Research on alliance governance and agglomeration economies has suggested that the geographic concentration of industry activities affects the management of inter-organizational relationships. In this study, we examined how focal firms protect themselves from the risk of knowledge leak to indirectly connected rivals stemming from allying with partners located in a cluster. Previous studies have largely focused on the benefits of agglomeration, documenting many advantages that accrue to firms located in a cluster. In contrast, we build on research emphasizing potential drawbacks to examine how knowledge leakage exposure and introduced the remedies that firms utilize to mitigate the knowledge leakage risks posed by partner-rival co-location. The ideas were tested empirically in the context of R&D alliances in biopharmaceutical industry over a 20-year period.

Aggarwal, V. A., Siggelkow, N., & Singh, H. (2011). Governing collaborative activity: interdependence and the impact of coordination and exploration. Strategic Management Journal, 32(7), 705-730.
Agrawal, A., Cockburn, I., & McHale, J. (2006). Gone but not forgotten: knowledge flows, labor mobility, and enduring social relationships. Journal of Economic Geography, 6(5), 571-591.
Ahuja, G. (2000). Collaboration networks, structural holes, and innovation: A longitudinal study. Administrative science quarterly, 45(3), 425-455.
Alcácer, J., & Chung, W. (2007). Location strategies and knowledge spillovers. Management science, 53(5), 760-776.
Alcácer, J., & Zhao, M. (2012). Local R&D strategies and multilocation firms: The role of internal linkages. Management Science, 58(4), 734-753.
Anand, B. N., & Khanna, T. (2000). Do firms learn to create value? The case of alliances. Strategic management journal, 21(3), 295-315.
Anand, J., Mesquita, L. F., & Vassolo, R. S. (2009). The dynamics of multimarket competition in exploration and exploitation activities. Academy of Management Journal, 52(4), 802-821.
Anand, J., Oriani, R., & Vassolo, R. S. (2010). Alliance activity as a dynamic capability in the face of a discontinuous technological change. Organization Science, 21(6), 1213-1232.
Anderson, S. W., & Dekker, H. C. (2005). Management control for market transactions: The relation between transaction characteristics, incomplete contract design, and subsequent performance. Management science, 51(12), 1734-1752.
Argyres, N., & Mayer, K. J. (2007). Contract design as a firm capability: An integration of learning and transaction cost perspectives. Academy of Management Review, 32(4), 1060-1077.
Bell, G. G. (2005). Clusters, networks, and firm innovativeness. Strategic management journal, 26(3), 287-295.
Chakrabarti, A., & Mitchell, W. (2016). The role of geographic distance in completing related acquisitions: Evidence from US. chemical manufacturers. Strategic Management Journal, 37(4), 673-694.
Cockburn, I. M., & Henderson, R. M. (2001). Scale and scope in drug development: unpacking the advantages of size in pharmaceutical research. Journal of health economics, 20(6), 1033-1057.
Cox Pahnke, E., McDonald, R., Wang, D., & Hallen, B. (2015). Exposed: Venture capital, competitor ties, and entrepreneurial innovation. Academy of Management Journal, 58(5), 1334-1360.
Dacin, M. T., Oliver, C., & Roy, J. P. (2007). The legitimacy of strategic alliances: An institutional perspective. Strategic Management Journal, 28(2), 169-187.
Devarakonda, S. V., McCann, B. T., & Reuer, J. J. (2018). Marshallian forces and governance externalities: Location effects on contractual safeguards in Research and Development alliances. Organization Science, 29(6), 1112-1129.
Devarakonda, S. V., & Reuer, J. J. (2018). Knowledge sharing and safeguarding in R&D collaborations: The role of steering committees in biotechnology alliances. Strategic Management Journal, 39(7), 1912-1934.
Diestre, L., & Rajagopalan, N. (2012). Are all ‘sharks’ dangerous? new biotechnology ventures and partner selection in R&D alliances. Strategic Management Journal, 33(10), 1115-1134.
Filson, D., & Morales, R. (2006). Equity links and information acquisition in biotechnology alliances. Journal of Economic Behavior & Organization, 59(1), 1-28.
Firth, D. (1993). Bias reduction of maximum likelihood estimates. Biometrika, 27-38.
Folta, T. B., Cooper, A. C., & Baik, Y.-s. (2006). Geographic cluster size and firm performance. Journal of business venturing, 21(2), 217-242.
