Cross cultural management 3e by cullen ch08

Chapter 8
International Strategic Alliances:
Design and Management

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Learning Objectives
•• Know
Know the
the steps
steps for
for implementation
implementation ofof successful
successful
international
international strategic
strategic alliances
alliances
•• Understand
Understand how
how toto link
link value
value chains
chains inin international
international
strategic
strategic alliances
alliances
•• Understand
Understand the

the importance
importance ofof choosing
choosing the
the right
right
partners
partners for
for alliances
alliances
•• Know
Know the
the important
important characteristics
characteristics toto look
look for
for inin
potential
potential alliance
alliance partners
partners
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Learning Objectives
•• Know
Know the
the differences
differences between
between equity-based
equity-based

international
international joint
joint ventures
ventures and
and other
other types
types ofof
international
international cooperative
cooperative alliances
alliances
•• Know
Know the
the basic
basic components
components ofof an
an international
international
strategic
strategic alliance
alliance contract
contract
•• Understand
Understand the
the control
control systems
systems and
and management
management
structures

structures used
used inin alliance
alliance organization
organization

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Learning Objectives
•• Appreciate
Appreciate the
the unique
unique problems
problems inin human
human resource
resource
management
management
•• Realize
Realize the
the importance
importance ofof interfirm
interfirm commitment
commitment and
and
trust
trust
•• Understand
Understand how
how companies

companies assess
assess the
the performance
performance ofof
their
their international
international strategic
strategic alliances
alliances
•• Know
Know when
when companies
companies should
should continue
continue or
or dissolve
dissolve
their
their international
international strategic
strategic alliances
alliances
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Strategic Alliances Issues
•• Increasingly
Increasingly popular
popular strategy
strategy toto develop

develop new
new product
product
and
and toto expand
expand into
into new
new markets
markets
•• However,
However, strategic
strategic alliances
alliances are
are very
very risky
risky and
and
unstable
unstable
•• Failure
Failure rate
rate ofof 30%
30% to
to 60%
60%
•• Even
Even profitable
profitable alliances
alliances can
can be

be torn
torn by
by conflict
conflict

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Exhibit 8.1: Implementing a
Strategic-Alliance Strategy

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Where to Link in the Value
Chain
•• Alliance
Alliance combining
combining same
same value-chain
value-chain activities
activities are
are toto
gain
gain efficiencies,
efficiencies, merge
merge talents,
talents, or
or share
share risks

risks
•• Upstream/downstream
Upstream/downstream alliances
alliances serve
serve the
the objective
objective ofof
low-cost
low-cost supply/manufacturing
supply/manufacturing
•• Operations/marketing
Operations/marketing alliances
alliances provide
provide access
access toto
markets
markets
•• Depends
Depends on
on the
the objective
objective that
that the
the firm
firm seeks
seeks toto
achieve
achieve
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Exhibit 8.2: Linking Value
Chains in Strategic Alliances:
Some Examples

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Exhibit 8.3: The Mixture of
Value-Chain Links

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Choosing a Partner: The Most
Important Choice?
•• Key
Key criteria
criteria for
for picking
picking an
an appropriate
appropriate alliance
alliance partner
partner
•• Seek
Seek strategic
strategic complementarity
complementarity
•• Understand

Understand objectives
objectives and
and seek
seek complementarity
complementarity
•• Pick
Pick aa partner
partner with
with complementary
complementary skills
skills
•• One
One that
that enhances
enhances but
but does
does not
not necessarily
necessarily
duplicate
duplicate an
an alliance
alliance partner’s
partner’s skills
skills

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Criteria for Choosing Partners

•• Seek
Seek out
out companies
companies with
with compatible
compatible management
management
styles
styles
•• Seek
Seek aa partner
partner that
that will
will provide
provide the
the “right”
“right” level
level ofof
mutual
mutual dependency
dependency
•• Avoid
Avoid the
the “anchor”
“anchor” partner
partner
•• Anchor
Anchor partner:
partner: aa partner
partner that

that holds
holds back
back the
the
strategic
strategic alliance
alliance because
because itit cannot
cannot or
or will
will not
not
provide
provide its
its share
share ofof the
the funding
funding
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Criteria for Choosing Partners
(cont.)
•• Be
Be cautious
cautious ofof the
the “elephant-and-ant”
“elephant-and-ant” complex
complex
•• Occurs

