Strategic Alliances &

Joint Ventures
Prof. Arindam Mondal
XLRI Jamshedpur
Cooperative Strategy
• Cooperative Strategy
➢ A strategy in which firms work together to achieve a
shared objective.
• Cooperating with other firms is a strategy that:
➢ Creates value for a customer.
➢ Reduces the cost of constructing customer value in
isolation.
➢ Establishes a favorable position relative to
competitors.
Strategic Alliance
• A primary type of cooperative strategy in which
firms combine some of their resources and
capabilities to create a mutual competitive
advantage.
➢ Involves the exchange and sharing of resources and
capabilities to co-develop or distribute goods and
services.
➢ Consistently pursuing ways to combine partners’
resources and capabilities to create value.
➢ Requires cooperative behavior from all partners.
➢ A competitive advantage developed through such
cooperation.
Strategic Alliance

Firm A Firm B
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Combined
Resources
Capabilities
Core Competencies

Mutual interests in designing, manufacturing,

or distributing goods or services
Reasons for Strategic Alliances
Market Reason
Slow Cycle • Gain access to a restricted
Dassault – market
Reliance JV
• Establish a franchise in a new
market
Reasons for Strategic Alliances (cont’d)
Market Reason
Fast Cycle • Speed up development of new
TCS- goods or service
Mitsubishi
Corporation • Speed up new market entry
JV • Maintain market leadership
• Form an industry technology
standard
• Share risky R&D expenses
• Overcome uncertainty
Reasons for Strategic Alliances (cont’d)
Market Reason
Standard Cycle • Gain market power
Tata Projects • Gain access to complementary
Limited - China resources
Harbour • Establish economies of scale
Engineering • Overcome trade barriers
Company JV for • Meet competitive challenges from
Mumbai Metro other competitors
• Pool resources for very large
capital projects
• Learn new business techniques
Most Common Reason: Gaining Access to
Emerging Technologies
Access to technology and innovation are
increasingly driving alliances
Key differences between alliances and M&A
• Joint Venture
➢ Two or more firms create a legally independent
company by sharing some of their resources and
capabilities.
Common challenges that can derail alliances

“Forming alliances can be challenging, but with a sound strategy and

thoughtful planning and execution, the opportunity to reap the benefits is
huge.” Greg McGahan, Partner, US Alliances Services Leader, PwC
 Seven factors for a successful strategic
alliance or joint venture (1)
• Put strategy first
➢ Start with a strategy, not a partner, facilitate clarity
around core capabilities, tradeoffs, and strategic
priorities
➢ Be clear on why and how this alliance helps execute
your strategy more effectively than organic growth
➢ Consider the bigger picture and the alternatives -
market trends, competitor actions, and whether the
alliance would be better as a JV or an acquisition
 Seven factors for a successful strategic
alliance or joint venture (2)
• Invest in joint upfront planning
➢ Invest the time upfront to plan collaboratively with
your partner; get to know them, their track record,
learnings from previous alliances, and their
culture/way of working; identify and pursue common
objectives
➢ Jointly develop a compelling business case based on
incremental sources of value, and how these will be
delivered
➢ Agree on desired culture and behaviors and
appropriate incentives to drive these; choose the right
people
➢ Establish clear governance, responsibilities, and
decision rights
 Seven factors for a successful strategic
alliance or joint venture (3)
• Plan the end
➢ Consider the circumstances that might lead to
dissolution, and agree on a formal process
➢ Decide what will happen to any shared assets and
people after the dissolution
• Create trust
➢ Make and live up to small, ongoing commitments;
facilitate equity (each party proportionately being
rewarded based on what they put in); cooperate with
one another; be open and transparent; be willing to
adapt; celebrate successes
➢ Adopt a ‘win-win’ mind-set; focus on growing the
whole pie, not securing the biggest slice
 Seven factors for a successful strategic
alliance or joint venture (4)
• Start small
➢ Begin with a narrow, achievable shared objective;
manage expectations, focus, and aim for early
success
➢ Expand your joint ambitions as trust and confidence
grows
• Keep track
➢ Agree on the metrics that will reflect success at
achieving the alliance’s objectives
➢ Adjust metrics as the alliance evolves
 Seven factors for a successful strategic
alliance or joint venture (5)
• Build enterprise-wide capability
➢ Establish a dedicated corporate alliance management
function to oversee alliance activity
➢ Use this function to codify and share leading
practices, drive collaboration, provide expertise,
coordinate relationships with key partners, and
ultimately create an enterprise-wide ‘alliance culture’
 Few Quotes
• “Foreign companies form JVs to test waters,” says Uday Kotak,
executive vice-chairman, Kotak Mahindra Bank. “If they like the
market, they either buy out the local partner, even if it means
paying an exorbitant premium, or sell out at a throwaway price
to start afresh under full control.”

