International strategic alliances for collaborative product Innovation: An agent-based scenario analysis in biopharmaceutical industry

In recent years, the development of biopharmaceutical products has increased the standard of health care. The constituents of these drugs are complex biomolecules that have many applications for chronic diseases (Chang et al., 2019). However, studies show that these drugs’ production and development are risky because only 5% of these compounds become commercial products (Munos & Chin, 2011). Further, it is estimated that about $2.5 billion will be spent on developing and commercializing biopharmaceuticals, which will take about 10–15 years to discover and patent (Shakeri and Radfar, 2017, Yoon et al., 2018). Moreover, sustainable growth in the biopharmaceutical industry relies heavily on developing new drugs, and the high risk of investing in this process is a significant challenge for the industry (Kim & Atukeren, 2022). Accordingly, due to the high costs of the drug discovery cycle, many strategic alliances have focused on drug discovery and development, which are generally knowledge alliances (Such as RandD alliances; Bérard & Perez, 2014). Hence, using these alliances in the pharmaceutical and biopharmaceutical industries to discover and innovate new drugs is essential. Consequently, this type of collaboration is the most successful strategy in these industries (Shakeri & Radfar, 2017). The strategic alliances used in the pharmaceutical and biopharmaceutical industries as reported by Rybka et al. (2015) are shown in Fig. 1.

According to Fig. 1, companies in the biopharmaceutical and pharmaceutical industries have entered into alliances with two approaches since 1970. The first approach is exchanging and transferring knowledge (such as RandD alliances), and the second is based on joint commercialization proceedings (such as marketing agreements; Rybka et al., 2015). Precisely, Fig. 1 denotes that pharmaceutical and biopharmaceutical companies are more inclined to RandD alliances. This indicates that technological environment changes make companies prioritize RandD alliances to produce and develop a new product. The development of drug innovations and the discovery of new drugs require an extensive RandD budget (Dong & McCarthy, 2019). Approximately $125–250 million in the RandD budget is required for each drug (Shan et al., 1994).

Nevertheless, companies can cover these vast costs by forming alliances. The intertwining of the global economy, financial crises, and global recession, the emergence of multinational companies (Musarra et al., 2022), and the international business environment have turned international strategic alliances (ISAs) into a suitable opportunity for industries that want to be present in the global arena (Robson et al., 2019, Jin and Wang, 2021). Especially the pharmaceutical and biopharmaceutical industry requires notable growth and development in terms of the strategic position in domestic and foreign fields (Shakeri & Radfar, 2017). Moreover, companies in the biopharmaceutical industry have increasingly focused on ISAs, especially RandD, due to the high risk and costs of drug development in international businesses (Choi and Yeniyurt, 2015, Gehrisch and Süß, 2022). ISAs are the right approach to success and growth in uncertain environments created by intense global competition. In strategic alliances, companies can respond to financial constraints, lack of knowledge, and market inefficiency. In other words, strategic alliances will facilitate the flow of value creation for companies (Dan & Zondag, 2016). In the biopharmaceutical industry, strategic alliances are also effective in accelerating the new product cycle and responding to the high cost of pharmaceutical innovation, allowing pharmaceutical and biotechnology companies to leverage each other’s resources and knowledge to innovate in the joint production of a new product (Chang et al., 2019, Ma et al., 2022). This alliance at the international level provides biopharmaceutical companies with the resources and knowledge needed to succeed in the competitive biotechnology market (Nakos et al., 2019). However, research for biopharmaceutical product innovations is increasingly relying on alliances between pharmaceutical and biotechnology companies.

Furthermore, the biopharmaceutical industry is a significant study context for ISAs (Choi & Yeniyurt, 2015). Many studies on strategic drug alliances are commonly conducted in developing countries. Nevertheless, research on strategic alliances, especially in producing innovative pharmaceutical products in emerging economies (such as Iran), is neglected. Iran has grown and developed more in the pharmaceutical market and biotechnology drugs compared to developing countries. Paradoxically, one of the current and main problems of Iran’s pharmaceutical market is the decrease in the national production rate versus the increase in imported drugs. Pharmacy is one of the required fields in the biotechnology sector of Iran. More precisely, according to the Iranian Biotechnology Development Headquarters, the added value of biomedical products is the highest after the information technology services, and the value of the products of this industry in Iran is estimated at nearly $1.2 billion. As a result, this industry is a significant and growing sector in the economy of Iran. Although 25 years have passed since the beginning of Iran’s activity in this industry, it has surpassed many countries already in this field. In other words, Iran is ranked fifth in the world in the production of biotechnology drugs (Shakeri & Radfar, 2017). Due to the high share of biotechnological drugs in the Irans pharmaceutical market and the problems that pharmaceutical and biotechnology enterprises face in producing biological drugs, the desire for strategic alliances to overcome these difficulties has increased (McKelvey and Rake, 2016, Chang et al., 2019).

