Incorporating International Strategic Alliances into Overall Firm Strategy: A Typology of Six Managerial Objectives

Stephen B. Preece

This research differentiates between international strategic

alliance (ISA) structures, functions, and objectives, focusing on the

latter and the link to overall firm strategy. Six objectives are put
forwardlearning, leaning, leveraging, linking, leaping, and locking

outwith a discussion of the strategic implications of each. From a theoretical perspective, it is suggested that more emphasis should be placed on ISA objectives as a means of supporting overall firm strategies, as opposed to focusing on ISA structures or functions. From an applied perspective, managers are encouraged to consider the long-term strategic implications inherent in specific alliance arrangements. 1995 John Wiley & Sons, Inc.
INTRODUCTION

In response to global competitive forces, business leaders are increasingly turning to cooperative arrangements to advance their competiThe author would like to gratefully acknowledge comments provided by Dr. Grant Miles as well as the anonymous reviewers of this journal. Dr. Preece is an Assistant Professor of Business Policy at Wilfrid Laurier University, Waterloo, Ontario, Canada. The International Executive, Vol. 37(3) 261-277 (May/June 1995) 1995 John Wiley & Sons, Inc. CCC 0020-6652/95/030261-17 261

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tive edge internationally. Popularly called international strategic alliances (ISA), it appears that this trend represents a permanent fixture in the portfolio of strategic options available to global managers, as opposed to what has sometimes been described as a passing fad in the managerial transition to international maturity. Benchmark surveys in the United States indicate that by the mid-1980s US-based companies had a stock of over 16,000 joint ventures, while foreign affiliates (traditional subsidiaries) numbered only half that sum (Contractor, 1990). A recent survey by a Dutch research institute tallied over 4,000 technology alliances formed during the 1980s alone ("Holding Hands," 1993), and one estimate suggests that by the end of 1990 there had been more joint ventures formed since 1981 than in the prior years combined (Anderson, 1990). The rise of ISA formation has brought about both euphoria over the potential of such arrangements to meet the intensifying demands of global competition, as well as disappointment over the challenges inherent in their implementation. Important to the success of these arrangements is that managers be clear about their overall strategic purpose. Alliances are often spoken of in terms of specific functions performed (i.e., market extension, technology sharing). However, the decision to engage a company in a major alliance often represents a substantive strategic alternative having wide-ranging implications for overall firm competitiveness, both positive and negative. The way in which an ISA is incorporated into the overall firm strategy, the long-run strategic objective assumed by management, is critical to the effectiveness of this competitive tool. This article suggests that there are multiple objectives managers can take regarding the integration of ISAs into the strategic management of the organization, with varying consequences.
CONCEPTUALIZATION OF STRATEGIC ALLIANCES

The three ways to conceptualize ISAs are: structures, functions, and objectives (see Table 1). Perhaps the most common way of thinking about ISAs focuses on alliance organizational structures. The most prevalent organizational structure is the joint venture, where two firms contribute equity in order to create a new and separate entity; some have described this new organization as the "child" with contributing firms assuming the role of "parents" (Harrigan and Newman, 1990). A variation on the joint venture is the minority-equity investment, where one firm takes a minority-equity position in another ongoing firm. Nonequity cooperative arrangements are also possible where firms agree to share efforts, assets, and profits without engaging in equity ties. The extent of collaborative intensity is

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Table 1. ISA Structures, Functions, and Objectives Structures Functions Ohjectives The organizational form chosen for the collaboration. May include joint venture, minority-equity, licensing, nonequity contractual, etc. The specific activities to he performed hy the alliance. May include market access, technology development, production sharing, financial access, risk sharing, etc. The overall contribution the alliance is intended to have on the strategic direction and capahilities of the firm, i.e., its long-run significance.