• Company insiders say Honda, the Japanese partner, wanted a

greater say in decision-making, particularly in sourcing parts
from original equipment manufacturers (OEMs), which the
Munjal family wasn’t willing to concede. “Friends and associates
of the Munjals control substantial part of Hero Honda’s OEM
business,” says an institutional investor who has tracked the
company for about two decades. Another point of disagreement
was over expansion: the Munjals wanted to expand abroad, but
Honda wanted to keep it to India only. “There can’t be two
leaders in a company”.
 Managing the
Internationalization
Process
Prof. Arindam Mondal
XLRI Jamshedpur
 Motives for Internationalization
• Why would a company want to invest in a foreign
location, given that it is risky and involves high
commitment of resources?
• According to John Dunning, there are four motives for
establishing a foreign investment:
1. Natural resource seeking
2. Market seeking
3. Efficiency seeking
4. Strategic asset seeking
 Obstacles to Internationalization
Difficulties of internationalizing firms can be the result of at least four
different types of “liabilities”:
• liability of newness: difficulties as a result of being new to a market
• liability of expansion: difficulties as a result of an increase in the scale
of a firm’s activities
• liability of foreignness: difficulties as a result of different norms and
rules that constrain human behavior. Companies may lack the knowledge
and social networks to understand the different norms and rules of how to
operate successfully in a foreign country
• liability of smallness: difficulties as a result of small company size
Internationalization of a French retailer—
Carrefour
• In 1960, Carrefour opened its first supermarket in France. In 1963,
Carrefour invented a new store concept—the hypermarket. The hypermarket
concept was novel and revolutionized the way French people did their
shopping. It moved daily shopping from small stores to enormous stores
where customers find everything, they want under one roof, in addition to
self-service, discount price, and free parking space. The first Carrefour
hypermarket store was established at the intersection of five roads—hence
the name, Carrefour, which means ‘crossroads’. Carrefour is the leading
retailer in Europe and the second largest worldwide, with more than 15,000
stores in 30 countries.
 Internationalization of a French retailer—
Carrefour
• When Carrefour expanded in China, for example, it faced the liability of foreignness
(Carrefour was targeted in a consumer boycott by Chinese nationalists in 2008 because
it was a French company);
• the liability of expansion (Carrefour faced transportation, communication and
coordination problems because of China’s vast geographical size, therefore it needed to
establish eleven regional procurement centres);
• and the liability of newness (Carrefour did not initially know where to find the best
local suppliers and how to deal with local government authorities, therefore it had to
rely on the knowledge of local Chinese joint venture partners)
Another Obstacle to Internationalization:
The Perceptions of Managers
• Subjective perceptions of managers about foreign markets are
often the key reasons why companies decide to expand
internationally in a certain direction.
• Managers do not like uncertainty and they normally prefer to
invest in markets they are familiar with rather than in unfamiliar
markets.
• High psychic distance (that is, subjective perceptions of the
differences between characteristics of a firm’s home country and a
foreign country ) can discourage the firm’s international expansion
into a given country because it generates uncertainties among
business decision-makers.
 How to decide on the Internationalization
Process?
• Two researches: Jan Johanson & Jan-Erik Vahlne from the Uppsala
University, Sweden wrote the “Uppsala Internationalization Process Model”.

• The Uppsala model explains the characteristics of the internationalization

process of the firm.
 The Uppsala Model
• The Uppsala Model suggests that a firm’s international expansion is a
gradual process dependent on experiential knowledge and incremental
steps.
• It assumes that firms proceed along the internationalization path in the
form of logical steps, based on the gradual acquisition and use of
information gathered from foreign markets and operations, which
determine successively greater levels of market commitment to more
international business activities. Thus, the model dictates a “series of
incremental decisions”.
• Internationalization frequently started in foreign markets that were close
to the domestic market in terms of psychic distance.
The Uppsala Model
 ANALYSIS - UPPSALA MODEL
Mode of
operation
No exporting/ Exporting via an Foreign sales Foreign
Market Sporadic exports agent subsidiary production and
(country) sales subsidiary
Increasing market commitment
Market A

