Prentice Hall 2003 Chapter 7 1

Global Alliances and Strategy Implementation

Chapter 7

Prentice Hall 2003 Chapter 7 2

Chapter 7 - Overview

Strategic alliances Global and cross-border alliances: Motivations and

benefits Challenges in implementing alliances Guidelines for successful alliances Strategic implementation Managing performance in international joint ventures Government influence on strategic implementation Cultural influences on strategic implementation E-commerce impact on strategy implementation

Prentice Hall 2003 Chapter 7 3

Strategic Alliances

Strategic alliances are partnerships between two or more firms which decide they can better pursue their mutual goals by combining their resources – financial, managerial, technological – as well as their existing distinctive competitive advantages.

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Alliance Categories

Joint ventures – when two or more companies create an independent company

Equity strategic alliances – in which two or more partners have different relative ownership shares (equity percentages) in the new venture

Nonequity strategic alliances – when agreements are carried out through contract rather than ownership sharing

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Global Strategic Alliances

Global strategic alliances are working partnerships between companies (often more than two) across national boundaries and increasingly across industries.

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Global and Cross-border Alliances: Motivations and Benefits

To avoid import barriers, licensing requirements and other protectionist legislation

To share the costs and risks of the research and development of new products and processes

To gain access to specific markets To reduce political risk while making inroads into a new

market To gain rapid entry into a new or consolidating industry

and to take advantage of synergies

Prentice Hall 2003 Chapter 7 7

Challenges in Implementing Global Alliances

“Perhaps the single greatest impediment managers face when seeking to learn or renew sources of competitive advantage is to realize that co-operation can represent another form of unintended competition, particularly to shape and apply new skills to future products and businesses.”

David Lei

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The Dual Role of Strategic Alliances(Exhibit 7-2)

Cooperative Economies of scale in tangible

assets (e.g., plant and equipment)

Upstream-downstream division of labor among partners

Fill out product line with components or end products provided by supplier

Limit investment risk when entering new markets or uncertain technological fields via shared resources

Competitive Opportunity to learn new

intangible skills from partner, often tacit or organization embedded

Accelerate diffusion of industry standards and new technologies to erect barriers to entry

Deny technological and learning initiative to partner via outsourcing and long-term supply arrangements

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The Dual Role of Strategic Alliances(contd.)

Create a “critical mass” to learn and develop new technologies to protect domestic, strategic industries

Assist short-term corporate restructurings by lowering exit barriers in mature or declining industries

Encircle existing competitors and preempt the rise of new competitors with alliance partners in “proxy wars” to control market access, distribution, and access to new technologies

Form clusters of learning among suppliers and related firms to avoid or reduce foreign dependence for critical inputs and skills

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The Dual Role of Strategic Alliances(contd.)

Alliances serve as experiential platforms to “demature” and transform existing mature industries via new components, technologies, or skills to enhance the value of future growth options

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Guidelines for Successful Alliances

Choose a partner with compatible strategic goals and objectives and one with whom the alliance will result in synergies through the combined markets, technologies, and management cadre.

Seek alliances where complementary skills, products and markets will result.

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Guidelines for Successful Alliances(contd.)

Work out with the partner how you will each deal with proprietary technology or competitively sensitive information – what will be shared and what will not, and how shared technology will be handled.

Recognize that most alliances last only a few years and will probably break up once a partner feels that it has incorporated the skills and information it needs to go it alone.

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Suggestions for Minimizing the Risk of IJVs in the CIS

Choose the right partner Find the right local general manager Choose the right location Control the IJV

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Dealing With Hard Currency Problems in CIS IJVs

Sell products to other foreign businesses within the Commonwealth that hold hard currency

Use IJV rubles to buy raw materials or other products that are marketable in the West – and for which hard currency is paid

Export products

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Potential Problems and Solutions for U.S. CIS IJVs(Exhibit 7-4)

Problems Financial infrastructure: hard

currency cash flow and repatriation; capital availability

Organized crime Access to materials and

supply; poor quality Infrastructure: transportation,

communication, banking Market access and distribution

Solutions Reinvest; vertical integration;

avoid hard currency deals; get local bank guarantees

Local relationships Vertical integration; make or

supply own Set up operational self-

sufficiency where possible Set up alliances; own systems

where possible

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Potential Problems and Solutions for U.S. CIS IJVs

(contd.)

Operational licenses; rights to assets and resources; liabilities under old system

Political risk

Strategic and reliability conflicts

Personnel and operational conflicts

Motivation; compensation

Validate with central and local authorities before commitment

Minimize by locating in New England or Far East if possible

Explore compatibility and background of partner

Hire local executives and general manager

Give respect; supply goods and services not accessible to employees

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Control Elements in an IJV Agreement(Exhibit 7-5)

Definitions Scope of operations Management• Shareholders and supervisory board

• Executive board

• Arrangements in event of deadlock

• Operating management

Arbitration Representations and warranties of each partner

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Control Elements in an IJV Agreement(contd.)

Organization and capitalization Financial arrangements Contractual links with parents Rights and obligations regarding intellectual property Termination agreements Force majeur Covenants

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Dimensions of IJV Control

The focus of IJV control – the scope of activities over which parents exercise control

The extent, or degree, of IJV control achieved by the parents

The mechanisms of IJV control used by the parents

These dimensions are complementary and interdependent

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Pervasive Influences on Strategy Implementation

Government policy Societal culture Internet

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E-Commerce Impact on Strategy Implementation

Due to the complexity of global trade, many firms decide to implement their global e-commerce strategy by outsourcing the necessary tasks to companies which specialize in providing the technology to organize transactions and follow through with the regulatory requirements. These specialists are called e-commerce enablers.