CHAPTER 6 – ENGAGING IN CROSS-BORDER COLLABORATION
A.WHY STRATEGIC ALLIANCES?
- STRATEGIC ALLIANCES
- Described as: the variety of inter-firm cooperation agreements, ranging from shared research to formal joint ventures and minority equity participation.
- Forms of alliances include:
- Traditional joint ventures, with these characteristics:
- Formed between senior MNE in and industrial country and junior partner in less-developed country
- Goal was for senior MNE to gain new market access for existing products.
- Local partner provides market expertise, protection from government intervention.
- Local partner gains access to new products and knowledge.
- Modern form of alliances, characteristics:
- Typically formed between partners in industrialized countries.
- Focus on creating new products and technologies.
- Likely formed for short duration.
- MOTIVATIONS DRIVING FORMATION OF STRATEGIC ALLIANCES
- Technology exchange – MNEs forced to form R&D partnerships due to increase in interdisciplinary and inter-industry innovations (e.g., telecommunications, medical equipment, electronics).
- Global competition – smaller MNEs must join forces to compete against single dominant market leaders.
- MOTIVATIONS DRIVING FORMATION OF STRATEGIC ALLIANCES (continued
- Industry convergence – several high-tech industries are beginning to overlap due to complexity of technological skill set needed to compete and survive in the industry (e.g.,, HDTV)
- Economies of scale and reduction of risk –
- Partners can pool resources to increase economies of scale
- Partners and share and leverage specific strengths of each other
iii. Sharing different and complementary resources can reduce cost of duplication.
- Alliances as alternative to mergers – create alliances when political, legal or regulatory constraints prohibit mergers (e.g., code-sharing in airline industry when foreign ownership is prohibited)
- RISKS AND COSTS OF COLLABORATION
- Risks of Competitive Collaboration:
- Asymmetrical benefits – one may use partnership to gain competitive edge over the other (e.g., one partner learns skills from the other but is reluctant to share its own).
- Control of investments – one partner keeps control over key investments (e.g., in product development, marketing, manufacturing). Other partner becomes dependent.
- Risk of “learning by doing” – one partner uses knowledge gained from the alliance to compete against the other partner. (i.e., risk of strengthening a competitor)
- Risk of takeover – fear that alliance may result in the acquisition of one partner by the other.
- Cost of Strategic and Organizational Complexity
- Risk and rewards of collaboration become more complex because they must be shared (i.e., allocated) between partners
- BUILDING AND MANAGING COLLABORATIVE VENTURES
- Challenges of Building Cooperative Venture
- General challenges include
- Strategic and environmental disparities among partners – individual partners may have opposing strategic objectives
- Lack of common experience and perception base – may have different administrative heritages, different organizational cultures
iii. Difficulties in inter-firm communications – e.g., due to different languages, culture
- Conflicts of interest and priorities – regarding objectives.
- Personal differences among managers – due to management teams from different cultural/national backgrounds
- Pre-alliance Challenges
Challenges faced by firms prior to joining forces with a partner.
- Analyzing the partner’s strategic and organizational capabilities – often difficult due to lack of adequate information.
- Escalation of commitment – managers involved in planning alliance reluctant to back out.
Solution: operational managers responsible for implementation involved in planning.
iii. Defining scope of alliance – problem overstating the scope of the partnership.
Scope more difficult to define due to:
- Complicated cross-ownership of equity
- Need for cross-functional coordination
- Number and scope of joint activities
- BUILDING AND MANAGING COLLABORATIVE VENTURE (continued)
- Challenges of Managing Cooperative Ventures
- Managing the boundary
- Setting organizational boundary structures to separate the alliance from the partners’ operations. May use:
- Separate legal entity
- One or both partners given operational control
- Joint committees.
- Choice of boundary structure depends on scope. Higher level of interdependent tasks needs structure with more decision-making integration (likely through separate entity).
- Managing knowledge flows
- Need to exploit knowledge generated by the partnership
- Each needs to protect internal knowledge it does not want to share with the other partner (i.e., appropriability theory).
- Set up effective governance structure –
- To provide proper strategic direction.
- “Distributive” equality (i.e., win-lose) in negotiations/governance not necessarily desirable (may lead to ineffectiveness). Use “integrative” equality based on relevant task/expertise instead.