Market B Increasing geographic diversification

Market C

Market D

Market N

FDI
 International expansion of
McDonald’s
The McDonald’s internationalization process started in Richmond, British
Columbia, Canada and in San Juan, Puerto Rico. These markets were followed by
U.S. Virgin Islands, Costa Rica and Guam in early 1970s, what shows the strategy
of entering markets similar to the US one. It enabled McDonald’s to offer the same
products and to get rid of the possible problems connected with the necessity of
adjustments to specific local conditions (Uppsala model). The success in Americas
motivated them to expand to countries such as: the Netherlands, Japan, Australia,
Germany, France and the UK. After successful simultaneous operations in cultural-
close markets, McDonald’s decided to enter more distinct markets, especially the
Middle East and Asian markets.
 Emerging Market
Multinationals – Redefining
Global Competitive
Dynamics
Prof. Arindam Mondal
XLRI Jamshedpur
 What is an emerging economy?
• A nation with an economy that is progressing towards developed status.
• An economy with a high annual growth rate, measured using gross domestic
product (GDP).
• Growth may be taking place across a wide variety of economic sectors, including
services as well as manufacturing exports.
• The BRIC and MINT nations are important and big emerging economies.
 Common Traits of Big EM
• Physically large
• Significant populations
• Represent markets for a wide range of products
• Strong rate/potential of/for growth
• Undertaken programs of economic reform
• Major political importance within their regions
• Institutional voids
 The MINT group
• In 2014, Jim O’Neill focused his attention on four more emerging economies:
Mexico, Indonesia, Nigeria and Turkey.
• Nigeria is a major oil exporter.
• Mexico belongs to NAFTA and the OECD, two important multi-governmental
organisations.
• Indonesia has been a major beneficiary of global shift and the off-shoring of
manufacturing by developed countries (it also has the world’s fourth largest
population).
• Turkey is a geopolitically important country which some people view as a
‘bridge’ nation between the west and the Islamic world.
BRIC and MINT
Growth trends
The BRIC and MINT
nations are out-
performing the
developed world

Global growth
was interrupted
by the ‘credit
crunch’ in 2008
OFDI by India
THE EXPANDING REACH OF BCG GLOBAL
CHALLENGERS
Obstacles to Internationalization
▪ Along with other
“liabilities”, firms from
emerging markets face
another type of liability:
▪ the liability of
emergingness due to
negative ‘country-of-
origin’ effect
▪ Why? Attitudes, beliefs
and perceptions about the
country affect the
consumer decision making
 How to overcome the
liabilities of emergingness?
 Linkage, Leverage and Learning Model of
Internationalization (Mathews, 2006)
• A framework for capturing the essence of catch-up strategies in a global setting
• Linkage – abundance of opportunities to make connections in era of globalization (contracting
and sub-contracting networks)
• Haier (Zero to Rs 3,500 crore in 15 years) – initial links with Liebherr
• Ranbaxy– links with Eli Lilly
• Hero – links with Honda
• Leverage – abundance of ways of accessing technologies through such linkages, e.g. technology
licensing; OEM contracting
• Learning – repeated application of linkage and leverage
• Technology partners help them to reduce their ‘negative country-of-origin’ image.
• None of these concepts can be found in economics: all come from strategy
Top 10 Brands for China, Korea and India,
2017
GLOBAL CHALLENGERS OUTPERFORM
OVER THE LONG RUN
4
0
The American Model of the Multinational
Firm and the “New” Multinationals From
Emerging Economies
GROWING THROUGH ACQUISITIONS
GROWING THROUGH ACQUISITIONS
 Global Enterprise DNA
In 2004, Ratan Tata, then Chairman of Tata Sons, summed up the
Tata group’s efforts to internationalize its operations thus: “I hope
that a hundred years from now we will spread our wings far beyond
India, that we become a global group, operating in many countries,
an Indian business conglomerate that is at home in the world,
carrying the same sense of trust that we do today.”
EMERGING MARKET COMPANIES ARE GAINING
SHARE IN THE DIGITAL SPACE
 Summary of the argument
• Emerging MNEs are the most interesting cases in global economy today
• Emergence of these firms on global stage is happening faster than
anticipated
• These firms are making full use of their latecomer advantages, capturing
competitive advantages through global mindset and prudent M&A strategies
INTERNATIONAL STRATEGY
INTERNATIONAL DIVERSIFICATION