Occurs when
when two
two companies
companies are
are greatly
greatly unequal
unequal inin
size
size
•• Assess
Assess operating-policy
operating-policy differences
differences with
with potential
potential
partners
partners
•• Assess
Assess the
the difficulty
difficulty ofof cross-cultural
cross-cultural communication
communication
with
with aa likely
likely partner
partner
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Exhibit 8.4: International
Strategic Alliances for Small
Multinational Companies

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Exhibit 8.4: International
Strategic Alliances for Small
Multinational Companies

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Choosing an Alliance Type
•• Three
Three main
main types
types ofof strategic
strategic alliances
alliances
•• Informal
Informal international
international cooperative
cooperative alliances
alliances
•• Formal
Formal international
international cooperative
cooperative alliances

alliances
•• International
International joint
joint venture
venture

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Informal International
Cooperative Alliance
•• Non-legally
Non-legally binding
binding agreements
agreements between
between companies
companies
from
from two
two or
or more
more countries
countries
•• Agreements
Agreements ofof any
any kind
kind
•• Provide
Provide links
links anywhere

anywhere on
on their
their value
value chains
chains
•• Limited
Limited involvement
involvement between
between companies
companies

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Formal Cooperative Alliances
••
••
••

Higher
Higher degree
degree ofof involvement
involvement than
than informal
informal alliances
alliances
Formal
Formal contract
contract
Popular

Popular inin high
high tech
tech industries
industries because
because ofof high
high costs
costs
and
and risks
risks

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International Joint Ventures
(IJV)
•• Separate
Separate legal
legal entity
entity owned
owned by
by two
two or
or more
more parent
parent
companies
companies from
from different
different countries

countries
•• No
No need
need for
for equal
equal ownership
ownership
•• Equity
Equity based
based on
on cash
cash or
or other
other contributions
contributions
•• Ex.:
Ex.: One
One partner
partner brings
brings technology
technology while
while other
other
partner
partner brings
brings financial
financial contributions
contributions

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Exhibit 8.5: Types of Alliances

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Negotiating the Agreement
•• IJV
IJV negotiation
negotiation issues
issues
•• equity
equity contributions
contributions
•• management
management structure
structure
•• “prenuptial”
“prenuptial” agreements
agreements

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Exhibit 8.6: Selected
Questions for a StrategicAlliance Agreement

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Organizational Design in
Strategic Alliances
••
••
••

Depends
Depends on
on the
the type
type ofof alliance
alliance chosen
chosen
Informal
Informal ICAs
ICAs often
often have
have no
no formal
formal design
design issues
issues
Formal
Formal ICAs
ICAs may
may require
require separate
separate organization
organization unit

unit
housed
housed inin one
one company
company
•• IJV—Parent
IJV—Parent companies
companies set
set up
up separate
separate legal
legal entity
entity

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Decision-making Control
•• Majority
Majority ownership
ownership does
does not
not necessarily
necessarily control
control
•• Operational
Operational decisions
decisions
•• Strategic
Strategic decisions

decisions
•• InIn IJVs,
IJVs, strategic
strategic decision
decision making
making takes
takes place
place atat the
the
level
level ofof IJV’s
IJV’s board
board ofof directors
directors or
or top
top management.
management.

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Management Structures
•• Dominant
Dominant parent:
parent: controls
controls or
or dominates
dominates strategic
strategic
decision

decision making
making
•• Often
Often has
has majority
majority ownership
ownership
•• Treats
Treats the
the IJV
IJV as
as wholly
wholly owned
owned subsidiary
subsidiary
•• Shared
Shared management:
management: both
both parent
parent companies
companies
contribute
contribute approximately
approximately the
the same
same number
number ofof
managers
managers toto the
the alliance

alliance organization
organization
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Management Structures
•• Split
Split control
control management
management control:
control: partners
partners usually
usually
share
share strategic
strategic decision
decision making
making and
and split
split functional
functional
decision
decision making
making
•• Independent
Independent management
management structure:
structure: alliance
alliance
managers

managers act
act more
more like
like managers
managers from
from aa separate
separate
company
company
•• IJVs
IJVs often
often recruit
recruit managers
managers from
from outside
outside the
the parent
parent
companies
companies
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