Freeman, L. C. (1978). Centrality in social networks conceptual clarification. Social networks, 1(3), 215-239.
Ganesan, S., Malter, A. J., & Rindfleisch, A. (2005). Does distance still matter? Geographic proximity and new product development. Journal of Marketing, 69(4), 44-60.
Grossman, S. J., & Hart, O. D. (1986). The costs and benefits of ownership: A theory of vertical and lateral integration. Journal of political economy, 94(4), 691-719.
Gulati, R. (1995). Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances. Academy of management journal, 38(1), 85-112.
Gulati, R., Lavie, D., & Singh, H. (2009). The nature of partnering experience and the gains from alliances. Strategic management journal, 30(11), 1213-1233.
Gulati, R., & Singh, H. (1998). The architecture of cooperation: Managing coordination costs and appropriation concerns in strategic alliances. Administrative science quarterly, 781-814.
Gulati, R., & Sytch, M. (2008). Does familiarity breed trust? Revisiting the antecedents of trust. Managerial and Decision Economics, 29(2‐3), 165-190.
Hagedoorn, J., Lorenz-Orlean, S., & van Kranenburg, H. (2009). Inter-firm technology transfer: partnership-embedded licensing or standard licensing agreements? Industrial and Corporate Change, 18(3), 529-550.
Hallen, B., Katila, R., & Rosenberger, J. (2013). Unpacking Social Defenses: A Resource-Dependence Lens on Technology Ventures. Venture Capital, and Corporate Relationships. Academy of Management Journal, forthcoming.
Hamel, G. (1991). Competition for competence and interpartner learning within international strategic alliances. Strategic management journal, 12(S1), 83-103.
Hamel, G., Doz, Y. L., & Prahalad, C. K. (1989). Collaborate with your competitors and win. Harvard business review, 67(1), 133-139.
Harrison, B. (2007). Industrial districts: old wine in new bottles?(Volume 26, number 5, 1992). Regional studies, 41(S1), S107-S121.
Hernandez, E. (2014). Finding a home away from home: Effects of immigrants on firms’ foreign location choice and performance. Administrative Science Quarterly, 59(1), 73-108.
Hernandez, E., Sanders, W. G., & Tuschke, A. (2015). Network defense: Pruning, grafting, and closing to prevent leakage of strategic knowledge to rivals. Academy of Management Journal, 58(4), 1233-1260.
Hitt, M. A., Dacin, M. T., Levitas, E., Arregle, J.-L., & Borza, A. (2000). Partner selection in emerging and developed market contexts: Resource-based and organizational learning perspectives. Academy of Management journal, 43(3), 449-467.
Hitt, M. A., Jackson, S. E., Carmona, S., Bierman, L., Shalley, C. E., & Wright, M. (2017). The Oxford handbook of strategy implementation: Oxford University Press.
Hoang, H., & Rothaermel, F. T. (2005). The effect of general and partner-specific alliance experience on joint R&D project performance. Academy of Management Journal, 48(2), 332-345.
Hoetker, G. (2007). The use of logit and probit models in strategic management research: Critical issues. Strategic Management Journal, 28(4), 331-343.
Hoetker, G., & Mellewigt, T. (2009). Choice and performance of governance mechanisms: matching alliance governance to asset type. Strategic Management Journal, 30(10), 1025-1044.
Jaffe, A. B., Trajtenberg, M., & Henderson, R. (1993). Geographic localization of knowledge spillovers as evidenced by patent citations. the Quarterly journal of Economics, 108(3), 577-598.
Jindra, B., Hassan, S. S., & Cantner, U. (2016). What does location choice reveal about knowledge-seeking strategies of emerging market multinationals in the EU? International Business Review, 25(1), 204-220.
Kale, P., & Singh, H. (2007). Building firm capabilities through learning: the role of the alliance learning process in alliance capability and firm‐level alliance success. Strategic management journal, 28(10), 981-1000.
Kale, P., Singh, H., & Perlmutter, H. (2000). Learning and protection of proprietary assets in strategic alliances: Building relational capital. Strategic management journal, 21(3), 217-237.
Khanna, T. (1998). The scope of alliances. Organization Science, 9(3), 340-355.
Khanna, T., Gulati, R., & Nohria, N. (1998). The dynamics of learning alliances: Competition, cooperation, and relative scope. Strategic management journal, 19(3), 193-210.
Krishnan, R., Martin, X., & Noorderhaven, N. G. (2006). When does trust matter to alliance performance? Academy of Management journal, 49(5), 894-917.
