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Strategic Management Fit:
(“The Enabling Role of Alliances for an Individual Firm” Multinational Strategic Alliances, Mockler)
1) Determining the strategic fit: Different strategic needs dictate
different alliance strategies
All organizations have their own set of strategies which govern all aspects of
the organization. Strategies help in guiding the organizations to achieve their long
term objective or goal.
Therefore, it is wise to notice here that strategies of all organizations are
different depending on many endless factors such as the nature of the business, the
nature of the industry, the level of competition, the outside forces and etc.
It can be concluded that each organization has its own needs which derive
different strategic needs. Different strategic needs, later on, derive different alliance
strategies.
The reason why a different strategic need translates into different alliance
strategies is illustrated through real case examples below.
News Corporation example
Rupert Murdoch is the chairman of the News Corporation which is an
Australian based firm. News Corporation’s objective states “…to own every major
form of programming- news, sports, films and children’s shows- and bring them via
satellite or TV station to homes in the United States, Europe, Asia and South
America.”.
At the time, News Corporation owns only 2 satellites which are Star TV in
Asia and B Sky B in UK. Rupert Murdoch foresees and recognizes potential audience
of about 400 million in Central and South America. News Corporation strategy aims
to penetrate into the potential Central and South America market. This strategic goal
is achieved through the use of alliance strategy namely partnership.
Therefore, News Corporation announced a direct broadcast service in Latin
America in 1995 that will allow the firm to capture potential market. This direct
broadcast service in Latin American was possible through the formation of
partnership of News Corporation with three appropriate companies namely Globo, the
leading media company in Brazil; Grupo Televisa, a Mexican broadcaster; and TeleCommunications Inc., the US’s largest cable operator. Notice here that News
Corporation has selected partner in countries/region such as Brazil, Mexico and US to
achieve its objective of penetration into the potential market of Central and South
America.
Toshiba Corporation example
Toshiba is the oldest and the 3rd largest Japanese electronic firm. According to
Fumio Sato, the CEO of Toshiba, a high-tech company that wishes to remain
competitive in the global market has to work with others and it can not singularly
dominate any technology or business by itself.
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The nature of the high-tech industry is very advance that strategic alliances
are, according to Fumio Sato, the only strategy for a high-tech company that has
global ambitions. Toshiba has worked with various companies such as General
Electric, Motorola, IBM and more in the process of becoming global. The company
has gone through contracted partnerships, technology licensing and joint venture to
achieve its position.
Toshiba
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GE =
Co-production for light bulb filament, becomes world manufacture of electronics
products
Toshiba
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Motorola =
Leading producer of memory chip
Toshiba
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IBM =
World 2nd largest supplier of color flat panel displays for portable computers.
Banco Bilbao Vizcaya Bank example
BBV involves in the banking and investment service in Spain. During the time
BBV was faced with a matured market in Spain so, the firm was seeking the business
opportunity elsewhere. BBV’s objective then was to move into a developing market
where the cultural is compatible to Spain. BBV went into the South America market
through joint venture and wholly-owned subsidiaries.
Notice here that BBV’s strategic objective is to move into the South America
market and it has decided alliance strategies of joint venture and wholly-own
subsidiaries to move it self into the South America market.
Mitsubishi Motors Corporation example
Mitsubishi, a Japan’s youngest automaker, was faced with a highly
competitive environment from Honda and Toyota in Europe and USA market.
Mitsubishi quickly recognized the possibility in Asia market. It was a necessity to
consider other region such as Asia as the competition level was not intense; and it was
a new emerging market opportunity. Mitsubishi’s strategy then was to go into the
Asia market.
Auto sales were booming in Asia that the rate of car ownership in South
Korean’s rocked a record high increase of over 500%; and over 500 new cars were
purchased each day in Bangkok.