Strategy through which a firm expands

the sales of its goods or services across
the borders of global regions and
countries
THE CAGE FRAMEWORK: COUNTRY-LEVEL
ANALYSIS
Cultural Differences Administrative Geographic Economic
Differences Differences Differences
▪ Different ▪ Lack of colonial ▪ Physical ▪ Differences in
languages ties distance consumer
▪ Different ▪ Lack of shared ▪ Lack of land incomes
ethnicities/lack regional trading border ▪ Differences in
of connective bloc ▪ Differences availability of
ethnic or social ▪ Lack of common in climates natural
networks currency (and disease resources,
▪ Different ▪ Different legal environment) financial
religions system resources,
▪ Different values, ▪ Political hostility human
norms resources,
▪ Differences in infrastructure,
national work information or
systems knowledge
 HOFSTEDE’S CULTURAL DIMENSIONS
THEORY
A framework used to distinguish between different national cultures and cultural
dimensions, and their impact on a business setting
HOFSTEDE’S CULTURAL DIMENSIONS
THEORY

https://www.hofstede-insights.com/country-comparison/
IS IT IMPORTANT ENOUGH TO BE WORTH
THE COMPLEXITIES?

You do not choose to become global.

The market chooses for you; it forces
your hand.
Alain Gomez, CEO, Thomson, S.A.

“. . . there’s no purely domestic industry

anymore.”
Morgan Stanley
https://www.youtube.com/watch?v=Bblo8_B32Co
WHY COMPANIES GO INTERNATIONAL?
SOME REASONS
▪To enter more favorable markets, e.g., faster
growing, more profitable, better government climate...
▪To reach new customers
▪To gain access to lower-cost labor markets and/or
key/lower-cost raw materials
▪To spread business risk across a wider base
▪To gain other advantages inherent in location
Exports and Imports by India
HOW COMPANIES SUCCEED IN INTERNATIONAL
MARKETS?
❑How certain companies based in certain nations became ‘global
champions’ in that industry? How do they ruthlessly pursue
improvements, seeking an ever more sophisticated source of
competitive advantage? How are they able to overcome the
substantial barriers to change and innovation that so often
accompany success?

❑Home-market conditions are important. Companies gain

advantage against the world’s best competitors because of
pressure and challenge. They benefit from having strong domestic
rivals, aggressive home-based suppliers, and demanding local
customers. No nation can or will be competitive in every or even
most industries. Ultimately, nations succeed in particular industries
because their home environment is the most forward-looking,
dynamic, and challenging.
DETERMINANTS OF NATIONAL ADVANTAGE
DETERMINANTS OF NATIONAL ADVANTAGE
Factors of Production
 Inputs – Labour, land, natural resources, capital & infrastructure
Demand Conditions
 The nature and size of the buyers need in the home market
Related & Supporting Industries
 Industries in which the target country is considered the leader
e.g. Italy - shoes with a supporting leather industry,
Denmark - diary & an industry focused on food enzymes.
Firm Strategy, Structure & Rivalry make up
 Germany focused on methodical product & process improvements
 Italy’s national pride of designers helped spawn fashion apparel, furniture
& sports car industries.
THE DIAMOND MODEL AND THE FLOWER
INDUSTRY
THE DIAMOND MODEL AND THE FLOWER
INDUSTRY
 INTERNATIONAL STRATEGY OPPORTUNITIES & OUTCOMES
Identify Explore Use Core Strategic
International Resources & Competence Competitiveness
Opportunities Capabilities Outcomes
International Modes of Management
Strategies Entry Problems, Risk,
and First Steps
Market
Increased International Exporting
Market Size
seeking Business Level
Strategy Higher
Efficiency
Return on Licensing
Performance
Investment
seeking Multidomestic
Strategic Returns
Strategy
Resource
Economies Alliances
of Scale and
seeking Global
Strategy Acquisition Innovation
Learning
Strategic
Asset
Location Transnational Establishment
seeking
Advantage Strategy of New Sub.
Management
Problems, Risk,
and First Steps
 INTERNATIONAL STRATEGIES
International Business Level Strategies
International Corporate Level Strategies
 Multi-domestic Strategy
 Global Strategy
 Transnational Strategy
INTERNATIONAL CORPORATE-LEVEL STRATEGY
 MULTI-DOMESTIC STRATEGY
(PRODUCT DIFFERENTIATION STRATEGY)
Decentralized strategy;
Products and services tailored to local markets;
Focus on competition in each market; and is a:
prominent strategy among European firms due to broad
variety of cultures and markets in Europe
A great example of a multidomestic company is Nestlé.
Nestlé uses a unique marketing and sales approach for
each of the markets in which it operates. Furthermore, it
adapts its products to local tastes by offering different
products in different markets
GLOBAL STRATEGY
(COST LEADERSHIP STRATEGY)
Products are standardized across national
markets;
Emphasizes economies of scale;
Lacks responsiveness to local markets; and
Requires resource sharing and coordination
across borders
Example: Intel, Microsoft
TRANSNATIONAL STRATEGY
Seeks to achieve both global efficiency (cost leadership)
and local responsiveness (product differentiation)
Difficult to achieve because of simultaneous requirements
for strong central control and coordination to achieve
efficiency and local flexibility and decentralization to
achieve local market responsiveness.
For example, large fast-food chains such as McDonald’s
and KFC rely on the same brand names and the same
core menu items around the world. These firms make some
concessions to local tastes too. In France, for example,
wine can be purchased at McDonald’s. This approach
makes sense for McDonald’s because wine is a central
element of French diets.
 Entry Modes of International Expansion
High Wholly Owned
Subsidiary
Extent of Investment Risk

