International Strategic Alliances

Partnership & Cooperation

Chapter-7

Introduction

External influences upon a firms decision to handle its international operations itself or to collaborate with other companies include: Physical factors:

Political policies Legal practices Economic forces Behavioral factors Geographical influence

Societal factors:

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

different markets more cheaply and faster.

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

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 makersFord, GM and Chrysler to develop an efficient battery. Pooling of expertise to create synergy.

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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.

Selecting & Managing Partner

Task related criteria:

Financial resource Marketing resource Customer service R&D Technical resources Organizational resources Production resources

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: consequences of cooperation'.

the probability and not having satisfactory

Opportunistic behaviors include: appropriating the partners 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.