STRATEGIC ALLIANCES
ISSUES
Stability
and risk
Failure rate of 30 to 60 percent
Even profitable alliances can be
torn by conflict
SUCCESSFUL ALLIANCES
MUST:
NOT ONLY MAKE STRATEGIC
SENSE BUT ALSO REQUIRE
GOOD IMPLEMENTATION
(SEE EXHIBIT 10.1 FOR STEPS
IN IMPLEMENTATION OF
STRATEGIC ALLIANCES)
Decide Link in
Value Chain
Begin Ov er
No
Select a
Potential
Partner
Acceptable?
Yes
Choose an
Alliance Type
Negotiate an
Agreement
Build the
Organization
Build Trust
and
Commitment
Assess
Performance
Terminate
or
Rev ise
Implementation
No
Meets
Strategic
Obj ectiv es?
Yes
Continue or
Increase
Inv olv ement
WHERE TO LINK IN THE
VALUE CHAIN?
Depends
on the objectives that
the firm seeks to achieve
Exhibit 10.2 gives some examples
of common links in the value
chain
Company
A
R&D
Company
B
R&D
Input
Logistics
R&D
Input
Logistics
Supply/
Production
Operations
Operations
Operations
Production/
Marketing
Marketing
and Sales
Marketing
Marketing
and Sales
Output
Logistics
Delivery
Output
Logistics
Service
Service
EX 10.3 VALUE CHAIN LINKS
IN U.S. ALLIANCES
60
50
C anada
or
M exico
40
% 30
W.
Europe
or Japan
20
Other
Prod./M kt.
M kt.
Oper.
0
R&D
10
Others
SELECTING A PARTNER: THE
MOST IMPORTANT CHOICE?
Seek
– Strategic
complementarity
– Skill complementarity
– Compatible management
styles
ISSUES TO CONSIDER IN
CHOOSING A PARTNER
The level of mutual dependency
The "anchor" partner
The "elephant and the ant"
complex
Operating policy differences
Difficulties of cross-cultural
communication
TYPES OF STRATEGIC
ALLIANCES
Informal
international
cooperative alliances
Formal international cooperative
alliances
International joint ventures
INFORMAL COOPERATIVE
ALLIANCES (ICAs)
Nonlegally
binding agreements
between companies from two or
more countries
Limited involvement between
companies
FORMAL COPPERATIVE
ALLIANCES
Higher
degree of involvement
than informal ICAs
Formal contract
Popular in high tech industries
because of high costs and risks
INTERNATIONAL JOINT
VENTURES
Separate
legal entity owned by
two or more parent companies
from different countries
No need for equal ownership
Equity based on cash or other
contributions
EX 10.5 TYPES OF
ALLIANCES: SUMMARY
Alliance
Type
Degree of
Involvement
Ease of
Dissolution
Visibility to
Competitors
Contract Legal
Entity
Informal
ICA
Usually
limited in
scope
Easy, at the
convenience
of either side
Often
unknown to
competitors
No
None
Formal lCA Deeper
involvement
More difficult Often visible
Yes
to dissolve
to competitors
prior to end
of contract
None
IJV
Most difficult
to dissolve
Yes,
Deep
involvement
High visibility
Yes
NEGOTIATING THE
AGREEMENT
Joint
venture contracts: legal
documents that bind partners
together
The formal agreement is not as
important as the ability of
managers to get along
EXHIBIT 10.6 ISSURES IN
ALLIANCE AGREEMENTS
For both ICAs and IJVs
– Under which country’s law does
the agreement operate?
– How will profits be divided?
– Do you need a prenuptial
agreement?
Primarily
for IJVs
– What are the equity
contributions of each
partner?
ORGANIZATION DESIGN IN
STRATEGIC ALLIANCES
DECISION MAKING CONTROL
Majority
ownership does not
necessarily = control
Operational decisions
Strategic decisions
MANAGEMENT STRUCTURES
DOMINANT PARENT
One parent controls strategic
and operational decision making
Dominant parent often has
majority ownership
Dominant parent treats the IJV
as wholly owned subsidiary
SHARED MANAGEMENT
Both
parents contribute
approximately the same number
of managers to the board of
directors, the top management
team, and functional area
management
SPLIT CONTROL
Partners
usually share strategic
decision making
Partners split functional decision
making
INDEPENDENT MANAGEMENT
IJV
managers act like managers
from a separate company
IJVs often recruit managers
from outside the parent
companies
ROTATING MANAGEMENT
Key
positions rotate among
partners
Popular in developing countries
Trains management talent and
transfers expertise
CHOOSING AN ALLIANCE
MANAGEMENT STRUCTURE
If
one parent has dominant
equity position
– Dominant management
structure more likely
Equal
ownership
– Shared, split, or rotating
management structure
preferred
Similar technologies or knowhow
– Shared management structure
preferred
If
different technologies or
know-how
– Split management structure
preferred
If the venture has more strategic
importance to one partner
– Dominant management
structure preferred
HUMAN RESOURCE
MANAGEMENT IN STRATEGIC
ALLIANCES
The
HRM functions of an IJV
are more complex because
managers (and sometimes
workers) come from two or more
firms or from two or more
cultures
HRM ISSUES
HRM planning
Parent involvement
Staffing the alliance
management and technical
personnel
Staffing the alliance workforce
Assigning managers strategic or
operations tasks
HRM ISSUES (CONTINUED)
Performance
assessment
Loyalty
Career
development
Cultural differences
Training
COMMITMENT AND TRUST: THE
SOFT SIDE OF ALLIANCE
MANAGEMENT
Without
trust and commitment
the JV will fail entirely or never
reach its potential
TRUST
The
confidence that the partner
will deliver on their expected
contributions to the joint venture
“Trust cycles”
WHY IS TRUST IMPORTANT?
Required
for IJV participants to
contribute tacit knowledge and
quality inputs
Weakness of formal contracts
can never identify all the issues
KEY FACTORS FOR
COMMITMENT
Pick your partner carefully
Know your strategic goals and
your partner's
Seek win-win situations
Go slowly
Invest in cross-cultural training
Invest in direct communication
ASSESSING ALLIANCE
PERFORMANCE
Match
strategic objectives with
performance measures
EXHIBIT 10.8 SELECTED
PERFORMANCE CRITERIA
FOR STRATEGIC ALLIANCES
Management Processes
Organizational Learning
Competitive
Marketing
Financial
IF THE ALLIANCE DOES NOT WORK
Negotiate an end or improve
implementation
Know when to quit/invest more
Avoid “escalation of
commitment”
Plan end - “prenuptial
agreements”
Death not always failure
CONCLUSIONS
The importance of international
strategic alliances
Most important decision:
picking the right partner
No set structure in ownership,
decision making control, or
management control