Ameco's international Strategic Alliance

Case Analysis presented by

Aldana, Faysury
Salazar, Deylin
Solano, Juan
Tello, Valentina

1. Why did Ameco's business aircraft modification business adopt an

international strategy?

Ameco’s aircraft modification business adopted an international strategy based on

client data.  They were dependent on domestic customers too much, and since half of
the aircraft they worked with decided to seek such services in nearby countries, which
led to a decrease in domestic demand so the threat of substitute products can be
considered medium to high. 
On the other hand, the bargaining power of suppliers in this business can be
considered medium, due to Ameco purchases most of its products from domestic
suppliers, which gives them an advantage in terms of costs, unlike some other products
from international suppliers, which are almost twice as expensive. Also, the bargaining
power of buyers can be medium as well because it purchases most of its products from
domestic suppliers, which would allow them to offer lower prices for its services.
In addition, the threat of new entrants in the aircraft modification business can be
considered as low to medium due to Ameco’s focus on a completely different segment
of the market such as modifying large business aircraft instead of the smaller aircraft
most companies were specialized in, therefore, they wouldn’t compete directly with US
or European companies, which is an advantage that would allow them to stand out in the
market.
Even though the current competition in the marketplace could be high because
there are already many well-known companies who are stronger and more stable and as
mentioned above, Ameco is at an advantage for being from a different segment, and in
terms of the local market, they were the only aircraft modification company that
possessed a license to enter the international market. (See exhibit 1)
For this reason, looking overseas is the only and best option due to their current
situation this would allow them to gain more customers by establishing themselves not
only by low prices but also, due to their focus on a completely different segment of the
market and their production capacity and technology were above their competitors
would allow them to meet several requirements that their competitors wouldn’t meet.
2. What models for entering international markets had Ameco tried?
What was the company's final choice, and why?

Ameco’s staff held a meeting where they analyzed the best way to enter an
international market, and some strategies came out of it, such as licensing, franchising,
setting up subsidiaries abroad or service contracts (see Exhibit 2).
Firstly, licensing would not work because Ameco as a brand was not well known
overseas, which wouldn’t benefit the licensees due to the lack of profits they would
receive from them also because of their lack of patented technology, it wouldn’t be
attractive to other licensees to purchase their licenses. Therefore, franchising would not
work either because it needs licensing and setting up an overseas subsidiary could be
too much to handle which it could not guarantee that Ameco would recover the
investment, which is too risky.
Even though Ameco is capable of meeting the domestic demand; it doesn’t have
the capacity, technology, the capital to pay for new equipment, employees and establish
overseas facilities nor a partner who could be Ameco’s representative abroad, which
would make it impossible to succeed in this new market. 
For this reason, looking for a business partner was the most suitable for them
due to the situation they found themselves in, and it was their final choice and the one
they tried. Ameco’s role within this partnership would be exporting its services by
contracting with international clients and serving their aircraft in China before sending
them back; it would work as an independent company but be involved in joint projects.

3. How did Ameco choose a strategic partner?

After all the meetings and strategies to enter the international market such as
licensing, franchising, setting up subsidiaries abroad or service contracts; in which the
licensing model, franchising and setting up subsidiaries abroad would not be the best
option due to lack of recognition, the lack of patented technology or enough capital to
pay for new equipment, employees or establish overseas facilities and the best plan was
export its services by contracting with international clients and serving their aircraft in
china before sending them back.
Ameco's decision to look up and choose a strategic partner began because of the
experience they had at the Asian Business Aviation Conference & Exhibition
(ABACE), where they realized that even though they have superior technology and
attractive prices were not sufficient to attract overseas clients by themselves due to their
fear that the lack of facilities and agents outside China would become a problem in
providing good and complete services. This experience made them realize that without
having a partner it was impossible to succeed in the international market and finding a
business partner from another country who had the resources they need was the best
option.
 Its first partnership was with Airgreen AG (AAG), a U.S. company that had
advanced technology, innovative manufacturing equipment, an extensively developed
management system, expertise in design, engineering, etc., but above all, it had a
significant international market share, which was what Ameco was interested in and
AGG was looking for Ameco's low-cost manufacturing capability. Thus, the formal
association was confirmed so that both companies would benefit from it and for this
reason they reached an agreement to exchange information regarding their customers.
This agreement was not fulfilled by both parties, since AGG withheld its information
and on the contrary had access to Ameco's information to such an extent that it sought
to connect with customers independently, which led to the termination of the formal
association between the two companies.
Despite its bad experience in alliances with international companies, years later
Ameco was still pursuing its goal of internationalization despite having made great
advances in its technology, infrastructure, etc. independently, so it decided to sign a
contract with a subsidiary of Lufthansa, Lufthansa Technik AG (LHT). Ameco was
hesitant to confirm the contract, as they did not want the same thing to happen as with
AGG, so LHT was able to demonstrate and gain their trust by letting them understand
that they were a company that had worldwide participation and needed a partner like
Ameco to ensure their compliance with customers, increase their market share by
providing the possibility of making such facilities in the Asia-Pacific region generating
a 50/50 win-win for the companies. As a vote of confidence, LHT handed over its
customers' information to Ameco in order to provide security.
Finally, the subsidiary agreement was signed in order to start the strategic
planning that would drive both companies forward. These strategies consisted of
cooperation groups that were divided into three groups: First, the marketing and sales
group, which consisted of exchanging market information with the objective of
attracting customers; second, the project management, which consisted of generating
possible strategies that would benefit both parties, one of which was for Ameco to learn
more about LHT's production process to become its main service provider for its
aircraft; and third, the design, research and development group that focused on allowing
both companies to acquire the design concepts used by the others. The implementation
of the cooperative groups created success for Ameco and LHT, as they always worked
closely together.

