International Strategic Alliances Partnership & Cooperation
n External influences upon a firm’s decision to handle its international operations itself or to collaborate with other companies include:
n Physical factors:
n Political policies
n Legal practices
n Economic forces
n Societal factors:
n Behavioral factors
n Geographical influence
n Competitive environment:
n 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.
n Example: alliance between Motorola and Toshiba, Philips and Matsushita.
Drivers of International SA
n Technological Factors
n Fierce competition
n Rapidly changing technologies
n Shorter product life cycle
n High R&D cost
n Economize on production and research cost
n 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.
Firm should pursue strategic alliance when:
n 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.
n Pooling of expertise to create synergy.
Types of Alliance
n Vertical Relationship: formed between suppliers and buyers
n Horizontal Relationship: formed between rival firms.
Selecting & Managing Partner
n Partner related criteria:
n Partner characteristics
Selecting & Managing Partner
n Task related criteria:
n Financial resource
n Marketing resource
n Customer service
n Technical resources
n Organizational resources
n Production resources
ISA & Fit
n Strategic fit: strategic fit requires all partners to have similar resources and capabilities and to contribute same amount or resources and capabilities
n Operational fit: compatibility of processes, of information system, of profitability and cash flow.
n Cultural fit:
n corporate cultural fit: mgt style: employee participation, delegation of responsibility, decision making
n National cultural fit: long term vs. short term orientation
n Developed economies:
n Purpose: access to cheap labor, raw material, increasing customer base, experience
n Emerging economies
n Purpose: access to financial assets, technical capabilities, modern technologies.
n Relational risk: the probability and consequences of not having satisfactory cooperation’.
Opportunistic behaviors include:
n appropriating the partner’s resources,
n distorting information,
n harbouring hidden agendas,
n and delivering unsatisfactory products and services’.
n Relational risks are an avoidable-and quite problematic-element of strategic alliances.
n 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:
n Unprecedented fierce competition,
n Political change,
n Government policy change,
n Wars, strikes
n Internal factors such as ‘lack of competence in critical areas’.
n Part of the trick of managing an alliance successfully seems to be to build interpersonal relationships between the firms’ managers.
n 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.
n Reasons behind terminations:
n The collaborative relationships might break down in partner disputes that cant be resolved
n the alliance may accomplish its mission and therefore outlive its purpose
n Partner strategies may change eliminating the needs of alliance
n Adverse action by regulatory authorities force the alliance to break up
n Strategic alliances, in which two or more firms agree to cooperate for their mutual benefit, are becoming increasingly popular in international business.
n 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.
n The decision to form a strategic alliance needs to be based on a number of different considerations.
n Partners in a strategic alliance must be aware of several pitfalls that can undermine the success of their cooperative arrangement.