Chapter 7 Global Alliances and Strategy Implementation

1. Chapter 7 Global Alliances and Strategy Implementation PowerPoint by Kristopher Blanchard North Central University

2. Strategic Alliances It is no longer an era in which a single company can dominate any technology or business by itself. The technology has become so advanced, and the markets so complex, that you simply can’t expect to be the best at the whole process any longer. —Fumio Sato, CEO, Toshiba Electronics Co.

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

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

5. Opening Profile: France’s Thomson and China’s TCL to Join TV Units • “If you can’t beat them, join them.” French appliance maker Thomson has announced that it is combining its television and DVD businesses with TCL International Holdings of China. The union will create the largest maker of television sets with annual revenue of $3 billion. The unprofitable Thomson hopes to utilize cheaper Chinese labor and the union provides TCL with a steppingstone into the European and American markets. The combined company will be able to use the RCA brand in North America, the TCL brand in Asia, and the Thomson brand in Europe. Thomson will retain one factory in France to focus on new technologies such as flat and plasma screens.

6. Categories of Alliances • Joint ventures – when two or more companies create an independent company An example is the Nuumi corporation, created as a joint venture between Toyota and General Motors, which gave GM access to Toyota’s manufacturing expertise and provided Toyota with a manufacturing base in the U.S. • Equity strategic alliances – in which two or more partners have different relative ownership shares (equity percentages) in the new venture —such as 25%, 25%, 50%—such as that between Chrysler and Mitsubishi Motors. • Non-equity strategic alliances – when agreements are carried out through contract rather than ownership sharing

7. 4. Global strategic alliances: Working partnerships were found between companies (often more than two) across national boundaries and increasingly across industries. Alliances are also sometimes formed between a company and a foreign government, or among companies and governments.

8. E-Biz: Covisint

9. Global and Cross-Border: 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

10. AT&T’s Alliance Structure

11. Challenges in Implementing Global Alliances • 1. In a highly competitive environment, alliances present a faster and less risky route to globalization. It is extremely complex to fashion such linkages, however, especially where many interconnecting systems are involved, forming intricate networks. Many alliances fail or end up in a takeover in which one partner swallows the other. • 2. Often, form of governance chosen for multinational firm alliances greatly influences their success, particularly in technologically-intense fields—pharmaceuticals, computers, and semiconductors. Cross-border partnerships, in particular, often become a “race to learn”—with the faster learner later dominating the alliance and rewriting its terms. In a real sense, an alliance becomes a new form of competition

12. Challenges..cont… • 3. All too often, cross-border allies have difficulty in collaborating effectively, especially in competitively sensitive areas, creating mistrust and secrecy, which then undermine the purpose of the alliance. The difficulty that they are dealing with is the dual nature of strategic alliances—the benefits of cooperation versus the dangers of introducing new competition through sharing their knowledge and technological skills about their mutual product or the manufacturing process. Some of the trade-offs of the duality of cross-border ventures are shown in Exhibit 7-2.

13. Challenges… • 4. The enticing benefits of cross-border alliances often mask their many pitfalls. In addition to potential loss of technology and knowledge-skill base, other areas of incompatibility often arise, such as conflicting strategic goals and objectives, cultural clashes, and disputes over management and control systems. • Visit http://www.bah.com/index.shtml

14. Challenges in Global Alliances Five years after Daimler-Benz acquired Chrysler to create DaimlerChrysler AG,. . . . DaimlerChrysler has become a German company and the struggling Chrysler division is run by executives dispatched from DaimlerChrysler’s corporate headquarters in Stuttgart. —Kirk Kerkorian, November 28, 2003 Daimler is in crisis talks with Hyundai, its South Korean partner, in a move that could see the German company left with no presence in the Asian car market (having abandoned its partner in Japan, Mitsubishi Motors (MMC)), and an increasingly tattered global strategy. —Financial Times, April 27, 2004

15. The Dual Role

16. Guidelines for successful Alliances • Choose a partner with compatible strategic goals and objectives • Seek alliances where complementary skills, products, and markets will result • Work out with the partner how you will each deal with proprietary technology or competitively sensitive information • Recognize that most alliances last only a few years and will probably break up one a partner feels it has incorporated the skills and information it needs to go it alone Many difficulties arise in cross-border alliances in melding the national and corporate cultures of the parties, in overcoming language and communication barriers, and in building trust between the parties over how to share proprietary assets and management processes. This slide offers suggestions to make alliances more successful.

