International Business Review 11 (2002) 485–502 www.elsevier.com/locate/ibusrev The growth of alliances in the knowledge-based economy F.J. Contractor a,* , P. Lorange b a Rutgers University, Graduate School of Management, 81 New Street, Newark, NJ 07102, USA b International Institute for Management Development, Chemin de Bellerive 23, CH-1007, Lausanne, Switzerland Abstract The prime objective of this article is to identify the environmental and regulatory conditions which have fostered the rapid growth of alliances. By “alliance” we include all cooperative arrangements — from “relational contracting” to equity joint ventures. Far from a transient fad, or slowing down, as some observers predicted, the rate of alliance formation may even be picking up in an economy based on ideas rather than material objects. An economy of objects emphasizes mass production, internalized ownership, control and vertical integration. An economy based on knowledge favors customization, flexibility, rapid response and dis- internalization or deconstruction of the value chain. This article shows how this trend favors alliances, as different pieces of the value chain under different ownership may increasingly cooperate with each other. The article traces the role of information technology and the under- lying regulatory, economic and competitive conditions that are fostering the creation of alliances.  2002 Published by Elsevier Science Ltd. 1. Introduction The “explosion” in alliances and other forms of interfirm cooperation is now at least a fifteen-year-old phenomenon. Far from a transient fad, or slowing down, as some observers predicted, the rate of alliance formation is indeed picking up. Accord- ing to a Booz Allen & Hamilton report, the number of alliances grew at 25 percent per year in the period 1987–1997 (Harbison & Pekar, 1997). A recent Arthur And- ersen survey, based on 323 questionnaire responses and over 400 interviews with * Tel.: +1-973-398-3003; Fax: +1-973-398-3003. E-mail address: farok@andromeda.rutgers.edu (F.J. Contractor). 0969-5931/02/$ - see front matter  2002 Published by Elsevier Science Ltd. PII:S0969-5931(02)00021-5