Krugman, P. R. (1991). Geography and trade: MIT press.
Kumar, S., & Seth, A. (1998). The design of coordination and control mechanisms for managing joint venture–parent relationships. Strategic management journal, 19(6), 579-599.
Lahiri, N. (2010). Geographic distribution of R&D activity: how does it affect innovation quality? Academy of Management Journal, 53(5), 1194-1209.
Lee, J., Hoetker, G., & Qualls, W. (2015). Alliance experience and governance flexibility. Organization Science, 26(5), 1536-1551.
Levitt, B., & March, J. G. (1988). Organizational learning. Annual review of sociology, 14(1), 319-338.
Li, D., Eden, L., Hitt, M. A., Ireland, R. D., & Garrett, R. P. (2012). Governance in multilateral R&D alliances. Organization Science, 23(4), 1191-1210.
Li, P., & Bathelt, H. (2018). Location strategy in cluster networks. Journal of International Business Studies, 49(8), 967-989.
Marshall, A. (1920). Principles of economics, book 5. Chapter. II. Par, 4, 23.
Martin, X., Salomon, R. M., & Wu, Z. (2010). The institutional determinants of agglomeration: A study in the global semiconductor industry. Industrial and Corporate Change, 19(6), 1769-1800.
Mason, R., & Drakeman, D. L. (2014). Comment on “fishing for sharks: Partner selection in biopharmaceutical R&D alliances” by diestre and rajagopalan. Strategic Management Journal, 35(10), 1564-1565.
Mayer, K. J., & Teece, D. J. (2008). Unpacking strategic alliances: The structure and purpose of alliance versus supplier relationships. Journal of Economic Behavior & Organization, 66(1), 106-127.
McCann, B. T., & Folta, T. B. (2011). Performance differentials within geographic clusters. Journal of Business Venturing, 26(1), 104-123.
McCann, B. T., Reuer, J. J., & Lahiri, N. (2016). Agglomeration and the choice between acquisitions and alliances: An information economics perspective. Strategic Management Journal, 37(6), 1085-1106.
McEvily, B., Perrone, V., & Zaheer, A. (2003). Trust as an organizing principle. Organization science, 14(1), 91-103.
Mjoen, H., & Tallman, S. (1997). Control and performance in international joint ventures. Organization science, 8(3), 257-274.
Myles Shaver, J., & Flyer, F. (2000). Agglomeration economies, firm heterogeneity, and foreign direct investment in the United States. Strategic management journal, 21(12), 1175-1193.
Narula, R., & Santangelo, G. D. (2009). Location, collocation and R&D alliances in the European ICT industry. Research Policy, 38(2), 393-403.
Nelson, R., & Winter, S. (1982). An evolutionary theory of economic change (Belknap, Cambridge, MA). NelsonAn Evolutionary Theory of Economic Change1982.
Neter, J., Kutner, M. H., Nachtsheim, C. J., & Wasserman, W. (1996). Applied linear statistical models.
Oxley, J. E. (1997). Appropriability hazards and governance in strategic alliances: A transaction cost approach. The Journal of Law, Economics, and Organization, 13(2), 387-409.
Oxley, J. E. (1999). Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-firm alliances. Journal of Economic Behavior & Organization, 38(3), 283-309.
Oxley, J. E., & Sampson, R. C. (2004). The scope and governance of international R&D alliances. Strategic Management Journal, 25(8‐9), 723-749.
Perri, A., & Peruffo, E. (2016). Knowledge spillovers from FDI: a critical review from the international business perspective. International Journal of Management Reviews, 18(1), 3-27.
Phan, P. H., Siegel, D. S., & Wright, M. (2005). Science parks and incubators: observations, synthesis and future research. Journal of business venturing, 20(2), 165-182.
Phene, A., & Tallman, S. (2012). Complexity, context and governance in biotechnology alliances. Journal of International Business Studies, 43(1), 61-83.
Pisano, G. P. (1989). Using equity participation to support exchange: Evidence from the biotechnology industry. JL Econ. & Org., 5, 109.
Polidoro Jr, F., Ahuja, G., & Mitchell, W. (2011). When the social structure overshadows competitive incentives: The effects of network embeddedness on joint venture dissolution. Academy of Management Journal, 54(1), 203-223.
Poppo, L., & Zenger, T. (2002). Do formal contracts and relational governance function as substitutes or complements? Strategic management journal, 23(8), 707-725.
