International Strategic Alliances Rob Fuller Director of Entrepreneurial Programs Beyster Institute
International Strategic Alliances • Why use alliances? • Options for creating partnerships • How to make alliances work MEET U.S.
Basic Approach to Globalization • Create a competitive advantage • Establish geographic scope • Select global strategy • Create alliances MEET U.S.
Creating a Competitive Advantage • Every successful strategy is rooted in the establishment of a competitive advantage • Most competitive advantages take the form of either: • Differentiation • Low Costs MEET U.S.
Tracking Profitability and Market Share Profit BMW Mercedes Toyota Honda Chrysler Market Share MEET U.S.
Advantages of Differentiation • Perceived uniqueness • Better match with customer needs • Ability to target profitable niches • Any aspect is fair game: • Quality, features, reliability, … MEET U.S.
Advantages of Size • Costs are typically related to volume Unit Costs Market Share MEET U.S.
Extending Competitive Advantage to Global Markets • Increase market share • Increase return on investment • Economies of scale • Location • Raw materials, Lower cost labor, Key customers, Energy, Transportation, etc. MEET U.S.
Strategies for Global Competition • “Global Strategies” (Honda, Sony) • Products are standardized across national markets • Decisions regarding business-level strategies are centralized in the home office • Strategic business units (SBU) are assumed to be interdependent • Emphasizes economies of scale • Often lacks responsiveness to local markets MEET U.S.
Strategies for Global Competition • “Multidomestic” Strategies (Philips) • Strategy and operating decisions are decentralized to strategic business units in each country • Products and services are tailored to local markets • Business units in one country are independent of each other • Assumes markets differ by country or regions • Focus on competition in each market • Prominent strategy among European firms due to broad variety of cultures and markets in Europe MEET U.S.
International Trends • Liability of foreignness • Legitimate concerns about the relative attractiveness of global strategies • Global strategies not as prevalent as once thought • Difficulty in implementing global strategies • Regionalization • Focusing on particular region(s) rather than on global markets • Better understanding of the cultures, legal and social norms MEET U.S.
Selecting an Entry Mode • Exporting High Cost, Low Control • Licensing Low cost, low risk, little control, low returns • Acquisition Quick access, high cost, complex deals, problems of integration • New subsidiary Complex, costly, risky, time consuming, maximum control, high potential • Strategic Alliances ? MEET U.S.
Strategic Alliance • A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage • Involves the exchange and sharing of resources and capabilities to co-develop or distribute goods and services • Requires cooperative behavior from all partners MEET U.S.
Why use Alliances? MEET U.S.
Profitability and Market Share Example Profit BMW Mercedes Toyota Honda Chrysler Market Share MEET U.S.
Problems in Alliances • Partner may act opportunistically • Partner may misrepresent competencies brought to the partnership • Partner fails to make committed resources and capabilities available to other partner • Partner may make investments that are specific to the alliance while the other partner does not MEET U.S.