International Strategic Alliances

Partnership & Cooperation

Chapter-7

Introduction External influences upon a firm’s decision to

handle its international operations itself or to collaborate with other companies include:

Physical factors: Political policies Legal practices Economic forces

Societal factors: Behavioral factors Geographical influence

Competitive environment:

Strategic Alliance International strategic alliance is a

strategic cooperative agreement , or agreements between two or more firms , from at least two different countries, which involves exchange, sharing or co development for achieving strategically significant objectives that are mutually beneficial and beyond what a single firm could achieve alone.

Example: alliance between Motorola and Toshiba, Philips and Matsushita.

Drivers of International SA

Globalization

Technological Factors

Motives Fierce competition Rapidly changing technologies Shorter product life cycle High R&D cost Economize on production and research cost Access intangible assets - managerial skills, knowledge of different markets more cheaply and faster.

Now days it is difficult for firms to have competitive advantage single handedly in each and every step of the

value added process in all the national market.

Motives

Firm should pursue strategic alliance when: The combination of capabilities yield a

greater value than if were used separately.i.e. alliance formed by three auto makers- Ford, GM and Chrysler to develop an efficient battery.

Pooling of expertise to create synergy.

14-7

Types of Alliance Vertical Relationship: formed between

suppliers and buyers

Horizontal Relationship: formed between rival firms.

Selecting & Managing Partner Partner related criteria:

Partner characteristics Compatibility Motivation Commitment Reliability

If two firms approach an alliance with radically different agendas, the chances are great that the relationship will not be harmonious, will not flourish, and will end in divorce. E.g. the alliance between GM and Daewoo.

Task related criteria: Financial resource Marketing resource Customer service R&D Technical resources Organizational resources Production resources

Selecting & Managing Partner

ISA & Fit Strategic fit: strategic fit requires all partners

to have similar resources and capabilities and to contribute same amount or resources and capabilities

Operational fit: compatibility of processes, of information system, of profitability and cash flow.

Cultural fit: corporate cultural fit: mgt style: employee

participation, delegation of responsibility, decision making

National cultural fit: long term vs. short term orientation

Emerging Economies Developed economies:

Purpose: access to cheap labor, raw material, increasing customer base, experience

Emerging economies Purpose: access to financial assets,

technical capabilities, modern technologies.

Risk Relational risk: the probability and

consequences of not having satisfactory cooperation'. Opportunistic behaviors include:

appropriating the partner’s resources, distorting information, harbouring hidden agendas, and delivering unsatisfactory products

and services'. Relational risks are an avoidable-and quite

problematic-element of strategic alliances.

Risk Performance risk: Likelihood that ‘an

alliance may fail even when partner firms commit themselves fully to the alliance.This could be due to external factors such

as: Unprecedented fierce competition, Political change, Government policy change, Wars, strikes Internal factors such as ‘lack of

competence in critical areas’.

Trust Part of the trick of managing an alliance successfully seems to be to build interpersonal relationships between the firms’ managers.

E.g. the alliance between Ford and Mazda. They set up a framework of meetings within which their managers not only discuss matters pertaining to the alliance, but also get to know each other better through ‘non-work’ time provided in the meetings. Belief is that the resulting friendships help build trust and facilitate harmonious relations between the two firms.

Alliance dissolution Reasons behind terminations:

The collaborative relationships might break down in partner disputes that cant be resolved

the alliance may accomplish its mission and therefore outlive its purpose

Partner strategies may change eliminating the needs of alliance

Adverse action by regulatory authorities force the alliance to break up

Summary Strategic alliances, in which two or more firms

agree to cooperate for their mutual benefit, are becoming increasingly popular in international business.

Strategic alliances facilitate market entry, allow the partners to share risks, and make it easier for each partner to gain new knowledge and expertise from the other partner/s.

The decision to form a strategic alliance needs to be based on a number of different considerations.

Partners in a strategic alliance must be aware of several pitfalls that can undermine the success of their cooperative arrangement.