design is an essential part of alliance structuring, and contract renegotiation may become a key element of successful alliance adaptation. Designing and renegotiating complex contracts entail costs that are worth bearing when contractual safeguards reduce the costs and performance losses that stem from exchange risks. In this article, we identify some important conditions under which contract complexity and contract renegotiation are worth the costs they involve. We offer recommendations for executives concerned with designing alliance contracts.