4. What international strategic alliance model did Ameco and its

strategic partners Apply?

In 2018, Ameco and LTH applied a type of subsidiary model, could say that they
did an international Joint Venture (IJV). In the case of an IJV is not important the
creation of separate legal entities if we want to create a significant number of
international strategic alliances. Considering that an IJVs looks the cooperate between
the parts this involve activities such as development of a product or technology, or the
promotion of a new product (Jean L , B. Cullen, Sakano , & Takenouchi, 1996). This
type of alliances provides a means of doing business in the global economy.

It was significant progress for Ameco, however, the purpose of create a strategic
integration involves dependence on partner firms this would be a problem for Ameco,
because the company had internal problems like low force in the Asia-Pacific market,
need improve the channels of suppliers, production processes and manufacturing
technology standards, little knowledge about the Asia-pacific market and how know to
enhance the user experience.
According with the lecture trust and integration in alliances, the objective to
form an alliance is contribute unique strengths and resources valued by the partners
(1996)such agreement provides market knowledge and offering technical expertise.
Getting a partner is important if you want to do to grow up your company. Form
an alliance is like complement in terms of strategic symmetry, because is an
interdependence between two companies where both complement to each other and thus
build contribute to a balance of strengths.
After One year, they formalized their alliance, they set up specified terms of
cooperation to operation correctly, both sides agreed in reporting key progress, it helped
to improve processes like integration vertical and horizontal. Because the companies
should share outcomes like sales result, sales methods and other aspects that help to
grow up to the company, it helps to create trust between them and the dialogue is
relevant because achieve to resolve internal or external problems (Jean L , B. Cullen,
Sakano , & Takenouchi, 1996)
To achieve all of it, Ameco and LHT used their expanded factories, digital
management technologies, technical resources, client channels, industrial design,
suppliers, and other skills.
For Both sides it was a mutually beneficial alliance because the co-operation did
that appeared in Ameco the necessity of learning from LHT about how to enhance the
user experience and others analytic tools and LTH wanted to learn more about the
market of clients from Asia.

5. What problems did Ameco face in the process of co-operating with

alliance partners? How did Ameco solve these problems? 

