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MGCR 382 (35)
Chapter 13

MGCR382 Chapter 13 Notes - International Strategic Alliances.docx

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Department
Management Core
Course
MGCR 382
Professor
Nicholas Matziorinis
Semester
Winter

Description
MGCR382 Chapter 13 Notes: International Strategic Alliances Strategic alliances – business arrangements whereby two or more firms choose to cooperate for their mutual benefit  Cross-licensing of proprietary technology, sharing of production facilities, cofounding of research projects, and marketing of each other’s products Joint venture – a special type of strategic alliance in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents. Joint ventures are normally established as corporations and are owned by the founding parents in whatever proportions they negotiate  The founding firms may jointly share management, with each appointing key personnel who report back to officers of the parent  One parent may assume primary responsibility  An independent team of managers may be hired to run it (often preferred, because independent managers focus on what is best for the JV) A formal management organization allows a joint venture to be broader in purpose, scope, and duration than other types of strategic alliances.  A non-JV may be formed to allow the partners to overcome a particular hurdle that each faces in the short run. A JV will be more helpful if the two firms plan a more extensive and long-term relationship  A non-JV has a narrow purpose and scope, such as marketing a new smartphone in Canada. A JV might be formed if firms wanted to cooperate in the design, production, and sale of a broad line of telecommunications equipment in North America  Non-JVs are often formed for a specific purpose that may have a natural ending  relatively less stable than JVs Benefits of Strategic Alliances Ease of Market Entry  A firm wishing to enter a new market often faces major obstacles, such as entrenched competition or hostile government regulations  May allow the firm to achieve the benefits of rapid entry while keeping costs down  Many countries are so concerned about the influence of foreign firms on their economies that they require MNCs to work with a local partner if they want to operate in these countries  At other times, governments strongly encourage foreign companies to participate in joint ventures in order to promote other policy goals Shared Risk  Strategic alliances can be used to either reduce or control individual firms’ risks  Shared risk is an important consideration when a firm is entering a market that has just opened up or that is characterized by much uncertainty and instability Shared Knowledge and Expertise  A firm may want to learn more about how to produce something, how to acquire certain resources, how to deal with local governments’ regulations, or how manage in a different environment Synergy and Competitive Advantage  Through some combination of market entry, risk sharing, and learning potential, each collaborating firm will be able to achieve more and to compete more effectively than if it had attempted to enter a new market or industry alone Scope of Strategic Alliances Comprehensive Alliances  Arise when the participating firms agree to perform together multiple stages of the process by which good or services are brought to the market: R&D, design, production, marketing, and distribution  Firms must establish procedures for meshing functional areas for the alliance to succeed  Organized as JVs  can adopt operating procedures that suit its specific needs, rather than attempting to accommodate the often incompatible procedures of the parents  By fully integrating their efforts, participating firms in a CA are able to achieve greater synergy through sheer size and total resources Functional Alliances  Production alliance – a functional alliance in which two or more firms each manufacture products or provide services in a shared or common facility  a PA may utilize a facility one partner already owns  Marketing alliance – a functional alliance in which two or more firms share marketing services or expertise. In most cases, one partner introduces its products or services into a market in which the other partner already has a presence. The established firm helps the newcomer by promoting, advertising, and/or distributing its products or services. The established firm may negotiate a fixed price for its assistance or may share in a percentage of the newcomer’s sales or profits. Alternatively, the firms may agree to market each others’ products on a reciprocal basis  Financial alliance – a functional alliance of firms that want to reduce the financial risks associated with a project. Partners may share equally in contributing financial resources to the project, or one partner may contribute the bulk of the financing while the other partner (or partners) provides special expertise or makes other kinds of contributions to partially offset its lack of financial investment  R&D alliance – partners agree to undertake joint research to develop new products or services. Such alliances are usually not formed as JVs, since scientific knowledge can be transmitted among partners in other ways. Instead each partner may simply agree to cross-license whatever new technology is developed in its labs, thereby allowing its partner (or partners) to use its patents at will. Each partner then has equal access to all technology developed by the alliance, an arrangement that guarantees the partners will not fall behind each other in the technological race. Partners are also freed from legal disputes among themselves over ownership and validity of patent o R&D consortium – confederation of organizations that band together to research and develop new products and processes for world markets. It represents a special case of strategic alliance in that governmental support plays a major role in its formation and continued operation. Japanese firms have practice this successfully. Implementation of Strategic Alliances Selection of Partners  Research suggests that strategic alliances are more likely to be successful if the skills and resources of the partners are complementary – each must bring to the alliance some organizational strength the other lacks. o Compatibility – should select a partner that it can trust and with whom it can work effectively. Without mutual trust, a strategic alliance is unlikely to succeed. But incompatibilities in corporate operating philosophies may also doom an alliance o Nature of a potential partner’s products or services – it is often hard to cooperate with a firm in one market while doing battle with that same firm in a second market. Under such circumstances, each partner may be unwilling to reveal all of its expertise to the other partner for fear that the partner will use that knowledge against the firm in another market. Most experts believe a firm should ally itself with a partner whose products or services are complementary to but not directly competitive with its own o Relative safeness of the alliance – managers should assess the success or failure of pre
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