[IEEE 2010 International Conference on Education and Management Technology (ICEMT) - Cairo, Egypt...

Dynamic Model of Strategic Alliances Formation in Fabric Industries

1. Nadia Nosratpour University of Applied Science and Technology, Management

Faculty, Tehran, Iran [email protected]

2. Hamed Maleki Islamic Azad University, South Tehran Branch, Industrial

Engineering Faculty, Tehran, Iran [email protected]

3. Seyedmohammadhamed Salehi

Ershad High Education Institute, Management Faculty, Damavand, Iran

[email protected] 4. Nasim Nosoudi

Technical University of Dresden, Mechanical Engineering Faculty, Dresden, Germany

[email protected] 5. Amir Hassan Zadeh

Technical University of Dresden, Business Administration Faculty, Dresden, Germany

[email protected]

Abstract—recent years, strategic alliance has become an essential tool for business management to improve the ability of competing in organizations. One of the solid ways that fabric firms exploit to improve global competition is establishing strategic alliance with other members of the industry like suppliers, buyers and sometimes even other competitors. In this research, a dynamics model is presented to show the influence of different factors in establishing strategic alliance in fabric industries. The Purpose of this research is to study dynamic and causal influence of strategic alliances formation in fabric industry.

Keywords- System dynamics; strategic alliances, , fabric industries, Casual effect loops

I. INTRODUCTION The main tendency of the world economy is achieving

globalization. From International marketing viewpoint, the globalization process provides numerous opportunities and challenges for the firms that the world along with the progress of globalization, not only by single market but also it will become a fully interconnected network of production .National borders as barriers to the transfer of final goods, services and all the production factors (except possibly earth) inevitably lose their importance.[1] The fundamental intricacy for the collection of fabric (fabric products manufacturers, machinery builders, , merchants) is how to organize and conduct global activities. Future flourishing of this industry depends on organizational structures of the firm, the ability of facing global competing. One of the slid ways the fabric firms use to improve their global competing is establishing strategic partnerships with other industry members such as suppliers, buyers, and sometimes even other competitors. Strategic alliance is a formal or informal long term agreement between two or more organization, while each of them keeps its independency [2]. Strategic alliances are partnerships between firms when their resources, capacities and Core competencies are shared and following the both sides’ interests in improving or producing or production distributing ,strategic alliances are exploited from the firms’ communications. Strategic alliance has become an important tool for business management in order to improve the ability

of competing in organizations and fills gaps between existing resources and necessary requirements for the future and by providing access to external resources by creating synergy and promote learning and rapid change, increases the competitiveness of the organizations. Strategic Alliances can be engines of growth and profitability in domestic and foreign markets. Strategic Alliances play an important role in the development of competitive advantage of the firms.[3] Nowadays , finding a large multinational firm or even an average one that does not be a member of any strategic alliance is nearly impossible [4]. Large firms (eg automotive industry) are screening and concentrating especially on connection with the suppliers. When suppliers in providing all the needs and the way things are expected generally, seek the quality they exclusive factor gets affected intensively. These pressures lead to the participating of firms even by creating new competitors [5]. Although strategic alliances, and more dramatically partnerships strategy can be used for many purposes and in many cases they will act successfully but managing them can be difficult. Failures rate for these alliances is very high. Therefore, firms should be cautious about choosing their partners. They need to know the partner’s intention and try to improve the trust. On account of high failure rate, the top executive managers that intend to enter into the alliance should have appropriate interactive strategic knowledge to for its better applications.

The purpose of this study is a dynamic and causal consideration of the influences of establishing strategic alliances. Dynamic problems have 2 common features: 1 – they are comprised of quantities that change with time. Such quantities can be illustrated in a curve that changes with the time. Like change in the level of the stuff of an industry s, discovering the level of life, traffic congestion in urban areas ... 2 – They are consist of the feedback information. Feedback is sending and returning information. For example, in a system that heat is produced and transferred to a room, a thermostat in the room recognizes the room’s temperature and returns the environment’s information to the heat production system and based on it, produced heat changes. In this study to have a dynamic and causal consideration of the influences of establishing strategic alliances, as it is common in dynamic problems’ literature, causal diagram is used. In a causal diagram, the logical relationship and quantities’

2010 International Conference on Education and Management Technology（ICEMT 2010）

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effectiveness on each other are shown as directed vectors, that these vectors determines the direction and the way parameters have effects on each other. For example, causal relationship A �+ B that is a positive relationship indicates that any change in A is in the same way as B, means that an increase in A leads to an increase in B and it is called positive relationship. A�- B is a negative relationship means that a change in A leads to an opposite direction change in B. that is, increased\ in A causes a decrease in B and vice versa. About Feedback loops recognizing whether the relationship is positive or negative is a function of conditions. Thus, a Feedback loop is positive if the number of negative causal links is even negative. Similarly a Feedback loop is negative if the number of negative causal links is odd.