Porter, M. E. (1998). Clusters and the new economics of competition (Vol. 76): Harvard Business Review Boston.
Prashant, K., & Harbir, S. (2009). Managing strategic alliances: what do we know now, and where do we go from here? Academy of management perspectives, 23(3), 45-62.
Reuer, J. J., & Devarakonda, S. V. (2016). Mechanisms of hybrid governance: Administrative committees in non-equity alliances. Academy of Management Journal, 59(2), 510-533.
Reuer, J. J., & Lahiri, N. (2014). Searching for alliance partners: Effects of geographic distance on the formation of R&D collaborations. Organization Science, 25(1), 283-298.
Reuer, J. J., Zollo, M., & Singh, H. (2002). Post‐formation dynamics in strategic alliances. Strategic Management Journal, 23(2), 135-151.
Robinson, D. T., & Stuart, T. E. (2007). Financial contracting in biotech strategic alliances. The Journal of Law and Economics, 50(3), 559-596.
Rosenfeld, S. A. (1997). Bringing business clusters into the mainstream of economic development. European planning studies, 5(1), 3-23.
Rosenkopf, L., & Almeida, P. (2003). Overcoming local search through alliances and mobility. Management science, 49(6), 751-766.
Rosenthal, S. S., & Strange, W. C. (2004). Evidence on the nature and sources of agglomeration economies Handbook of regional and urban economics (Vol. 4, pp. 2119-2171): Elsevier.
Rothaermel, F. T. (2001). Incumbent's advantage through exploiting complementary assets via interfirm cooperation. Strategic management journal, 22(6‐7), 687-699.
Ryall, M. D., & Sampson, R. C. (2009). Formal contracts in the presence of relational enforcement mechanisms: Evidence from technology development projects. Management Science, 55(6), 906-925.
Ryu, W., McCann, B. T., & Reuer, J. J. (2018). Geographic co-location of partners and rivals: Implications for the design of R&D alliances. Academy of Management Journal, 61(3), 945-965.
Sanchez, R., & Mahoney, J. T. (1996). Modularity, flexibility, and knowledge management in product and organization design. Strategic management journal, 17(S2), 63-76.
Saxenian, A. (1996). Regional advantage: Harvard University Press.
Schilling, M. A. (2009). Understanding the alliance data. Strategic Management Journal, 30(3), 233-260.
Shenkar, O., & Reuer, J. J. (2005). Handbook of strategic alliances: Sage Publications.
Smith, D. G. (2005). The exit structure of strategic alliances. U. Ill. L. Rev., 303.
Stuart, T. E., Hoang, H., & Hybels, R. C. (1999). Interorganizational endorsements and the performance of entrepreneurial ventures. Administrative science quarterly, 44(2), 315-349.
Teece, D. J. (1992). Competition, cooperation, and innovation: Organizational arrangements for regimes of rapid technological progress. Journal of economic behavior & organization, 18(1), 1-25.
Thompson, J. D. (1967). Organizations in action. New York: McGraw-Hill. ThompsonOrganizations in Action1967.
Tushman, M. L., & Nadler, D. A. (1978). Information processing as an integrating concept in organizational design. Academy of management review, 3(3), 613-624.
Varadarajan, P. R., & Cunningham, M. H. (1995). Strategic alliances: a synthesis of conceptual foundations. Journal of the Academy of Marketing Science, 23(4), 282.
Vassolo, R. S., Anand, J., & Folta, T. B. (2004). Non‐additivity in portfolios of exploration activities: A real options‐based analysis of equity alliances in biotechnology. Strategic Management Journal, 25(11), 1045-1061.
Williamson, O. E. (1985). Yhe Economic Institutions of Capitalism: Firms, markets, relational Contracting: Free Press.
Williamson, O. E. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative science quarterly, 269-296.
Wuyts, S., Dutta, S., & Stremersch, S. (2004). Portfolios of interfirm agreements in technology-intensive markets: Consequences for innovation and profitability. Journal of marketing, 68(2), 88-100.
Yan, A., & Gray, B. (1994). Bargaining power, management control, and performance in United States–China joint ventures: a comparative case study. Academy of Management journal, 37(6), 1478-1517.
Yu, T., Subramaniam, M., & Cannella Jr, A. A. (2013). Competing globally, allying locally: Alliances between global rivals and host-country factors. Journal of International Business Studies, 44(2), 117-137.