Research on Benefit Distribution Model of Industry Technology Alliance
Bin Dai
School of Business, China West Normal University, Nanchong, China
()
Abstract - This paper has conducted a comparative analysis on basis of existing distribution patterns of industrial technology alliance firstly, and then has constructed a benefit distribution model of industrial technology alliance based on "royalty payment pattern”. At last, the paper has tested reasonableness of the benefit distribution model through the example analyses. The main contribution of the paper is expanding study of benefit distribution model from “two members” to “multiple members”.
Keywords - Industrial Technology Alliance, Fixed Payment; Royalty Payment, Mixed payment, Benefit Distribution model, Game Theory
I. Introduction
Since “The guidance about promoting the construction of industrial technology innovation strategy alliance” issued jointly by the ministry of science and technology, education and other six departments in December 2008, industrial technology innovation strategy alliance (referred to as “industrial technology alliance” in this paper) has gradually become an important organizational form in industrial technology innovation activities in China. Industrial technology alliance usually faces greater risks due to “the nature, objectives, and cultural diversity between different members”, “opportunistic behavior”， “uncertainty operation environmental” and etc. The survey data by McKensey also confirmed that alliance risk is common [1]. Against that background, the special research on risk prevention and control problems of industry technology alliance is very necessary.
Because alliance member for more benefit through joining the alliance, so the key of effective prevention and control alliance risk is constructing a scientific benefit distribution model in the alliance and distributing benefits reasonably according to the model. Scholars at home and abroad has conducted some related researches, such as: Dong-chuan Sun [2], Shu-yi Zhang [3], Wen-jun Zheng [4], Chen Ju- hong [5], Luo Li [6], Wen-jun Wang [7], Yong Lei [8] and Luis A. Guardiola [9]. But the above researches limited to only two members in an alliance. Because of this, we will try to build an benefits distribution model which suitable for more members in an alliance by using related theories such as “game theory”, so as for theoretical support to the practice of industry technology alliance benefit distribution.
II. Benefit distribution patterns of industry technology alliance analysis and choice
When distributing benefits in cross organization like strategic alliance, we usually have three patterns, such as “royalty payment”, “hybrid payment” and “fixed payment” [10]. Every distribution pattern above all has its advantages and disadvantages, and the specific as is shown in table I.
Table I. Advantages and disadvantages of three distribution patterns
advantages / disadvantagesFixed payment pattern / Simple and easy to operate. / Difficult to reflect “risk and benefit sharing” principle, can’t stimulate non-core members
Royalty payment pattern / Embody the “risk and benefit sharing” principle, play effective incentive on alliance members. / Difficult to determine scale coefficient of benefit distribution reasonably, and difficult to quantify the contributions of alliance members.
Mixed payment pattern / Avoid the capital pressure of initiators brought by fixed compensation mode, bound initiators and general members together. / complicated relatively.
According to above analysis results and the actual situations, this paper decides to construct benefit distribution model based on “royalty payment pattern”.
III. building benefit distribution model of industrial technology alliance
A. basic assumption
Assumption 1: n () members in an industrial technology alliance, and they are equal status.
Assumption 2: the total cost of alliance includes two parts, the materiality and the immateriality (intangible costs), and can be expressed as:
（1）
In （1）, means material costs, such as alliance working capital, tangible assets and intangible assets discount etc.; means immaterial cost, and it relates the effort levels of alliance member [10].
Assumption 3: is positively correlated of the effort levels of alliance member, and alsoincreasing speed up along with the efforts increasing. According to above assumption, immaterial cost of alliance member can be expressed as:
（2）
In (2), () means immaterial cost coefficient of the alliance member, means the effort level of alliance members participating in the alliance.
Assumption 4: the relative contribution coefficient of alliance member notes for, which decided by the relative importance of resource which be putted into the alliance cooperation by alliance members.
Assumption 5: Profit available for distribution of the alliance decided by and, the specific function relations between them can be expressed as:
（3）
In (3), means exogenous random variables, such as the influence of “market fluctuations” for the distribution benefits; obeys the normal distribution.
Assumption 6: if the distribution coefficient of alliance member i notes for (), the distribution benefits notes for, so that:
（4）
B. model building and solving
According to the “economic man hypothesis”, the ultimate goal of the alliance should be “overall profit of alliance maximization” in making benefit distribution scheme of industry technology alliance. However, it must take “the individual profit maximization” as the prerequisite because the existence of “bounded rationality” [11]. Based on the above analysis, this paper confirmed the mentalities about constructing Alliance benefits distribution model: firstly, to construct alliance members individual profit maximization model, and determine the level of alliance members ; Secondly, take into the corresponding formulas to construct the overall profit maximization model, and solve initial distribution scale coefficient of the alliance members; Finally, adjust to determine the final distribution benefits ratio through internal consultation mechanism in the alliance.
1) Individual profit maximization model building and solving
According to relevant mathematical knowledge, we can build the individual profit maximization model, as follows:
（5）
Among them: is the minimum profit of the alliance member i, if the profits of member i below , member i will choose to quit alliance.