Joint Venture

Strategic Alliance

Franchising

Licensing

Exporting
Low
Low High
Degree of Ownership and Control
Adapted from Exhibit 7.7 Entry Modes for International Expansion
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 7-31
CHOICE OF INTERNATIONAL ENTRY MODE
Exporting
➢Common way to enter new international markets.
➢No need to establish operations in other nations.
➢Establish distribution channels through contractual
relationships.
➢May have high transportation costs.
➢May encounter high import tariffs.
➢May have less control on marketing and distribution.
➢Difficult to customize product.
CHOICE OF INTERNATIONAL ENTRY MODE
LICENSING

Firm authorizes another firm to manufacture &

sell its products -
Licensing firm is paid a royalty on each unit
produced and sold.
Licensee takes risks in manufacturing investments.
Least risky way to enter a foreign market.
Licensing firm loses control over product quality &
distribution.
Relatively low profit potential.
CHOICE OF INTERNATIONAL ENTRY MODE
STRATEGIC ALLIANCES
Enable firms to shares risks and
resources to expand into international ventures.
Most joint ventures (JVs) involve a foreign corp. with
a new product or technology & a host company with
access to distribution or knowledge of local customs,
norms or politics.
May experience difficulties in merging disparate
cultures.
May not understand the strategic intent of partners
or experience divergent goals.
CHOICE OF INTERNATIONAL ENTRY MODE
ACQUISITIONS

Enable firms to make most rapid international

expansion.
Can be very costly.
Legal and regulatory requirements may
present barriers to foreign ownership.
Usually require complex and costly
negotiations.
Potentially disparate corporate culture.
CHOICE OF INTERNATIONAL ENTRY MODE
NEW WHOLLY-OWNED SUBSIDIARY –
Greenfield Venture

Most costly & complex of entry alternatives.

Achieves greatest degree of control.
Potentially most profitable, if successful.
Maintain control over technology, marketing and
distribution.
May need to acquire expertise & knowledge that
is relevant to host country.
Could require hiring host country nationals or
consultants at high cost.
 POLITICAL RISK
❑ National government instability may create
potential problems for internationally
diversified firms.
❑ Potential changes in attitudes or
regulations regarding foreign ownership.
❑ Legal authority obtained from previous
administration may become invalid.
❑ Potential for nationalization of firms’ assets.
 ECONOMIC RISK
❑ Econ. risks are interdependent with political risks.
❑ Differences and fluctuations in international
currencies may affect value of assets & liabilities.
This affects prices & thus ability to compete.
❑ Differences in inflation rates may affect inter-
nationally diversified firms’ ability to compete.
❑ Enforcing retrospective taxation laws.
INTERNATIONAL STRATEGY IMPLEMENTATION
❑ Usual considerations in planning actions:
❑ Resources
❑ Support
❑ Reward systems
❑ Timing
❑ Organization structure
❑ Culture
❑ Tracking & control systems

❑ Needs for partners (choice and relationships are

critical)
❑ Organizing (decentralization vs. centralization)
❑ Staffing
❑ Manage key cultural differences:
❑ Hofstede analysis