chapter 8 international strategic alliances: management and design
DESCRIPTION
CHAPTER 8 INTERNATIONAL STRATEGIC ALLIANCES: MANAGEMENT AND DESIGN. STRATEGIC ALLIANCES ISSUES. Stability and risk Failure rate of 30 to 60 percent Even profitable alliances can be torn by conflict. - PowerPoint PPT PresentationTRANSCRIPT
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STRATEGIC ALLIANCES STRATEGIC ALLIANCES ISSUESISSUES
Stability and risk Failure rate of 30 to 60 percentEven profitable alliances can
be torn by conflict
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Successful Alliances Must:Successful Alliances Must:Not Only Make Strategic Not Only Make Strategic
Sense But Also Require Good Sense But Also Require Good ImplementationImplementation
(See Exhibit 8.1 for Steps in (See Exhibit 8.1 for Steps in Implementation of Strategic Implementation of Strategic
Alliances)Alliances)
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Decide Link inValue Chain
Select aPotentialPartner
Choose anAlliance Type
Negotiate anAgreement
Build theOrganization
Terminateor
ReviseImplementation
YesNoMeets
StrategicObjectives?
Build Trustand
Commitment
Acceptable?
Yes
Begin Over
Continue orIncrease
Involvement
No
AssessPerformance
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WHERE TO LINK IN THE WHERE TO LINK IN THE VALUE CHAIN?VALUE CHAIN?
Depends on the objectives that the firm seeks to achieve
Exhibit 8.2 gives some examples of common links in the value chain
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InputLogistics
Operations
Marketingand Sales
OutputLogistics
Service
InputLogistics
Operations
Marketingand Sales
OutputLogistics
Service
R&D R&DR&D
Supply/Production
Production/Marketing
Operations
CompanyB
CompanyA
Marketing
Delivery
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EXHIBIT 8.3 VALUE CHAIN EXHIBIT 8.3 VALUE CHAIN LINKS IN U.S. ALLIANCESLINKS IN U.S. ALLIANCES
0102030405060
%
R&
D
Op
er.
Mkt
.
Pro
d./
Mkt
.
Oth
er
CanadaorMexico
W.Europeor Japan
Others
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SELECTING A PARTNER: THE SELECTING A PARTNER: THE MOST IMPORTANT CHOICE? MOST IMPORTANT CHOICE?
Seek – strategic complementaritystrategic complementarity– skill complementarityskill complementarity– compatible management compatible management
stylesstyles
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ISSUES TO CONSIDER IN ISSUES TO CONSIDER IN CHOOSING A PARTNERCHOOSING A PARTNER
The level of mutual dependency The "anchor" partner The "elephant and the ant"
complexOperating policy differences Difficulties of cross-cultural
communication
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TYPES OF STRATEGIC TYPES OF STRATEGIC ALLIANCESALLIANCES
International cooperative alliances – informal–formal
International joint ventures
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INFORMAL COOPERATIVE INFORMAL COOPERATIVE ALLIANCESALLIANCES
Non-legally binding agreements between companies from two or more countries– limited involvement between companies
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FORMAL COOPERATIVE FORMAL COOPERATIVE ALLIANCESALLIANCES
Higher degree of involvement than informal alliances
Formal contractPopular in high tech industries
because of high costs and risks
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INTERNATIONAL JOINT INTERNATIONAL JOINT VENTURESVENTURES
Separate legal entity owned by two or more parent companies from different countries
No need for equal ownershipEquity based on cash or other
contributions
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AllianceType
Degree ofInvolvement
Ease ofDissolution
Visibility toCompetitors
Contract LegalEntity
InformalICA
Usuallylimited inscope
Easy, at theconvenienceof eitherside
Often unknownto competitors
No None
Formal lCA Deeperinvolvement
Morediffi cult todissolve priorto end ofcontract
Often visibleto competitors
Yes None
I J V Deepinvolvement
Mostdiffi cult todissolve
High visibility Yes Yes,
EXHIBIT 8.5 TYPES OF EXHIBIT 8.5 TYPES OF ALLIANCES: SUMMARYALLIANCES: SUMMARY
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NEGOTIATING THE NEGOTIATING THE AGREEMENTAGREEMENT
Joint venture contracts: legal documents that bind partners together
The formal agreement is not as important as the ability of managers to get along
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EXHIBIT 8.6 ISSUES IN EXHIBIT 8.6 ISSUES IN ALLIANCE AGREEMENTSALLIANCE AGREEMENTS
For both ICAs and IJVs–under which country’s law does the agreement operate?
–how will profits be divided?–do you need a prenuptial agreement?
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Primarily for IJVs–what are the equity contributions of each partner?
