The impact of alliance formation based on the ecosystem on firm’s financial performance of Korean telecommunications industry

Abstract

Digital convergence and smart devices are increasing market uncertainty and market dynamics of telecommunications industry. In addition, the competition paradigm has shifted from individual firm-based competition to ecosystem-based competition. To satisfy customers’ diverse needs, it is critical that companies form alliances with complementary partners in the ecosystem. This study empirically investigates the influence of ecosystem-based alliance formations on financial performance in the Korean telecommunications market. Moreover, we examine how the impact of alliance formations changes over time by comparing the condition before and after the diffusion of smart devices. The empirical results indicate that alliances with constituents of ICT ecosystem before the diffusion of smart devices were not effective for enhancing profit. On the other hand, after the diffusion of smart devices, the relationships between members of the value chain of ICT ecosystem contributed significantly to firms’ financial performance. This implies that an ICT ecosystem was formed after the diffusion of smart devices, and that alliances with constituents of the ecosystem are a key element of profit generation in recent ICT market.