Giving an assist: How trust in the NBA help competitors trade resources

By Vince Chong

SMU Office of Research Governance & Administration – While long-term alliances encourage cooperation among competitors – or coopetition – resource exchanges are typically eschewed in the presence of rivalry. 

This is because alliances may translate to jointly growing market share and industrial know-how, usually over a longer term – including complex post-transaction governance mechanisms aimed partly at safeguarding parties’ rights – whereas shorter-term resource exchanges at arm’s length may benefit one side over the other due to factors like independent decision-making and minimal resource integration. 

In one of the world’s firsts, an SMU project has helped to fill a research gap by examining more closely such arm’s length exchanges between competitors. As the paper Trading with the Enemy: A Coopetitive Perspective of Resource Exchange at Arm’s Length set out, most studies on coopetition examines long-term partnerships, or strategic alliances, while ignoring shorter, one-off exchange of resources. 

Using data from the U.S.’s National Basketball Association (NBA) competition – specifically on the trading of players between teams – the research revealed, among other things, that resource swaps can work between competitors particularly in the presence of personal ties that convey a certain degree of trust, or relational capital. As it set out, the study provides “valuable insights” for managers exploring “resource exchange dynamics among competitors.” 

Trading with the Enemy is led by SMU Associate Professor of Strategy and Entrepreneurship David Gomulya; alongside Tracy Li Zhefei, Postdoctoral Fellow, Fudan University, Shanghai, China; and SMU Professor of Strategic Management Heli Wang. It has been published in the leading Strategic Management Journal.

Crucially, Professor Gomulya told the Office of Research Governance and Administration (ORGA), it shows that rules governing arm’s length exchanges differ “substantially” from those of traditional strategic alliances. Applying the wrong logic to the wrong situation could hence produce “costly mistakes” or “mediocre results.” 

“The research is most relevant when firms are considering discrete transactions with direct competitors such as via technology swaps, cross-licensing, talent trades,” he said.

“Where trust exists between key individuals, the degree of competitive overlap, and whether resources are bundled or discrete will largely determine whether a deal is viable at all.”

NBA “an ideal empirical setting”

The research team chose to use the workings of professional sports because it features extensive arm’s length resource exchanges amid direct competition. In this case, the paper noted, the NBA numbers held “detailed objective performance metrics at team and individual levels, and close proxies of key constructs such as resource bundling and relational rivalry.”

As a data mine, Dr Li said, sports offer “a treasure trove of detailed data that researchers can leverage to advance management theories.” The trading of players between competitive NBA teams further solves the “big problem” of researchers being often unable to clearly separate synergy from competitive overlap, where competitors seek the same aims, including resources. 

This, he added, is typically well addressed by professional North American sports like the NBA, and the National Football League and Major League Baseball, because the groupings of teams in these competitions are randomly generated. 

“It is difficult otherwise to clearly measure competitive overlap without contamination,” said Dr. Li, who completed his PhD in Strategic Management and Organisation at SMU. Among the key findings, he continued, was that the effect of relational capital appeared “very strong” in promoting the opportunity of arm’s length trades. 

He was referring to a part of the study that found that where a senior executive of an NBA team had participated in a player exchange, no matter where the person was working, the likelihood of future swaps involving the executive rose by 57.39 percent.

This positive influence was also found to extend to the arm’s length bundle exchange of two or more players at one time, which would otherwise be even more discouraged among competitors since more resources are involved. Such challenges, the paper set out, “amplify the important role of relationship capital in facilitating such resource exchanges.”

Some degree of trust may also hold sway over relational rivalries, meaning deep-seated competition rooted in history and tradition. For example, Dr. Li suggested, ties between U.S President Donald Trump and his Chinese and Russian counterparts, Xi Jinping and Vladimir Putin respectively, are “no longer seem as deadly or non-negotiable” in the presence of certain relational capital.

Still, trust only goes so far. As the academic also noted, intense NBA rivalries in the last decade – Boston Celtics vs. Los Angeles Lakers, Cleveland Cavaliers vs. Golden State Warriors, etc. – produced close to zero arm’s length exchanges between them. Similar examples outside of sports included the tech world, he added, where Elon Musk and Mark Zuckerberg, or Steve Jobs and Bill Gates have not been seen to cooperate. These ties, Dr Li added, are “slightly different” from corporate rivalry in that the personalities have also appeared to “try hard to undermine each other.” 

More to uncover

Going forward, the study noted, future research can build on its findings to explore, among other things, similar arm’s length transactions between competitors in more traditional industry settings, or “boundary conditions under which relational rivals may become more likely to cooperate.” Or, as Dr Li added, more can be learnt from how rivalry between individuals may “complicate or even lead to relational rivalry, other than preventing cooperation at the organisational level.”

There is also more to suss out regarding the impact of past alliances and arm’s length ties. “Given their nuanced differences, future research should carefully examine their intricate interplay,” the research set out. 

The art of business management, Professor Gomulya noted, generally comes down to choosing the right strategy at the right time. Companies that are large enough should utilise separate departments to explore strategic alliances or resource swaps, he said, like some have in the pharmaceutical and semiconductor sectors.

“At minimum,” he continued, key decision-makers “should be empowered to draw on existing relational ties rather than treating every deal as a cold market interaction.”

A “rough rule of thumb” to picking arm’s length exchanges over alliances is “when speed and independence matter more than depth,” alongside low competitive overlap or high personal trust between decision-makers. 

“Without at least one of these conditions, the exchange transaction is likely to collapse or disappoint; not because the economics are wrong, but because the structural foundations aren't there,” he said.

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