Take (1)-(4) into (5), get the expected profits for the members i, as follows:
Use to for a derivative:
Make = 0, so = 0, get:
（）
When i = n，
Above calculation results show that: when effort level of the members i is , the members i achieved individual profits maximization.
2) Overall profit maximization model building and solving
According to relevant mathematical knowledge, we can build maximization model for alliance overall profit, as follows:
（6）
Take (1)-(4) into (6), we can get the expected profits of the whole alliance:
，
Use to for a partial derivative:
(7)
Take (i = 1, 2,..., n-1) and into (7) , order it 0, we can see:
Above equations can be converted into:
（8）
From (8), we can get for:
（9）
3) Deciding ultimate benefit distribution coefficients
The above quantitative analysis determined the initial distribution benefits scale coefficients of alliance members. It should transit the negotiate mechanism in the alliance to adjust initial scale coefficient on the base of quantitative analysis, so as to determine the final alliance benefit distribution ratio, notes for.
Among them: means benefit distribution ratio of alliance members, and.
4) example analysis
Next, the example analysis is for the inspection of reasonableness of industrial technology alliance benefit distribution model. For the sake of simplicity, this paper takes only two members in the case as an example. The parameter values of benefit distribution model in this example analysis are as shown in table II.
Table II. simulation parameter values of alliance benefit distribution in the model
a1 / a2 / b1 / b20.62 / 0.56 / 0.6 / 0.4
Take data in table II into (9) respectively, the calculation of available:
With the negotiate mechanism in the alliance to adjust the initial scale coefficient, it determines scale coefficient as (0.6, 4) eventually.
IV. conclusion
Because alliance member for more benefit through joining the alliance, so the key of effective prevention and control alliance risk is constructing a scientific benefit distribution model in the alliance and distributing benefits reasonably according to the model. In view of this, This paper comparatively analyses the existing distribution model firstly, and with “royalty payment mode” as the foundation constructs benefit distribution model of industrial technology alliance, and at last, verifies its reasonableness through the example analysis. The study shows that the benefit distribution coefficient of alliance member () decides by the immaterial cost coefficient ( ) and the relative contribution coefficient ().The main contribution of this paper is developing the corresponding research to the alliance situation of “members more than two”, thus for this constructed model more close to the benefit distribution practice of industrial technology alliance.
References
[1] DAS T K, TENG B S. Resource and risk management in the strategic alliance making process[J]. Journal of Management, 1998,Vol.( 24): 21-42
[2] Dong-chuan Sun, Fei Ye. The Research for the Negotiation Model about the Benefit Allocation of the Dynamic Alliance[J]. Science Research Management, 2001,Vol.22(02): 91-95
[3] ZHANG Shu yi, LI Xiao jun, WU Zhen ye. Game Analyses on the Allocation of Strategic Alliance[J]. Systems Enging-theory Methodology Application, 2002, Vol.11(2): 235-239
[4] ZHENG Wen-jun, ZHANG Xu-mei, LIU Fei, CHEN Xing-ming, LEI Qi. Research of Profit Distributing Mechanism of Virtual Enterprise[J]. Journal of Industrial Engineering and Engineering Management, 2001, Vol.15(01): 26-28
[5] CHEN Ju hong,WANG Ying luo, SUN Lin yan. Research on the Profit Distribution Gaming of Virtual Enterprise[J]. Operations Research and Management Science, 2002, Vol.11(01): 11-16
[6] LUO Li, LU Ruo－yu. Application of the Shapley Value in the Game Model of the Cooperation of Enterprises, Colleges and Institutes[J]. Soft Science, 2001, Vol.15(02):17-19,73
[7] Wen-jun Wang, Xiao-xuan Kou. Benefit Distribution Machanism in Technical Alliance[J]. Journal of Tian Jing University of Commerce, 2004(4): 8 – 12
[8] Yong Lei. Research on Benefit Distribution Mechanism of the Industry-University-Research Institute Alliance[D]. ShangHai Jiao tong University, 2008
[9] Luis A. Guardiola，Ana Meca，Judith Timmer. Cooperation and profit allocation in distribution chains[J]. Decision Support Systems, Volume 44, Issue 1, November 2007, Pages 17–27
[10] Jing Yang, Ke-shen Jiang, Qiang Di. Profit Allocation Solution for Dynamic Alliance Based on TOPSIS Method [J]. Systems Engineering, 2008,Vol.26(10): 22-25
[11] Han-dong ZHANG, Zhong YAN, Da-chun FANG. Strategies of profit allocation in enterprises' dynamic alliance value based on Shapley applying ANP [J]. Journal of Systems Engineering,2009,Vol.24(2):205-210
[12] Alchain A., Demseiz H. Production, information costs, and economic organization [J]. American Economics Review, 1972, 62: 777-795
[13] Liu P., Wu Y-H, Xu N. Collaborative profit allocation model for truckload carriers' alliance[J]. Shandong Daxue Xuebao (GongxueBan) / Journal of Shandong University (Engineering Science). 2011,Vol. 40, no. 4, pp. 42-46,52.