In this study, a dynamic model to show the effect of different factors in establishing strategic alliance in fabric industry is presented. Next sections of this paper are as follows: In Section 2 strategic alliance is considered from different perspectives like firms’ purposes to form the alliance as well motivations for strategic alliances related to various markets. In Section 3, Causal model for the influences of establishing Strategic Alliances is developed and with considering motivations and strategic alliances related to various markets a more comprehensive model is suggested and we can achieve leading loops to the strategic alliance. Finally, in Section 4, conclusions and suggestions for future research are presented.

II. STRATEGIC ALLIANCE Strategic alliance is an agreement for participating

between two or more organizations. In this way they can improve their competitive position and performance through their joint resources [6]. Another definition for the strategic alliance is as follows: the participating of two firms or business units or more in order to achieve important strategic goals that have mutual benefits for the partners in the participating [7]. Generally, from various definitions of alliance it can be concluded that the concept of strategic alliance is based on three bases: participating between the partners either formal or contractual contracts or informal; being at least two partners; achieving strategic goals. In a research on 159 firms of Taiwan, Firms’ goals to join the alliance and their importance were obtained. [8].

Different reasons causes Strategic Alliances that are based on three different market’s situation: the low cycle low, the standard cycle and the fast cycle. Slow cycle markets are markets that are unique and sheltered; such as y railways and telecommunications industries

That most of the times firms tend to collaborate in order to improve standards, but because of the possibility of collusion some rules are usually enacted by the government to avoid discrimination on the customer’s price. In Standard cycle markets, participating is the results of efforts to prevent Over Capacity rather than efforts to increase opportunities. This kind of participating mostly focus on gaining power in the market. In Fast cycle markets, entrepreneurial firms often present services and new products with short life time that

can be copied easily. In these markets, joint venture strategy is chosen in order to increase the speed of improving the product or entering the market. Firms in the slow cycle markets, desire to enter restricted markets by creating Franchises in the new market. For instance, many American and Western Europe firms have alliance domestic firms in developing countries. Participating may occur with difficulties in slow cycle markets. Firms with franchises usually tend to bear the pressure alone rather than with having partners. In Standard cycle markets, firms also have participating in reducing high industry capacity and sharing resources. Although firms in this way can overcome the overcapacity, but not all of them establish a strategic alliance and it is because they cannot act other independently act. When the research and development Plans are in need of a large capital, finding partners to divide the investment becomes necessary. Finally, firms in the standard cycle markets may apply the alliance to overcome the business limitations and learning new techniques for business. Fast cycle markets, which have a short production cycle, such as electronic firms, create motivations for participating because of the fact that development, production and distribution of new products can occur quickly. In addition, participating may lead to improvements in standard products under high technologies of the market.

Inconsistency also can be a reason for an increase in participating between firms in the fast cycle market.

As the fabric industry is a part of the standard cycle and fast cycle, motivations in these two cycles are considered in causal loops. In Table 1 motivations for strategic alliance related to different markets are shown.

TABLE I. TABLE 1: STRATEGIC ALLIANCE MOTIVATIONS RELATED TO VARIOUS MARKETS


388

reasons Market

*Access to limited markets *Create monopoly in new markets *Keep stability(making standards )

Slo

w c

ycle

*Gain market power (reduction in industry capacity) *Access to complementary resources *Overcome commercial limitations *Face competitive complexities from other competitors *Incomplete resources for projects with enormous capacity *Learn new commercial techniques

Stan

dard

cyc

le

*Provide new products and services quickly *Enter new markets quickly *Keep the market’s leading *Form industrial technology standard *Divide the cost’s risk *Overcome instability

Fast

cycl

e

Considering the above motivations, the primary causal model is illustrated in the Figure 1.

