The Impact of Rule of Law on Market Value Creation for Local Alliance Partners in BRIC Countries

Market value creation for the local partner in an international strategic alliance (ISA) that takes place in a developed market economy is well documented; however, value creation for the local partner of an alliance in an emerging market (EM) has received less attention. We contend that rule of law is a key driver of value creation for the local partner because weak rule of law in an EM may suppress the foreign partner's willingness to share its valuable knowledge assets, which are a critical source of value for the EM partner. While rule of law directly affects value creation from the ISA for the EM partner, we argue that alliance type (R&D vs. non-R&D) and local partner type (state owned vs. non-state owned) are important moderators of this relationship. We find support for our arguments in an analysis of 902 ISAs in the BRIC (Brazil, Russia, India and China) countries over 1991–2005.