International Strategic Alliance

Types of Growth Vehicles

Internal and external growth

Internal Growth

• Product leadership (New Product Innovation)

• Cost leadership (Operational Excellence)

External growth

• M&A

• Strategic Alliance

Strategic Alliance

cooperative arrangemen 2+ firms combine their resources and capabilities to create new value, sometimes referred to as a partnership

3 routes to obtain capabilities and grow internationally

• make

  • build internally

• ally

  • cooperate with another firm

• buy

  • acquire another business

non-equity alliance

• Contractual cooperation

• Licensing

• R&D agreement

• Distribution

minority equity alliance

• Ownership stake

• One firm acquires a partia stake in its partner

joint venture alliance

• Separate jointly owned entity

• Partners establish and govern a new business

Theoretical Apporach: Ways to cheat in alliances

• Holdup

• Moral Hazard

• Adverse Selection

Holdup

• when 2 parties may be able to work most efficiently by cooperating

  • but refrain from doing so due to concerns that they may give the other party increased bargaining power

  • thereby reducing profits

• equity holdings and trust may help to prevent this

• exploiting the transaction-specific investment of partners

• supplier demands a price increase after its customer builds a unique factory line

Moral Hazard

• arises in a principal-agent agreements, where one party (agent) acts on behalf of another (principal)

  • agent usually has more information about their actions than principal

  • agent may have incentive to act inappropriately (from the viewpoint of the principal) if interets don’t align align

• person has skills but chooses not to use them in the job

• providing inputs of lesser value than promised

• partner promises its best engineers but quietly assigns junior staff

Adverse Selection

• cooperative partners misrepresenting skills, abilities, and other resources they bring to alliance

• misrepresenting the value of inputs

• firm claims to own a distribution network that does not exist

• employee getting a job by falsely stating that they have certain skills

Relational Governance

• Trust

• Repeated interation

• Information sharing

• Supports learning and rapid adaptation

Trust and contracts work together

Strong alliances need both reliable relationships and clear rules

• Relational Governance

• Formal Governance

Trust & governance = clear contracts

Formal Governance

• Contracts

• Decision rights

• Performance metrics

• Clarifies responsibilities and protects investments

Partner selection: the 4C framework

1. complementary capabilities

2. compatability

3. conflicts of Interest

4. commitment

Complementary capabilities (partner selection)

• What can this partner do that we cannot?

  • Product/technology

  • Capital

  • Global networks

Compatibility (partner selection)

• Can our strategies and cultures work together?

  • Individual chemistries & corporate culture

  • Decision-making style

Conflicts of interests (partner selection)

• Where might our incentives compete?

  • Overlapping geographic markets

  • Sources of production

Commitment to the alliance (partner selection)

• Will leaders fund and support the partnership?

  • Top management commitment

  • Willing to contribute the critical resources and competences

Collaborative Advantage

• Alliance-related skills are often part of the company’s tacit knowledge and embedded in the culture of the firm

  • Alliance competence

  • Alliance mindset

  • Alliance network

Competitive Advantage

• Successful managers will have, in addition to functional and general managerial skills, alliance management capabilities

• Products

• Technology

• Resources

Tacit knowledge

Know-how learned through experience and difficult to document