17. Comparative Management in Focus: Russian Federation • As of 2004 Russia is a market where companies are considering joint ventures • More politically stable • New land, New legal system, New labor Laws • Rouble is more stable • Underexploited natural resources • Killed and education population of 145 million

18. Comparative Management in Focus: Russian Federation • There are still roadblocks • Possible repeat of the economic collapse of 1998 • Lack of debt and equity capital • Non-convertibility of the currency

19. Comparative Management in Focus: Russian Federation

20. Comparative Management in Focus: Russian Federation • What can help minimize the risk? • Choose the right partner – compatible goals or strategy • Find the right local general manager • Choose the right location – political risk decreases from south to north and west to east • Control the international joint venture – the best chance of success is to be vertically integrated to retain control of supplies and access to customers

21. The Russian oil industry has attracted Western interest including BP that developed an IJV with Russia’s TNK to form the third-largest oil producer in Russia. Some large MNCs have realized that short-term upheavals are possible in Russia and have stuck to a long-term plan. These companies include GM and Gillette. Exhibit 7-3 shows the joint venture relationship between a U.S. and Russian firm, the different goals that they bring to the venture, and the barriers caused by their different operating environments.

22. Implementation McDonald’s Style • Form paradigm-busting arrangements with suppliers • Know a country’s culture before you hit the beach • Maximize autonomy • Tweak the standard menu only slightly from place to place • Keep pricing low to build market share

23. Successful implementation requires the orchestration of many variables into a cohesive system that complements the desired strategy—that is, a system of fits that will facilitate the actual working of the strategic plan. In this way, the structure, systems, and processes of the firm are coordinated and set into motion by a system of management by objectives (MBO), with the primary objective being the fulfillment of strategy. Managers must review the organizational structure and, if necessary, change it to facilitate the administration of the strategy and to coordinate activities in a particular location with headquarters. In addition to ensuring the strategy–structure fit, managers must allocate resources to make the strategy work, budgeting money, facilities, equipment, people, and other support. Increasingly, that support necessitates a unified technology infrastructure in order to coordinate diverse businesses around the world and to satisfy the need for current and reliable information. An efficient technology infrastructure can provide a strategic advantage in a globally competitive environment.

24. Managing Performance • IJV Control is the process through which a parent company ensures that the way a joint venture is managed conforms to its own interest • IJVs are like a marriage: the more issues that can be settled before the merger, the less likely it will be to break up

25. Managing Performance • Three complementary and interdependent dimensions of IJV control • Focus of IJV control – the scope of activities over which parents exercise control • Extent or degree of IJV control achieved by the parents • Mechanisms of IJV control used y the parents

26. Knowledge Management • Knowledge Management is the conscious and active management of creating, disseminating, evolving and applying knowledge to strategic ends • Knowledge management consists of 1) transferring, 2) transforming, 3) harvesting knowledge for a competitive advantage. See Exhibit 7-4. Research shows that successful IJVs encouraged joint learning and coaching.

27. Knowledge Management Process • Transfer: managing the flow of existing knowledge between parents and from the parents to the IJV • Transformation: managing the transformation and creation of knowledge within the IJV through its independent activities • Harvest: Managing the flow of transformed and newly created knowledge from the IJV back to the parents

28. Knowledge Management Process

29. Cultural Influences

30. Management Focus: Wal-Mart Hopes it Won’t be Lost in Translation in Japan • The article discusses Wal-Mart’s expansion into Japan. Wal-Mart now owns a 38% share of the Japanese retailer Seiyu and is trying to develop the Wal-Mart culture in its employees. The Japanese employees now shout the company pledge and are encouraged to speak out about possible changes and opinions and to be more goal-oriented. Wal-Mart has brought many of the Japanese employees to Arkansas for training. Wal-Mart hopes to combine its proven efficiency with Seiyu’s knowledge of the Japanese market and supplier network.

31. E-Commerce Impact • 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.

32. Management Focus: Nextlinx Enables Global Strategy Implementation • Nextlinx’ Trade Collaborator has everything needed to automate and manage an entire global trade operation. As a web-based environment, it enables all trading partners to collaborate in a single online location, using the same information and processes. It enables companies to calculate accurate landed costs, automate imports/exports, comply with NAFTA 2001, and gain visibility into shipments

33. Looking Ahead • Chapter 8 – Organization Structure and Control Systems • Organizational Structure • Evolution and Change in MNC • Organizing for Globalization • Emergent Structural Forms • Choice of Organizational Form • Control Systems for Global Operations • Managing Effective Monitoring Systems