To start with, it’s important to mention that nowadays the strategic alliances are
so much , one of them has a fast successful, other of them go slow but sure, and other
unfortunate have had to undo. But the companies try to apply alliances because they
help to generate new relationships, to achieve internal improvement, to achieve stability,
obtain higher income, among other but to achieve these goals it is necessary or usually
necessary to overcome obstacles in the process. 
According to the document prepared collectively by members of the OECD
LEED Forum, some of the most common issues that companies  can face when they are
alliance that and for which them the alliances can become inefficient can be: that
partners do not share the same values and interests , there is no sharing of risk,
responsibility, accountability or benefits, the inequalities in partners’ resources and
expertise determine their relative influence in the partnership’s decision making, so one
person or partner has all the power and/or drives the process’, and partnership members
do not have the training to identify issues or resolve internal conflicts. (OECD LEED,
2006)
Therefore, in this case, when Ameco looked for a partner as a strategy to enter
into internationalization, it finally thought that the best option to penetrate foreign
markets was to ally with THL, consequently they had to face some of that problems
while they started the integration with THL, they were issues like: Ameco was afraid of
sharing their information about customers and potential projects, it was because they
had had a bad situation with other company (AAG) with who had tried create a strategy
alliance before and who took all the information that ameco bring it, it accumulated all
the information they had to share with ameco even though they had agreed to
interchange data bases as an objective of the alliance. 
One problem that they had when started the alliance with THL was the mistrust
and fear although this could be associated with one of the problems mentioned above
and it could be that one of the parties has power over the other, in this case it would be
because Ameco hesitated to share valuable information about its company with another
for fear that it would take that vote of confidence and start manipulating everything to
grow alone, and have the management of Ameco. Definitely that experience was not so
good, but in the alliance with THL everything was different, they could solve this
situation having a communication directly by managers, so they proposed to share data 
about consumers channels, or about possible projects in the future, with that they put in
motion the first step for a good partnership.
Another complication with this alliance was the low production capacity that
AMECO had, as it lacked both intelligent and advanced devices and machinery, and
therefore did not have the knowledge to make use of them. Accordingly, even when
LHT made the delivery of these resources Ameco needed support and training in this
area, understanding this, this alliance in its beginnings lost an opportunity in China,
which led Ameco to not be able to obtain the experience it longed for, hoping to find the
perfect time to put into practice its alliance and get seniority in the market. 
If analyzed in this way, this is also one of the most common problems that arise
in the generation of a cooperation between companies that want to achieve
internationalization, as mentioned at the beginning "the inequalities in partners'
resources and expertise determine their relative influence in the partnership's decision
making" (OECD LEED, 2006)for that they missed an opportunity in China, because one
of the parties didn't have the experience and the elements to be equality to complement
the other party and take the cooperation forward.
As is well known, this alliance brought with it a long journey before its
formalization, since the parties were negotiating and agreeing on terms of cooperation,
among which were the terms of cooperation through which the creation of a committee
formed by the management and working groups of both LHT and AMECO, this
committee was named "group of projects, procedures and processes of the project",
which had as its objective the creation of the "project's projects, procedures and
processes group". The purpose of this committee was to promote mutual assistance
between companies, help in the generation of experience, help in the discussion of
issues regarding suppliers, advice on production processes and compliance with
manufacturing standards, among other things. So it was through the use of this group
that they found a solution to this issue as THL put into practice advising Ameco in all
these areas. 
Briefly the differences of ideas, by the creators and designers from both
companies was another of the difficulties they faced together, since when designers
from both companies met, while they were studying the interior design of the cabins,
they were not in tune with each other in terms of what each company usually executes,
and this was evident at the time of proposing what they wanted in the interior of the
cabins. This happened because both Chinese and German designers did not have a good
communication at the beginning, as it seems that both felt intimidated by the other and
had a very different way of expressing their ideas. 
Finally, as the members of the OECD LEED forum stated in their document,
another situation that is not so positive in alliances is that “partnership members do not
have the training to identify issues or resolve internal conflicts” (OECD LEED,
2006)and this was once the case in the collaboration of these two companies, since
when designers from both companies met, while they were studying the interior design
of the cabins, they were not in tune with each other in terms of what each company
usually does, and this was evident at the time of proposing what they wanted in the
interior of the cabins. This happened because both Chinese and German designers did
not have a good communication at the beginning, as it seems that both felt intimidated
by the other and had a very different way of expressing their ideas. However, this was
only a bad situation that AMECO and THL knew how to face, since finally through the
design group they put into practice the fusion of both pieces, the way of working of the
Japanese and the Germans, that is to say, they used the German technology together
with the aesthetics contributed by the Japanese designers, creating together a new
proposal for the market. 
EXHIBIT

Exhibit 1: Five forces model

Nature of Types of Location of Typical Foreign

International Focal Firm Foreign Market Entry Major Partners
Transaction Strategy Activities

Trade of products Large manufacturer Exporting Mainly abroad Company-owned 

office or
subsidiary

Licensor with Licensing Home Licensee

 Contractual patent
exchange of services
or intangibles
Licensor with Licensing Home Licensee
Know-how

Franchisor Franchising Home Franchisee

Service contractor Management/Marketing Abroad Business owner

service contracting or sponsor

Equity ownership is MNE Equally joint venture Abroad Local business

foreign-based partner(s)
enterprises

Exhibit 2:  International Entry Strategies

Referencies

OECD LEED. (January de 2006). Obtenido de OCDE:

https://www.oecd.org/cfe/leed/36279186.pdf
Porter, M. E. (1979). How Competitive Forces Shape Strategy. 102.
Jean L , J., B. Cullen, J., Sakano , m., & Takenouchi, H. (1996). Setting the Stage for
Trust and Strategic Integration in Japanese-U.S. Cooperative Alliances. En
Setting the Stage for Trust and Strategic Integration in Japanese-U.S.
Cooperative Alliances (pág. 981).
Chen, J., Li, C., Su, N., & Zongyang, L. (2020). AMECO´S INTERNATIONAL
STRATEGIC ALLIANCE. China management Case-sharing center.