Prior studies examining the role of knowledge similarity in the choice between alliances and acquisitions have often relied on a narrow conceptualization of a firm’s knowledge base. Moreover, they have rarely investigated the implications of this choice. In this study, we take a more holistic view of a firm’s knowledge base to examine how domain knowledge similarity and architectural knowledge dissimilarity impact the choice between alliances and acquisitions. We further explore how that choice, in turn, changes the firm’s knowledge base. Our findings show that as dissimilarity in architectural knowledge with target firms increases, firms are equally likely to pursue either alliances or acquisitions. However, alliances lead to more significant changes in architectural knowledge than acquisitions. Conversely, firms prefer acquisitions when the target firm has similar domain knowledge, and acquisitions contribute to more substantial changes in the depth and the breadth of domain knowledge. Overall, our results indicate that alliances are more effective for acquiring architectural knowledge, whereas acquisitions are better suited for acquiring domain knowledge. These findings offer managers valuable guidance for enhanced decision-making in knowledge acquisition strategies.
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