Chapter 7 Global Alliances and

Strategy Implementation

PowerPoint byKristopher Blanchard

North Central University

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.

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

Global Strategic Alliances

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

Categories of Alliances

Joint ventures – when two or more companies create an independent company

Equity strategic alliances – in which two or more partners have different relative ownership shares (equity percentages) in the new venture

Non-equity strategic alliances – when agreements are carried out through contract rather than ownership sharing

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

Challenges in Global AlliancesFive 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

Guidelines for successful Alliances

Choose a partner with compatible strategic goals and objectivesSeek alliances where complementary skills, products, and markets will resultWork out with the partner how you will each deal with proprietary technology or competitively sensitive informationRecognize 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

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

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

Comparative Management in Focus: Russian Federation

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

Implementation McDonald’s Style

Form paradigm-busting arrangements with suppliersKnow a country’s culture before you hit the beachMaximize autonomyTweak the standard menu only slightly from place to placeKeep pricing low to build market share

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

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

Knowledge Management

Knowledge Management is the conscious and active management of creating, disseminating, evolving and applying knowledge to strategic ends

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

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.

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