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Chapter 13

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Linda Stockton

Chapter 13: International Strategic Alliances International Corporate Cooperation - cooperation between international firms can take many forms, such as cross-licensing of proprietary technology, sharing of production facilities, cofounding of research projects, and marketing each other’s products  strategic alliances – business arrangements whereby two or more firms choose to cooperate for their mutual benefit o the partners may agree to pool R&D activities, marketing expertise, and/or managerial talent  joint venture – is 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 o established as corporations and are owned by the founding parents in negotiable proportions o although unequal ownership is common, many are owned equally by the founding firms - each participant in a strategic alliance is motivated to promote its own self-interest but has determined that cooperation is the best way to achieve its goals - JV must have its own set of managers and board of directors, it may be managed in 3 ways: o founding firms many jointly share mgmt., with each appointing key personnel o one parent may assume primary responsibility o independent team of managers may be hired to run it, this approach is preferred because independent managers focus on what is best for the JV rather than to placate bosses from founding firms - a formal mgmt. organization allows a JV to be broader in purpose scope, and duration that other strategic alliances - a non-joint venture strategic alliance may be formed merely 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 typical non-JV strategic alliance has a narrow purpose and scope and for this reason they are generally less stable Benefits of Strategic Alliances 1. Ease of Market Entry - partnering with a local firm can often help it navigate around competition or hostile government regulations - economies of scale and scope in marketing and distribution confer benefits on firms that aggressively and quickly enter numerous markets - a strategic alliance 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 firs on their economics that they require MNCs to work with a local partner if they want to operate in their country - at other times governments strongly encourage foreign companies to participate in JVs in order to promote other policy goals 2. Shared Risk - used to either reduce or control individuals firms risks - shared risk is an especially important consideration when a firm is entering a market that has just opened up or that is characterized by much uncertainty and instability 3. Shared Knowledge and Expertise - potential for the firm to gain knowledge and expertise that it lacks - a firm may wan to learn more about how to produce something, how to acquire certain resources, how to deal with local governments regulations or how to manage in a different environment – information that a partner can often can offer 4. Synergy and Competitive Advantages - the idea is that through some combination of market entry, risk sharing, and learning potential each collaborating firm will be able to achieve more and to compere more efficiently 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 goods or services are brought together to the market: R&D, design, production, marketing and distribution - firms must establish procedures for meshing such functional areas for the alliance to succeed - most comprehensive alliances are organized as joint ventures - as an independent entity, the joint venture 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 comprehensive alliance are able to achieve greater synergy through sheer size and total resources Functional Alliances - strategic alliances may also be narrow in scope, involving only a single functional area of the business - integrating the needs of the parent firms is much less complex, this functionally based alliances often do not take the form of a joint ventures  Production Alliances o a functional alliance in which two or more firms each manufacture products or provide services in a shared or common facility o may utilize a facility one partner already owns  Marketing Alliances o a functional alliance in which two or more firms share marketing services or expertise o one partner introduces its products or services into a market in which the other partner already has a presence o established firm helps the newcomer by promoting, advertising, and distributing its products or services o alternatively, the firms may agree to market each others products on a reciprocal basis  Financial Alliances o a functional alliance of firms that want to reduce the financial risk associated with a projects o partners make share equally in contributing financial resources for the project or one partner may contribute the bulk of the financing while the other partner provides special expertise or makes other kinds of contributions to partially offset is lack of financial investment  Research and Development Alliances o rapid technological change in high technology industries an the skyrocketing cost of staying abreast of that change have promoted an increase in function alliances that focuses on R&D o the partners agree to undertake joint research to develop new products or services o not usually formed as joint ventures, since scientific knowledge can be transmitted among partners through private research conferences, the exchange of scientific papers, and laboratory visits o instead each partner may simply agree to cross-license whatever new technology is developed in its labs, thereby allowing its partners to patent at will o each partner has equal access to all technology developed by the a
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