Figure 1. The primary causal model

In addition to the mentioned motivations, other

motivations and strategies can be considered such as: complementary strategies, reducing competition strategies, reactive competitive strategies, reducing doubt strategies.

III. COMPLEMENTARY STRATEGIES Complementary Strategic Alliances in order to gain

market’s opportunities’ score tend to combine the competitor firm’s assets in a complementary way and are designed to create new value. Vertical Complementary Strategic Alliance is comprised of distribution, supply and outsources performances that each of them is involved in different stages of the supply chain. Outsource is an important means to reduce cost and increase the number of strategic alliances. Incensement of the number of relative partnership firms is along with the performances of management outsourcer.

Research shows that soft communications in many cases are of high importance in foreign exports in the long [1]. Horizontal complementary Strategic Alliances (partners in the same situation in the supply chain), are used more to increase the strategic competitiveness of the existing partners. Of course it is usually common that horizontal chain alliances focus on the long-term production and improvement of the technology and many competitors have correlative agreements on the market. Some of these agreements, do not lead to reduce the costs, but lead to an increase in the profit and market power . Knowing the knowledge of trust in the partner may be different in horizontal alliances, because available competitors may be partners and in vertical alliances those are partners, customers and supplier. Anyway horizontal alliances between firms may be less dependent on the trust because In fact firms are competitors therefore there is not much interest in the stability of the horizontal alliances.

IV. REDUCING COMPETITION STRATEGIES In the heart of competition, many firms may try to

prevent destructive or extreme competition. One of the means to prevent the competition is implicit collusion or two-way limitations. Creating the cartel in some markets, for example the OPEC that manages the price and output of the firms in the industry, can be a sample for this. This strategy can also be applicable in governmental policies in the industry or business to reduce extreme competition. Some firms look for the prices’ laws that are indirectly made by the coordination between competitors. The Banks pass laws to reduce or increase the interest rate or profit that keeps the system of the price for coordinated interest rates between the firms. Figure 2 shows the model that the competitive effect is considered there.

Figure 2. Causal model considering the competitive

effect 3-3 reactive competitive strategies Some firms enter into the strategic alliances in response

to the strategic actions of the competitors. For instance electronic communication services led to integration of the markets and forming alliances there.

V. CONCLUSION

In this study, formation of strategic alliances with focus

on fabric industry has been investigated. For this purpose a dynamic model to show the influence of various factors in formation of strategic alliance in fabric industry is presented and dynamic and causal model of the effects of strategic alliance formation in fabric industry has investigated. For future research development of the main variables and flow for this causal diagram is recommended. In addition simulation model considering the defined main variables can be another future research.

REFERENCES [1] David C. Mowery, Joanne E. Oxley, Brian S. Silverman, "Strategic

Alliances and Interfirm Knowledge Transfer ", Strategic Management Journal, Vol. 17, Special Issue: Knowledge and the Firm, 1996), pp. 77-91.


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[2] I. Bitran, S. Conn, A.Nagel, “Smart: System For The Devlopment, Management & Support Of Strategic Alliances”, International Journal Of Production Ecomics, 2002, In Press, 1-8.

[3] P.M. Norman, “Are Your Secrets Safe? Knowledge Protection in Strategic Alliances”, Business Horizons , November - December: 2001, pp: 51-60.

[4] M.U. Douma, J. Bilderbeek, P.J. Idenburg Looise, J.K.Strategic, “Alliances: Managing the Dynamics of Fit”, Long Range Planning, 2000, 33:579-598.

[5] M. A. Hitt, R. E. Hoskisson, and R. D. Ireland, "Strategic Management: Competitiveness and Globalization", Third Edition, By: South-Western Collage Publishing Company 1999, PP: 310-348.

[6] R.D. Ireland, M.A. Hitt, D.Vaidyanath, “Alliance Management as a Source of Competitive Advantage”, Journal Of Management, 28(3): 2000, pp: 413-446.

[7] L.R Divita and N.L Cassill, "Global Partnerships in the Fabric World", Fabric Asia, December 2002, pp: 44-48.

[8] H. Chen, T.J. Chen, “Asymmetric Strategic Alliances”, a Network view of Business, 5712:1-8, 2002.


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