1 strategic alliances and organizational design for international business international corporate...

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Strategic Alliances and Organizational Design for International Business

International Corporate Cooperation:

Cooperation between international firms may take many forms, such as cross-licensing of proprietary technology, sharing of production facilities, co-fund-ing of research projects, and marketing of each other’s products using existing distribution networks.

Such form of cooperation are known

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collectively as strategic alliances, business arrangements whereby two or more firms choose to cooperate for the mutual benefits.

A joint venture is a special type of strategic alliances in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents.

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Benefits of Strategic Alliances:Firms that enter into strategic alliances

usually expect to benefit in one or more ways:

i). Ease of Market Entry: Choosing a strategic alliance as the entry mode may overcome some obstacles or reduce the cost of entry.

Advances in telecommunications, comput-

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erization, and transportation have made it easier for international firms to enter new foreign markets.

Further economies of scale and scope in marketing and distribution confer benefits on firms that aggressively and quickly enter numerous markets.

ii). Shared Risk: Today’s major industries are so competitive that no firm has a

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guarantee of success when it enters a new market or develops a new product.

Strategic alliances can be used to either reduce or control individual firm’s risks, for example, researching, designing etc.

Shared risk is an especially consideration when a firm is entering a market that has just opened up or that is characterized by much uncertainty and instability.

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iii). Shared Knowledge and Expertise:

A firm may want to learn more about how to produce something, how to acquire certain resources, how to deal with local governments’ regulations, or how to manage in different environment – information that a partner often can offer.

The firm can then use the newly acquired information for other purposes.

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iv). Synergy & Competitive Advantage:

These related advantages reflect combinat-ions of the other advantages: the idea is that through some combination of market entry, risk sharing, and learning potential each collaborating firm will be able to achieve more and to compete more effectively than if it had attempted to enter new market or industry alone.

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Implementation of Strategic Alliances:

The decision to form strategic alliances should develop from the firm’s strategic planning process.

After a firm’s top managers analyze the firm’s goals, strengths, weaknesses, and market opportunities, they may decide that a strategic alliance with one or more other firm is preferred for entry mode.

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a). Selections of Partners: The success of any cooperative undertaking depends on choosing the appropriate partner(s).

A firm contemplating a strategic alliance should consider at least four factors:

i). Compatibility: The firm should select a compatible partner with which it can work effectively and that it can trust. Without mutual trust, it will not succeed.

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ii). Nature of Potential Partner’s Products or Service: It is often hard to cooperate with a firm in one market while doing battle with the same firm in a second market.

Under such circumstances, each partner may be unwilling to reveal all its expertise to the other partner for fear that that partner will use it in another market.

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iii). The Relative Safeness of the Alliance: Firm should move carefully in selecting, negotiating with, and contracting with a partner.

Strategic alliances should be undertaken cautiously and deliberately as part of the firm’s strategic plan.

Managers should gather information about the complexities and failure costs.

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iv). Learning Potential of the Alliances: Before establishing a strategic alliance, partners should assess the potential to lean from each other.

Areas including how to manage inventory more efficiently or how to train employ-ees more effectively, value of its infrom-ation and the competitive advantages of the companies.

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b). Form of Ownership: Another issue in establishing a strategic alliance is the exact form of ownership to be used.

A joint venture may be incorporated in order to arrange a beneficial tax structure, and better protect their assets.

A special form of joint venture, a public-private venture, is one that involves a partnership between a privately owned

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firm and government.

c). Joint Management Considerations: The issue and question associated with how a strategic alliance will be managed.

i). A shared management agreement: Each partner fully and actively participates in managing the alliance. The partners run the alliance, and their mangers regularly pass on instructions and details.

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ii). Assigned arrangement: One partner, such as that owning the majority of a joint venture’s stock, assumes primary responsibility for the operations of the strategic alliance.

iii). Delegated arrangement: Which is reserved for joint ventures, the partners agree not to get involved in ongoing operations and so delegate management

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control to the executives of the joint venture itself.

These managers were given responsibility for the joint venture’s operations.

