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Chapter 9International Strategic Alliances: Design and ManagementInternational Strategic Alliances: Design and Management

Copyright© 2007 Thomson Learning All rights reserved

Strategic Alliances Issues

• Increasingly popular strategy to develop new product

and to expand into new markets

• However, strategic alliances are very risky and

unstable

Copyright© 2007 South-Western/Thomson Learning All rights reserved

unstable

• Failure rate of 30% to 60%

• Even profitable alliances can be torn by conflict

Where to Link in the Value Chain

• Alliance combining same value-chain activities are to

gain efficiencies, merge talents, or share risks

• Upstream/downstream alliances serve the objective of

low-cost supply/manufacturing


low-cost supply/manufacturing

• Operations/marketing alliances provide access to

markets

• Depends on the objective that the firm seeks to

achieve

Exhibit 9.2: Linking Value Chains in Strategic Alliances: Some Examples


Exhibit 9.3: Value-Chain Links in US International Alliances


Choosing a Partner: The Most Important Choice?

• Key criteria for picking an appropriate alliance partner

- Seek strategic complementarity

• Understand objectives and seek complementarity


• Understand objectives and seek complementarity

- Pick a partner with complementary skills

• One that enhances but does not necessarily

duplicate an alliance partner’s skills

Criteria for Choosing Partners

- Seek out companies with compatible management

styles

- Seek a partner that will provide the “right” level of

mutual dependency


mutual dependency

- Avoid the “anchor” partner

• Anchor partner: a partner that holds back the

strategic alliance because it cannot or will not

provide its share of the funding

Criteria for Choosing Partners (cont.)

- Be cautious of the “elephant-and-ant” complex

• Occurs when two companies are greatly unequal in

size


- Assess operating-policy differences with potential

partners

- Assess the difficulty of cross-cultural communication

with a likely partner

Choosing an Alliance Type

• Three main types of strategic alliances

- Informal international cooperative alliances

- Formal international cooperative alliances


- Formal international cooperative alliances

- International joint venture

Informal International Cooperative Alliance

• Non-legally binding agreements between companies

from two or more countries

- Agreements of any kind


- Provide links anywhere on their value chains

- Limited involvement between companies

Formal Cooperative Alliances

• Higher degree of involvement than informal alliances

• Formal contract

• Popular in high tech industries because of high costs


• Popular in high tech industries because of high costs

and risks

International Joint Ventures (IJV)

• Separate legal entity owned by two or more parent

companies from different countries

• No need for equal ownership


• Equity based on cash or other contributions

• Ex.: One partner brings technology while other

partner brings financial contributions

Exhibit 9.5: Types of Alliances


Negotiating the Agreement

• IJV negotiation issues

- equity contributions

- management structure


- management structure

- “prenuptial” agreements

Decision-making Control

• Majority ownership does not necessarily control

- Operational decisions

- Strategic decisions


- Strategic decisions

• In IJVs, strategic decision making takes place at the

level of IJV’s board of directors or top management.

Management Structures

• Dominant parent: controls or dominates strategic

decision making

- Often has majority ownership


- Treats the IJV as wholly owned subsidiary

• Shared management: both parent companies

contribute approximately the same number of

managers to the alliance organization


• Split control management control: partners usually

share strategic decision making and split functional

decision making

• Independent management structure: alliance


• Independent management structure: alliance

managers act more like managers from a separate

company

- IJVs often recruit managers from outside the parent

companies


• Rotating management: key positions rotate among

partners

- Popular in developing countries


- Trains management talent and transfers expertise

Choosing a Strategic Alliance Management Structure

• If partners have similar technologies or know-how and

contribute equally

- Shared management structure preferred


• If partners have different technologies but contribute

equally

- Split management structure preferred

• If one partner has dominant equity position

- Dominant management structure more likely

Choosing a Strategic Alliance Management Structure

• For joint ventures

• Mature joint ventures move to independent structures as the

joint venture’s management team gains more expertise

• Joint ventures in countries with a high degree of


• Joint ventures in countries with a high degree of

government intervention produce IJVs with local partner

dominance

• Independent management structures are more likely when

the market is expanding, the venture does not require much

capital, or the venture dose not require much R&D input

from its parents

Critical HRM Problems and Issues

• Career development—must provide clear information

on how alliance assignments fit within careers

• Cultural differences


• Training

Assessing the Performance of an International Strategic Alliance

• If strategic intent is to produce immediate results,

standard financial and efficiency measures can be

used.

• Other strategic alliance provide indirect strategic


• Other strategic alliance provide indirect strategic

benefits.

• IJV and ICA performance criteria: often must include

criteria other than financial, such as organizational

learning.

Exhibit 9.10: Selected Performance Criteria for Strategic Alliance


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