On the other hand, the critical success factors of strategic alliances in Iran’s biopharmaceutical industry are almost unknown (Dadfar et al., 2014). In high-tech industries such as biopharmaceuticals, product innovation is associated with high risk for a company, and companies are unwilling to accept this risk (Munos and Chin, 2011, McKelvey and Rake, 2016). Nevertheless, since these industries have a prominent potential for product innovation (Ahmad Abuzaid, 2014), ISA is an excellent response to these risks (Lew & Sinkovics, 2013). Thus, how to develop a new biopharmaceutical product using a strategic alliance is now an important topic (Fu & Wu, 2022). For this reason, companies are moving toward ISAs to increase innovative activities (Munos and Chin, 2011, Lew and Sinkovics, 2013). ISA allows international firms participating in different countries to create a competitive advantage at the global level by developing their innovations.

On the other hand, this international business alliance reduces the need to control new product development processes by developing the technological capabilities of companies (Lew and Sinkovics, 2013, Musarra et al., 2022). Many studies have shown that strategic alliances are one of the essential factors in boosting corporate innovation, especially product innovation (Jian et al., 2019, Ferreira et al., 2020, Li et al., 2020). In general, innovative products face little competition, which leads to high corporate profits. However, companies rarely succeed in producing innovative products individually (Ahmad Abuzaid, 2014, Dong and McCarthy, 2019). Therefore, investing in collaborative product innovation (CPI) supports firms to increase their chances of success (Jian et al., 2019). Enterprises need to acquire knowledge to design and produce new products innovatively. Knowledge sharing between companies effectively boosts product innovation knowledge (Ferreira et al., 2020).

Companies in ISAs increase product innovation; however, the failure rate in international strategic alliances is high (Ferreira et al., 2020). Recent studies show that about 50% of ISAs are unsuccessful and lead to the termination of these cooperations (Lee et al., 2021, Musarra et al., 2022). One of the main reasons for failure in alliances is low compliance between partners (Lv & Qi, 2019). Failure in strategic alliances causes irreparable financial costs for companies and a loss of credibility (Yoshimura et al., 2003). These costs are much higher in the ISA as the partner selection at the international level depends on macro-level issues such as national criteria in addition to the complex and ambiguous conditions of the foreign partner (Shijaku et al., 2020, Lee et al., 2021). Selecting an innovative partner is very difficult. In recent years, selecting an appropriate business partner in various industries has received attention (Chang et al., 2019, Govindan et al., 2019, Huang et al., 2021).

Several research works have focused on strategic alliances (Olivares-Aguila and ElMaraghy, 2020, Huang et al., 2021, Yin et al., 2022), even in pharmaceutical and biotechnology companies (Dan and Zondag, 2016, Shakeri and Radfar, 2017, Yoon et al., 2018), mainly on providing the best options for partner selection. However, there is limited research on international alliances (Garg, 2016), and none of these studies have considered collaborative product innovation. Previous studies on international strategic alliances highlighted that only the strategic, organizational (Salamat et al., 2018), and operational (Venkatesh et al., 2019) aspects of KSFs have been considered, and cultural and human resource aspects have not been discussed. On the other hand, MCDM methods have been used in all past studies, and as Bérard and Perez (2014) mentioned that these methods common weakness is not considering dynamic conditions in partner selection. Unfortunately, there is still no evidence to establish a complete CPI partner selection evaluation model for the biopharmaceutical industry. Consequently, this paper is thought to contribute to the ISAs literature by designing a dynamic model of partner selection in international businesses using agent-based simulation. This study attempts to determine when a combination of alliance success factors leads to success in business partner selection in the biopharmaceutical industry by investigating alliance success factors that affect CPI performance.

The rest of this article is organized as follows. In Section 2, the literature review presents strategic alliances in the biopharmaceutical industry. Section 3 introduces the applications of Fuzzy SWARA and Fuzzy Delphi methods and describes agent-based modeling. Section 4 presents the results of MCDM approaches and analyzes partner selection simulation scenarios. The last sections present the discussion, implications, and future recommendations.