International strategic alliances design and management
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8. International Strategic Alliances: Design and Management. Strategic Alliances Issues. Increasingly popular strategy to develop new product and to expand into new markets However, strategic alliances are very risky and unstable Failure rate of 30% to 60%

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International strategic alliances design and management


International Strategic Alliances: Design and Management

Strategic alliances issues
Strategic Alliances Issues

  • Increasingly popular strategy to develop new product and to expand into new markets

  • However, strategic alliances are very risky and unstable

  • Failure rate of 30% to 60%

  • Even profitable alliances can be torn by conflict

Exhibit 4 3 the value chain not included in the exam
Exhibit 4.3: The Value Chain(not included in the exam)

Where to link in the value chain
Where to Link in the Value Chain

  • Alliance combining same value-chain activities are to gain efficiencies, merge talents, or share risks

  • Upstream/downstream alliances serve the objective of low-cost supply/manufacturing

  • Operations/marketing alliances provide access to markets

  • Depends on the objective that the firm seeks to achieve

Criteria for choosing partners
Criteria for Choosing Partners

  • Seek out companies with compatible management styles

  • Seek a partner that will provide the “right” level of mutual dependency

  • Avoid the “anchor” partner

    • Anchor partner: a partner that holds back the strategic alliance because it cannot or will not provide its share of the funding

Criteria for choosing partners cont
Criteria for Choosing Partners (cont.)

  • Be cautious of the “elephant-and-ant” complex

    • Occurs when two companies are greatly unequal in size

  • Assess operating-policy differences with potential partners

  • Assess the difficulty of cross-cultural communication with a likely partner

Choosing an alliance type
Choosing an Alliance Type

  • Three main types of strategic alliances

    • Informal international cooperative alliances

    • Formal international cooperative alliances

    • International joint venture

Informal international cooperative alliance
Informal International Cooperative Alliance

  • Non-legally binding agreements between companies from two or more countries

    • Agreements of any kind

    • Provide links anywhere on their value chains

    • Limited involvement between companies

Formal cooperative alliances
Formal Cooperative Alliances

  • Higher degree of involvement than informal alliances

  • Formal contract

  • Popular in high tech industries because of high costs and risks

International joint ventures ijv
International Joint Ventures (IJV)

  • 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.: One partner brings technology while other partner brings financial contributions

Negotiating the agreement
Negotiating the Agreement

  • IJV negotiation issues

    • equity contributions

    • management structure

    • “prenuptial” agreements

Organizational design in strategic alliances
Organizational Design in Strategic Alliances Agreement

  • Depends on the type of alliance chosen

  • Informal ICAs often have no formal design issues

  • Formal ICAs may require separate organization unit housed in one company

  • IJV—Parent companies set up separate legal entity

Decision making control
Decision-making Control Agreement

  • Majority ownership does not necessarily control

    • Operational decisions

    • Strategic decisions

  • In IJVs, strategic decision making takes place at the level of IJV’s board of directors or top management.

Management structures
Management Structures Agreement

  • Dominant parent: controls or dominates strategic decision making

    • Often has majority ownership

    • Treats the IJV as wholly owned subsidiary

  • Shared management: both parent companies contribute approximately the same number of managers to the alliance organization

  • Management structures1
    Management Structures Agreement

    • Split control management control: partners usually share strategic decision making and split functional decision making

    • Independent management structure: alliance managers act more like managers from a separate company

      • IJVs often recruit managers from outside the parent companies

    Management structures2
    Management Structures Agreement

    • Rotating management: key positions rotate among partners

      • Popular in developing countries

      • Trains management talent and transfers expertise

    Choosing a strategic alliance management structure
    Choosing a Strategic Alliance Management Structure Agreement

    • If partners have similar technologies or know-how and contribute equally

      • Shared management structure preferred

    • If partners have different technologies but contribute equally

      • Split management structure preferred

    • If one partner has dominant equity position

      • Dominant management structure more likely

    Human resource management in strategic alliances
    Human Resource Management in Strategic Alliances Agreement

    • HRM functions include recruiting and staffing for alliance positions

    • The HRM functions of an IJV are more complex

      • Managers (and sometimes workers) come from two or more firms or from two or more cultures

    Critical hrm problems and issues
    Critical HRM Problems and Issues Agreement

    • HRM planning: Employees need to know strategic intent of alliance.

    • Parent involvement: As alliances get older and larger, they tend to develop their own HRM practices.

    • Staffing the alliance management and technical personnel—crucial and risky decision

    • Staffing the alliance workforce

    • Assigning managers strategic or operations tasks

    Critical hrm problems and issues1
    Critical HRM Problems and Issues Agreement

    • Performance assessment—needed for retention, promotion and salary decisions

    • Loyalty—managers may often feel dual loyalty

      • To parent and to alliance

    • Career development—must provide clear information on how alliance assignments fit within careers

    • Cultural differences

    • Training

    Commitment and trust
    Commitment and Trust Agreement

    • Commitment: putting forth extra effort to make the venture work

      • Attitudinal commitment: willingness to dedicate resources and efforts and face risks to make the alliance work

    • If partners demonstrate these aspects of commitment, alliance will develop based on fair exchange.

      • Occurs when partners believe that they receive benefits from the relationship equal to their contributions

    Calculative commitment
    Calculative Commitment Agreement

    • Commitment also has a practical side: calculative commitment

      • Alliance partner evaluations, expectations, and concerns regarding potential rewards from the relationship

    • Businesses require tangible outcomes for a relationship to continue

    Trust Agreement

    • Commitment and trust go hand in hand

    • Credibility trust: confidence that the partner has the intent and ability to meet promised obligations and commitments

    • Benevolent trust: confidence that the partner will behave with goodwill and with fair exchange

    Why is trust important
    Why Is Trust Important? Agreement

    • When there is no trust, partners hold back or take advantage of each other.

    • Formal contracts can never identify all issues that will arise

    • Technology and knowledge also include tacit elements that can only be learned through trust.

    Building and sustaining trust and commitment
    Building and Sustaining Trust and Commitment Agreement

    • Pick your partner carefully

    • Know each side’s strategic goals

    • Seek win-win situations

    • Go slowly

    • Invest in cross-cultural training

    • Invest in direct communication

    • Find the right levels of trust and commitment

    Assessing the performance of an international strategic alliance
    Assessing the Performance of an International Strategic Alliance

    • If strategic intent is to produce immediate results, standard financial and efficiency measures can be used.

    • Other strategic alliance provide indirect strategic benefits.

    • IJV and ICA performance criteria: often must include criteria other than financial, such as organizational learning.

    If the alliance does not work
    If the Alliance Does Not Work Alliance

    • Negotiate an end or improve implementation

    • Know when to quit/invest more

    • Avoid “escalation of commitment”

      • Companies continue in an alliance longer than necessary because of financial and emotional investments.

    • Plan end—“prenuptial agreements”

    • Death not always failure