9InternationalStrategicAlliances:DesignandManagementLearningObjectives(1of3)Knowthestepsforimplementingsuccessfulinternationalstrategicalliances.Describehowmultinationalcompanieslinkvaluechainsininternationalstrategicalliances.Understandtheimportanceofchoosingtherightpartnersforalliances.Knowtheimportantcharacteristicstolookforinpotentialalliancepartners.LearningObjectives(2of3)Distinguishbetweenequity-basedinternationaljointventuresandothertypesofinternationalcooperativealliances.Knowthebasiccomponentsofaninternationalstrategicalliancecontract.Understandthecontrolsystemsandmanagementstructuresusedinallianceorganizations.LearningObjectives(3of3)Appreciatetheuniqueproblemsinhumanresourcemanagementfacedbymanagersinallianceorganizations.Realizetheimportanceofinterfirmcommitmentandtrustforbuildingsuccessfulinternationalstrategicalliances.Understandhowmultinationalcompaniesassesstheperformanceoftheirinternationalstrategicalliances.Knowwhencompaniesshoulddissolveorcontinuetheirinternationalstrategicalliances.StrategicAllianceIssuesAlthoughstrategicalliancesareafastandflexiblewaytobreakintonewmarkets,theyareinherentlyunstable,forthesereasons:Theymaybepoorlydesignedormanaged.Partneringwithacompanyfromadifferentnationcompoundsmanagementdifficulties.Partnersmaydisagreeonhowtorunthebusiness.Evenprofitablealliancescanbetornbyconflict.WheretoLink

intheValueChainManybenefitsofstrategicalliances:Gainaccesstolocalpartner’sknowledgeofmarket,meetgovernmentrequirements,sharerisks,sharetechnology,economiesofscale,accesslowercostrawmaterialsorlabor.Alliancescombiningsamevalue-chainactivitiesgainefficiencies,mergetalents,andsharerisks.Wheretolinkdependsonthefirm’sstrategicobjective.ChoosingaPartner:

TheMostImportantChoice?Thesuccessorfailureofastrategicalliancedependsonhowwellthepartnersgetalong.Especiallyearlyintherelationship,eachpartymustbelieveithasagoodpartnerwhocandeliveronpromisesandbetrusted.Pickingthewrongpartnercanhavenegativemajorconsequences.KeyCriteriafor

ChoosingaPartner(1of3)Thereareseveralkeycriteriaforchoosinganappropriatealliancepartner:Seekstrategiccomplementarity.Prospectivepartnersmustunderstandeachother’sstrategicobjectives,short&longterm.Pickapartnerwithcomplementaryskills.Technicalcomplementarityismostimportant.Findpartnerswithsimilarbutnotidenticalproducts.KeyCriteriafor

ChoosingaPartner(2of3)Seekoutcompanieswithcompatiblemanagementstyles.Seekapartnerthatwillprovidethe“right”levelofmutualdependency;partnersmustrelyoneachother.Avoidthe“anchor”partner:AnchorPartner:apartnerthatholdsbackthestrategicalliancebecauseitcannotorwillnotprovideitsshareofthefunding.KeyCriteriafor

ChoosingaPartner(3of3)Becautiousofthe“elephant-and-ant”complex.Thisoccurswhentwocompaniesaregreatlyunequalinsize.Thelargefirmmaydominatethesmallerfirm.Assessoperatingpolicydifferenceswithpotentialpartners.Assessthedifficultyofcross-culturalcommunicationwithalikelypartner.ChoosinganAllianceTypeTherearethreemaintypesofstrategicalliances:InformalinternationalcooperativealliancesFormalinternationalcooperativealliances(ICAs)Internationaljointventures(IJVs)InformalInternationalCooperativeAllianceAnInformalInternationalCooperativeAllianceis:Anon-legallybindingagreementbetweencompaniesfromtwoormorecountriestocooperate.Theymaybeagreementsofanykind,andmayprovidelinksanywhereontheirvaluechains.Becausethereisnolegally-bindingagreement,managersusuallylimitthescopeofinvolvement,andresistrevealingproprietaryinformation.FormalInternationalCooperativeAlliances(ICAs)AformalInternationalCooperativeAlliance(ICA)Callsforhighdegreeofinvolvementwithpartners.Usually,aformalcontractspecifieswhateachpartnerwillgiveandreceive.Mayrequiresharingproprietaryinformation,whichmakesbackingoutofthisalliancemoredifficult.Sometimesonepartnermaytakeanequityshareofownershipoftheother. InternationalJointVentures(IJVs)AnInternationalJointVentureisaself-standinglegalentityownedbytwoormoreparentcompaniesfromdifferentcountries;eachhasanequityinterest.Theventureneednotbeequallyowned.Contributionsmaybecash,technologyorotherresources.Iftherearemanymembers,theentityiscalledaconsortium.NegotiatingtheAgreementBothformalICAsandIJVrequireanegotiatedandsignedcontract.Negotiationissuesinclude:ProductsorservicesoftheallianceEquitycontributions(cashorotherresources)Managementstructure“Prenuptial”agreementsregardingdissolutionOrganizationalDesign