Exhibit 8.6 issues in alliance Exhibit 8.6 issues in alliance agreements, continuedagreements, continued
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ORGANIZATION DESIGN IN ORGANIZATION DESIGN IN STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
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DECISION MAKING CONTROLDECISION MAKING CONTROL
Majority ownership does not necessarily = control
Operational decisionsStrategic decisions
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MANAGEMENT STRUCTURES MANAGEMENT STRUCTURES
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DOMINANT PARENT DOMINANT PARENT
One parent controls strategic and operational decision making –dominant parent often has majority ownership
–dominant parent treats the IJV as wholly owned subsidiary
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SHARED MANAGEMENT SHARED MANAGEMENT
Both parents contribute approximately the same number of managers to the board of directors, the top management team, and functional area management
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SPLIT CONTROL SPLIT CONTROL
Partners usually share strategic decision making and split functional decision making
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INDEPENDENT MANAGEMENTINDEPENDENT MANAGEMENT
IJV managers act like managers from a separate company – IJVs often recruit managers from outside the parent companies
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ROTATING MANAGEMENT ROTATING MANAGEMENT
Key positions rotate among partners–popular in developing countries trains management talent and transfers expertise
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CHOOSING AN ALLIANCE CHOOSING AN ALLIANCE MANAGEMENT STRUCTUREMANAGEMENT STRUCTURE
If one parent has dominant equity position– dominant management structure more likely
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Equal ownership–shared, split, or rotating management structure preferred
Similar technologies or know-how–shared management structure preferred
Choosing an alliance Choosing an alliance management structure, management structure,
continuedcontinued
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If different technologies –split management structure preferred
More strategic importance to one partner–dominant management structure preferred
Choosing an alliance Choosing an alliance management structure, management structure,
continuedcontinued
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HUMAN RESOURCE HUMAN RESOURCE MANAGEMENT IN STRATEGIC MANAGEMENT IN STRATEGIC
ALLIANCESALLIANCES
The HRM functions of an IJV are more complex because managers (and sometimes workers) come from two or more firms or from two or more cultures
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HRM ISSUESHRM ISSUES
HRM planningParent involvementStaffing the alliance management
and technical personnelStaffing the alliance workforceAssigning managers strategic or
operations tasks
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HRM issues, continuedHRM issues, continued
Performance assessmentLoyaltyCareer developmentCultural differencesTraining
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COMMITMENT AND TRUST: THE COMMITMENT AND TRUST: THE SOFT SIDE OF ALLIANCE SOFT SIDE OF ALLIANCE
MANAGEMENTMANAGEMENT
Without trust and commitment the alliance will fail entirely or never reach its potential
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COMMITMENTCOMMITMENT
Taking care of each other and putting forth extra effort to make the venture work–attitudinal commitment–calculative commitment
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TRUSTTRUST
The confidence that the partner will deliver on their expected contributions to the venture and behave with good will–benevolent trust–credibility trust–“trust cycles”
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Exhibit 8.8 The Trust/CommitmentCycle
CREDIBILITYTRUST
BENEVOLENTTRUST
CALCULATIVECOMMITMENT
ATTITUDINALCOMMITMENT
CREDIBILITYTRUST
BENEVOLENTTRUST
CALCULATIVECOMMITMENT
ATTITUDINALCOMMITMENT
CREDIBILITYTRUST
BENEVOLENTTRUST
CALCULATIVECOMMITMENT
ATTITUDINALCOMMITMENT
Time
Time
Start
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WHY ARE TRUST AND WHY ARE TRUST AND COMMITMENT IMPORTANT? COMMITMENT IMPORTANT?
Required for IJV participants to contribute tacit knowledge and quality inputs
Weakness of formal contracts–can never identify all the issues
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KEY FACTORS TO BUILD AND KEY FACTORS TO BUILD AND SUSTAIN TRUST AND SUSTAIN TRUST AND
COMMITMENTCOMMITMENT
Pick your partner carefully Know each side’s strategic
goalsSeek win-win situations Go slowly
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Key factors to build and sustain Key factors to build and sustain trust and commitment, trust and commitment,
continuedcontinued Invest in cross-cultural training Invest in direct communicationFind the “right” levels
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EXHIBIT 8.9 THE “RIGHT” EXHIBIT 8.9 THE “RIGHT” LEVELS OF TRUST AND LEVELS OF TRUST AND
COMMITMENTCOMMITMENT
Vulnerabilities &Benefits
Trus
t &
Com
mitm
ent
Vulnerabilities
BenefitsTrade Off
Point
HighLow
Low
High
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ASSESSING ALLIANCE ASSESSING ALLIANCE PERFORMANCEPERFORMANCE
Match strategic objectives with performance measures
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EXHIBIT 8.10 SELECTED EXHIBIT 8.10 SELECTED PERFORMANCE CRITERIA FOR PERFORMANCE CRITERIA FOR
STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
Management ProcessesOrganizational LearningCompetitiveMarketingFinancial
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IF THE ALLIANCE DOES NOT IF THE ALLIANCE DOES NOT WORKWORK
Negotiate an end or improve implementation
Know when to quit/invest moreAvoid “escalation of commitment”Plan end - “prenuptial agreements”Death not always failure
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CONCLUSIONSCONCLUSIONS
The importance of international strategic alliances
Most important decision: picking the right partner
No set structure in ownership, decision making control, or management control