The present study aims at contributing to the on-going debate on the benefits and disadvantages of organizational diversity by exploring the following research questions: What role do alliance portfolio diversity and market scope play in small high-tech firms’ exits? and How do firms balance these types of diversity in their struggle for survival? Several reasons have motivated this paper. First, previous research examined alliance portfolio diversity (APD) and market scope separately and came up with contrasting results – in each case some studies found positive effects and some others negative effects at a firm level. In this paper we consider APD and market scope together and argue that since managers make the descisions about their firms’ market diversification and alliance strategy simultaneously, academic research should study their interaction effect that may help to clarify the contrasting results of existing studies. Second, while economic and innovative outcomes have traditionally received the most interest from academic research dealing with alliances and alliance portfolios, APD and its impact on firms’ survival remained in the shadow of theoretical and empirical contributions. The present paper fills this gap by exploring the contradiction of positive and negative consequences of APD for small and young high-tech firms in terms of their exit. Third, in contrast to the literature on large firms few studies have addressed the theme of market scope (diversification) in small entrepreneurial firms, either at a theoretical or empirical level (Iacobucci, 2005). In the present paper, diversification literature is revisited for small innovative firms in order to theoretically argue and empirically explore the role market scope plays in these firms’ survival. The empirical part of the paper is a quantitative study of the population of French biotech firms having participated in the industry over 9 years (1994 – 2002), representing 313 firms. Event history analysis has been used as a statistical method. The results show that APD has a curvilinear relationship (inverted U-shaped form) with biotech firms’ exit. Greater market scope increases the probability of biotech firms’ exit (linear relationship). Finally, the most interesting result concerns the interaction effect between APD and market scope. Combining greater diversification with increasing alliance portfolio diversity enhances biotech firms’ chances to survive up to a certain point, where joint effect of two facets of organizational diversity lead to their failure.