Notice here that Mitsubishi understood its own strategic needs and has used an
appropriate strategic alliance to penetrate the Asia market. Mitsubishi has established
a wholly-owned subsidiary facility and a joint venture in Asia region. Through these
strategic alliances, it was possible for Mitsubishi to develop its product design to
match the Asia market taste and need.
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2) As needs changes so does alliance strategy: An evolving strategic
fit decision
All businesses have to formulate a strategic response to the changing market
conditions in its industry in order to stay competitive. Therefore, as needs change, so
does alliance strategy. The alliance strategy consists of a few different types which are
licensing agreement, joint ventures and so on. Next we will be using Motorola as an
example which is a company which changes its strategy as the situation changes.
Motorola is a company which focus on producing consumer electronics
products. However, global competition had threatened them revise their strategy.
First, it decided to become a global company like its competitors and they also wanted
to move into user areas for their core business which is the semiconductors.
Since the beginning, Motorola was at a disadvantage because its competitors
were already established overseas. Their competitors also had the financial resources
to develop new technologies that will make Motorola’s outdated. Also, the market for
high-tech products had shifted to the Far East and so, Motorola also had to establish a
presence there.
Due to Motorola’s limited resources, forming an alliance with the Japanese
will be a key strategy for survival because they were manufacturers who had major
markets for microprocessor and other semiconductor products.
Motorola uses alliance for resource leveraging, speed of entry, access to
markets, legal compliance and access to advanced technology. The following are the
variety of alliances which Motorola had used.
Licensing agreement
Motorola uses the licensing agreement which allowed NEC and Hitachi to
build low-end microprocessors using their technology. This alliance was a way to
enter the Japanese microprocessor market without high capital investment. However,
the Japanese partners later used Motorola’s technology to become their direct
competitors. From this expensive experience, they learned that they need to protect
their technology from their competitors.
Keiretsu
Keiretsu is an alliance system which exists in Japan. It involves formal and
informal relationship which is developed over the years. This alliance system exists
for the Japanese because the Japanese way of doing business is focusing on
relationships but not on contracts. Furthermore, the Keiretsu system prefers domestic
companies and often lock out foreign companies are therefore, Motorola had to switch
to joint ventures to enter the market.
Joint ventures
Joint venture is when two or more companies join economic activity together.
These two companies agree to create a new entity by contributing equity, and they
then share in the revenues, expenses, and control power.
Motorola entered into many joint ventures with the Japanese in order to get
access into the Japanese market which would otherwise be hard for them to enter
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effectively. They first joint venture began with Toshiba in which both alliances agreed
to share technology and also share investment costs. More importantly, Motorola even
gained access to the Japanese manufacturers that used their semiconductors.
Exports
A company should consider exporting when it wants to minimize risk, its
products do not have to adapt much in new markets, import and export restrictions are
favorable.
Motorola also uses export as a market-entry strategy to enter Japan and other
countries around the world. However, consumer behaviours, law and regulation in
different countries are different, especially in Japan. This slows down the success of
exporting to the Japanese market. According to this situation, Motorola decided to
establish a wholly-owned subsidiary in Japan.
Wholly-owned subsidiary
There are 2 ways to do wholly owned subsidiaries, which are start the
company’s own subsidiary or buying the existed one. In the case of buying the existed
one, the parent company must have strong financial resources.
In 1992 China becomes another major Asian market and one of the world’s
fastest-growing economies. Therefore, Motorola decided to enter China as it is one of
the largest markets of Motorola’s products. Motorola established a wholly-owned
subsidiary which was allowed by Chinese government. As a result, Motorola was
able to establish facilities in one of China’s economic zones where Motorola can take
advantage. Motorola has also taken advantage of low-cost labor and good supporting
infrastructures. Therefore, it continued to enlarge its relationship with Chinese
government to further advantages.