Pitfalls of Strategic Alliances:

There are five fundamental sources of problems that often threaten the viability of strategic alliances:

i) Incompatibility of Partners: At times

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incompatibility can lead to outright conflict, and merely leads to poor performance of the alliance.

It can stem from differences in corporate culture, national culture, goals and obje-ctives, or any fundamental dimensions.

ii). Access to Information: For collabora-tion to work effectively, partners have to provide the other with information it

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would prefer to keep secret.

It is often difficult to identify information needs ahead of time, thus firm may enter into agreement without proper anticipa-tion of information requirements.

iii). Distribution of Earnings: Because the partners share risk, costs and they also share profits.

The partners must also agree on the propor

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tion of joint earnings that will be distribu-ted to themselves as opposed to being reinvested in the business.

iv). Potential Loss of Autonomy:As firms share risks and profits, they also share control, thereby limiting what each can and can’t do.

Most attempts to introduce any other significant organizational change first

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must be discussed and negotiated.

v). Changing Circumstances: It may also affect the viability of a strategic alliance.

The economic conditions that motivated the corporate arrangement may no longer exist, or technological advances may have rendered the agreement obsolete.

Because of the changing circumstances, the joint venture may be terminated.

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Strategic Alliances & Organizational Strategic Alliances & Organizational Design for International BusinessDesign for International Business

Nature of Organizational Design:

Organizational design sometimes called organizational structure is the overall pattern of structural components and configurations used to manage the total organization.

It is the basic vehicle through which strategy is ultimately implemented and through which the work of the is done.

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A firm cannot function unless its various structural components are appropriately assembled.

Through its design, the firm: Allocates organizational resources Assigns tasks to its employees Instructs those employees concerning

the firm’s rules, procedures, and expectations about their performance

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Collects and transmits information necessary for problem solving and decision making.

Global Organizational Designs:

As firms evolves from being domestically oriented with international operations to become a true multinational corporation with global aspirations, it typically aba-ndons international division approach.

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In place of that division, it usually crates a global organizational design to achieve synergies among its far-flung operation and it implement its organizational strategy.

The global design adopted by the firm must deal with its need to integrate three types of knowledge to compete effectively internationally:

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Area knowledge: Managers must understand the cultural, commercial, social, and economic conditions in each host country market the firm does business in.

Product knowledge: Managers must comprehend such factors as technolog-ical trends, customer needs, and competitive forces affecting the goods

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the firm produces and sells. Functional knowledge: Managers must

have access to coworkers with expertise in basic business functions such as production, marketing, finance, accounting, MIS and human resource management,

The five most common forms of global organizational design are product, area,

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functional, customer and matrix.

i). Global Product Design: The global product design assigns worldwide responsibility for specific products or product groups to separate operating divisions within a firm.

If the products are related, the organization of the firm takes on what is often called M-form design.

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If the products are unrelated, the design is called an H-from.

M stands for multidivisional and H stands for holding as in holding company.

ii). Global Area Design: The global area design organizes the firm’s activities around specific areas or regions of the world.

A global area design is most likely to used

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by a firm whose products are not readily transferable across regions.

The global area design is particularly useful for a firm whose strategy is marketing driven rather than predicted on manufacturing efficiencies or techn-ological innovation or a firm whose competitive strength lies in the reputa-tion of its brand-name products.

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iii). Global Functional Design: It calls for a firm to create departments / divisions that have worldwide responsibility for the common organizational functions.

The functions includes finance, operations, marketing, R&D, and human resource management.

It is used by MNCs that have relatively narrow or similar product lines.

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Results of which is often called a U-form organization, where U stands for unity.

iv). Global Customer Design: It is used when a firm serves different customers or customer groups, each with specific needs calling for special expertise or attention.

This design is useful when the various customers groups targeted by the firm

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are so diverse as to require totally distinct marketing approaches.

v). Global Matrix Design: It is the result of superimposing one form of organization design on top of an existing, different form.

A firm can form specific product groups comprising members from existing functional area.

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CEO

Global HRM

Global Operations

Global Finance

Global marketing

M-A

M-C

M-B

M-C

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