inStrategicAlliancesDesignoftheorganizationdependsonthetypeofalliancechosen.InformalICAsoftendonotrequireformaldesign.FormalICAsmayrequireaseparateorganizationalunithousedinonecompany,withemployeesfromboth.IJVsareseparatelegalentities,andrequireaseparateorganizationtocarryoutthealliance’sobjectives.Decision-MakingControlTherearetwomajorareasofdecisionmaking:Operationaldecisions(dailyrunningoforganization)Strategicdecisions(strategyforlongtermsurvival)Majorityownersdonotnecessarilycontrolbothareas.IJVs’strategicdecision-makingtakesplaceattheleveloftheIJV’sboardofdirectorsortopmanagement.InnonequityICAs,strategicdecisionsremainwithparentcompanies.ManagementStructures(1of3)MNCstypicallyusefivemanagementcontrolstructuresfortheirICAsorIJVs:1.DominantParent:TheDominantParentcontrolsstrategicandoperationaldecisionmaking.OftenhasmajorityownershipTreatstheIJVasitswhollyownedsubsidiary2.SharedManagement:bothparentcompaniescontributeapproximatelythesamenumberofmanagerstotheallianceorganizationManagementStructures(2of3)MNCstypicallyusefivemanagementcontrolstructuresfortheirICAsorIJVs:(cont’d)3.SplitControlManagement:Partnersusuallysharestrategicdecisionmakingandmakefunctionaldecisionsindependently.4.IndependentManagement:Alliancemanagersactmorelikemanagersfromaseparatecompany.IJVsoftenrecruitmanagersfromoutsidetheparentcompanies.ManagementStructures(3of3)MNCstypicallyusefivemanagementcontrolstructuresfortheirICAsorIJVs:(cont’d)5.RotatingManagement:Managersfromthepartnersrotatethroughthekeypositionsinthemanagementhierarchy.Thisstructureispopularindevelopingcountries.Itservestotrainsmanagementtalentandhelpstotransferexpertisetothedevelopingcountry.ChoosingaStrategicAllianceManagementStructure(1of2)Ifpartnershavesimilartechnologiesandknow-how,andcontributeequally,aSharedManagementstructureispreferred.Ifpartnershavedifferenttechnologiesbutcontributeequally,aSplitManagementstructureispreferred.Ifonepartnerhasadominantequityposition,orismoreimportanttoonepartner,aDominantManagementstructureismorelikely.ChoosingaStrategicAllianceManagementStructure(2of2)Forjointventuresinparticular:Maturejointventuresmovetoindependentstructuresasthejointventure’smanagementteamgainsmoreexpertise.JointventuresincountrieswithahighdegreeofgovernmentinterventionproduceIJVswithlocalpartnerdominance.Independentmanagementstructuresaremorelikelywhenthemarketisexpanding,theventuredoesnotrequiremuchcapital,ortheventuredoesnotrequiremuchR&Dinputfromitsparents.CommitmentandTrust:

TheSoftSideof

AllianceManagementManagersfrombothfailedandsuccessfulstrategicalliancesadvisetheimportanceofbuildingmutualtrustandcommitmentamongpartnersfromthebeginning.Commitment:takingcareofeachotherandputtingforthextraefforttomaketheventureworkAttitudinalcommitment:Willingnesstodedicateresourcesandeffortsandfaceriskstomakethealliancework.CommitmentandTrust:

TheSoftSideof

AllianceManagementIfalliancepartnersdemonstratetheseaspectsofcommitment,theventurewilldevelopbasedontheprinciplesofFairExchange.FairExchange:Fairexchangeoccurswhenpartnersbelievethattheyreceivebenefitsfromtherelationshipequaltotheircontributions.CalculativeCommitmentCommitmentalsohasapracticalside:CalculativeCommitment:comesfromtheevaluations,expectations,andconcernsaboutthefuturepotentialforgainingrewardsfromtherelationship.Businessesrequiretangibleoutcomesforarelationshiptocontinue.AstudyofcommitmentinIJVssuggeststhatcommitmentincreaseswhenbothpartnersachievetheirstrategicgoals.TrustTrustandCommitmentgohandinhand.CredibilityTrust:theconfidencethatthepartnerhastheintentandabilitytomeetpromisedobligationsandcommitments.BenevolentTrust:theconfidencethatthepartnerwillbehavewithgoodwillandwithfairexchange.Thedevelopmentoftrustbetweenalliancepartnersmaytaketime.WhyIsTrustImportant?Successfulcooperationrequiresalliancepartnerstocontributequalityinputstotheorganization.Whenthereisnotrust,partnersholdbackortakeunfairadvantageofeachother,makingfailurelikely.Formalcontractscanneveridentifyallissuesthatwillarise,soatrustingrelationshipisnecessary.Technologyandknowledgealsoincludetacitelementsthatcanonlybesharedwhenthereistrust.BuildingandSustaining

TrustandCommitmentTobuildandsustaintrustandcommitment,Multinationalmanagersshouldconsiderkeyfactors:Pickyourpartnercarefully.Knoweachside’sstrategicgoals.Seekwin-winsituations.Goslowly.Investincross-culturaltraining.Investindirectcommunication.Findtherightlevelsoftrustandcommitment.AssessingthePerformanceofanInternationalStrategicAllianceIfthestrategicintentistoproduceimmediateresults,usestandardfinancialandefficiencymeasures.Somestrategicalliancesprovideindirectstrategicbenefits,butmaynevergenerateprofits.ToassessIJVandICAperformance,criteriaotherthanfinancialsmustbeincluded,suchasorganizationallearning,andsubjectivemeasureslikealliancesatisfactionandharmony.IftheAllianceDoesNotWork(1of2)Ifanalliancedoesnotwork,therearetwochoices:Improveimplementation,orNegotiateanendKnowwhentoquitandwhentoinvestmore.Avoid“escalationofcommitment:”Managerscontinueinanalliancelongerthannecessarybecauseofpastfinancialandemotionalinvestments.IftheAllianceDoesNotWork(2of2)Plantheendatthebeginning.