Due to the high population of China, the demand of electronic is so great that
Motorola needed to export goods directly to China. Furthermore, Motorola also
involved in developing China’s cellular phone infrastructure - through a joint venture
with two state-owned firms. Motorola supplied equipment and related support service
to enable the licensed manufacture of cellular phone equipment where Motorola was
the only licensed cellular manufacturing facility in China.
Finally, Motorola’s success in China was due to largely to its superior product
and service, which the Chinese government seemed to “trust”.
So to sum up with Motorola case, need of changes leads Motorola uses
different alliance strategy which enables them to stay competitive in the market.
3) Reasons for using alliance
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Alliances help add value of the product by adding feature to a line
They help bringing items to the market faster
They help expanding overseas market
They increase service availability
A better research and development
They help adding financial resources
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The company can gain knowledge from the alliances
Less competition
They help providing new marketing channel
A better distribution of products and services
4) Preparing for problems and failures involved in translating the
strategic alliance concept into action
Establishing a strategic alliance with a partner that fits usually helps to pursue and the
company’s strategical goals. Nonetheless a few problems might occur. However,
through anticipating these problems their negative impact on the alliance and the
company’s core business can be reduced.
First, problems can result from different corporate cultures.
 absenteeism
 mistrust
 strong unions
 low safety standards
 poor quality standards
The best way to meet these obstacles is to carefully plan before joining the agreement.
This means that potential problems should be identified and plans should be
formulated in advance in order to overcome the problems.
Second, problems can result from sharing knowledge between two partners.
For example, a key employee could suddenly leave the company and use the
knowledge of the joint-venture in order to start his own business and consequently
become a competitor of the one company. There is a way to counteract this problem.
A company should only share that knowledge which is not the latest invention and
should provide that technology which is not used to produce that good or service
which is seen as core competency of the company.
Finally problems result from the changing environment.
These are the problems with which it is most difficult to deal with as they are part of
the company’s risk.
 decrease in tariff-rates
 more competition
At least a possible solution is to exit the joint-venture. What can well be seen from
these examples is that it is essential to the success of a strategic alliance to constantly
revise the joint-venture, strategic goals, the environment and the fit between
company’s goals and the business of the joint-venture. A constant monitoring is the
only way to identify potential problems as early as possible in order to minimize their
impact on the company’s performance.
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5) Crafting a workable strategic alliance strategy: Best practices
guidelines
These guidelines provide a useful framework for the establishment of strategic
alliances. They help formulating enterprise-wide and business-unit strategies, using
strategic alliances and setting parameters for making more detailed strategic choices.
Nevertheless the alliances should always be revised and the management should
continue its pursuit of improvement in development and implementation of the
business model. This also includes improving the strategic fit between strategy and
alliance.
First, identify strategies and define strategic needs
 analyze and evaluate the key activities of the value chain involved in
implementing the firm’s stated enterprise-wide strategy
o decide which activities should be done by or which ones should be
shared with other firms?
Second, explore ways or conditions under which strategic alliances might help to
meet these needs
 determine which of the activities might be done either separately by different
joint-ventures and which of them can be separated over time
o establish an effective and efficient relationship and reduce the risks
arising from strategic alliances
 specify which activities can be done by alliances while protecting core
competencies and technologies that are competitive advantage
o reduce risk of knowledge transfer and helping competitors
 analyze ways that maximize each partner’s strengths
o use each partner’s abilities to gain the biggest competitive advantage
 do not only focus on potential synergies but also on the strategic fit
o gain competitive advantage
Third, identify potential partners
 keep lawyers informed and consult them
o do not be faced by a sudden break-down of the joint-venture and a
deep loss of resources
 prepare contingency plans that allow for forming new alliances
 the alliance must add value to each of the partners
o it must be worth more to enter the alliance than to abandon it
Management should always consider the company’s situation and the environment
influencing the company’s strategic changes. Therefore these guidelines should be
carefully adopted to the situation. However, by using these guidelines, an efficient
and effective strategic alliance can be established in order go meet the corporate goals
and gain a competitive advantage over competitors.
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