not necessarily obvious when comparing equity with nonequity arrangements, despite the obvious tangible effect equity provides (Osborn and Baughn, 1990). Otber efforts to analyze tbe structure of alliances bave focused on issues sucb as tbe impact of varying levels of partnersbip equity on performance (Killing, 1982), small versus large firm alliances (Hull, Slowinski, Wbarton, and Azumi, 1988), specific industry sectors (Gbemewat, Porter, and Rawlinson, 1988), and nationality issues (Hennart, 1991; Tyebjee, 1988). Tbe prevailing message of tbis literature is tbat certain structural arrangements are to be avoided or pursued in tbe formation and implementation of ISAs. A second conceptualization of ISAs relates to tbe various functions of alliances. Tbe primary areas targeted for alliance formation are often collapsed into four primary categories: technology, finance, markets, and production (Jain, 1987). Tecbnology-driven alliances include sucb activities as tecbnology development, commercialization, sbaring, or licensing. Finance-driven alliances focus on gaining access to financial markets at least cost and tbe sbaring of risk wbere tbe product gestation period is long. Market-driven alliances empbasize tbe penetration of new foreign markets, sbaring distribution cbannels, or extending a brand name. Production-driven alliances include tbe sbaring of production facilities, rationalizing manufacturing, or integrating supplier relationsbips. A large amount of literature focuses on tbe functions relevant to tecbnology, finance, markets, and production, and altbougb tbe term "international strategic alliances" assumes a strategic activity, tbe actual link to overall firm strategy is not always clear. Altbougb tbe structure and functional conceptualizations address important elements of collaborative activity, it is tbe tbird category, ISA strategic objectives, tbat will potentially bave tbe greatest impact on tbe overall strategic direction and future organizational capabilities of tbe firm. Tbe variety of options available to managers in approacbing strategic alliance objectives and tbeir consequences bas not been well developed in tbe literature. Tbis article presents a typology defining six cooperative objectives, in bopes tbat it will

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assist managers in assessing tbeir own vision of strategic alliances and contribute to tbe understanding of bow sucb relationsbips can work to tbeir advantage botb cooperatively and competitively. THE SIX Ls OF INTERNATIONAL STRATEGIC ALLIANCES To acbieve an improved level of conceptualization, tbis study explores six strategic alliance objectives tbat can be used in tbe pursuit of global competitive advantage. A description of eacb strategic objective will be explored along witb consideration of botb tbe opportunities and tbreats inberent in eacb. It is important to empbasize tbat botb structural and functional issues are important, and inextricably linked, to tbe various strategic objectives tbat will be discussed. It is also evident tbat wbile one alliance objective will likely dominate, otbers may play secondary roles. Learning Tbe first strategic objective is learning (see Table 2 for a summary of tbe six strategic objectives). In tbis case tbe firm enters into tbe alliance witb tbe intention of acquiring needed know-bow from tbe
Table 2. Six ISA Objectives Objective Learning Leaning Description Acquire needed knowhow (markets, technology, management) Replace value-chain activities, fill in missing firm infi-astructure Fully integrate firm operations with partner Closer links with suppliers and customers Pursue radically new area of endeavor Reduce competitive pressure fi-om nonpartners Positive Aspects Inexpensive and efficient acquisition Specialization advantages Entirely new portfolio of resources Closer coordination of vertical activities Expanding universe of market opportunity Temporary competitive hiatus Negative Aspects Partner opportunism, organizational challenges Partner dependency

Leveraging Linking Leaping Locking out

Decision paralysis, evolving environment Greater infiexibility in vertical relations Cultural incompatibility Static strategic position, ephemeral advantage

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partner through the learning process. Learning becomes attractive when a firm is incapable of performing certain value-chain activities that have the potential to make it either more powerful or more profitable. Two important assumptions linked to this objective are: there is an advantage to maintaining the function/technology within the firm hierarchy; and the function/technology is embedded within the firm, making an arm's-length (market) transaction difficult. It is unlikely that the learning alliance will actually be described by the participants in these terms. The stated rationale will be defined as an agreement to combine R&D efforts, jointly manufacture a product, and/or share distribution outlets (all functional arrangements). However, one or both sides may aggressively use the alliance to acquire valuable know-how, gradually becoming independent of the "teaching" partner once the learning process is complete. Learning in cooperative relationships has received important attention in the research on ISAs (Crossan and Inkpen, 1994; Kogut, 1988; Parkhe, 1991). A common theme is the "intractability" of learning mechanisms. It is difficult to isolate specific areas of the alliance interface, leaving a variety of processes, technologies, and practices up for grabs for the would-be "student." The fundamental risk in alliance learning is the issue of "leakage" (Beamish and Banks, 1987) where unintended knowledge or expertise is passed on, with the worst-case scenario leading to the student coming back to compete with the teacher. One of the most compelling evaluations of ISA learning is a study conducted by Gary Hamel involving extensive interviews with 74 managers across 11 companies involved in ISAs (1991). Hamel suggests that the core competencies critical to firm success are distributed unequally among companies and that ISAs can have a dramatic impact on the redistribution of these intangible assets. Specifically, Hamel argues that ISAs are often a mechanism by which firms acquire partner resources through alliance access. In addition, when learning is a primary motivation, alliance longevity is naturally determined by the time it takes to acquire the needed skills; the alliance essentially becomes a "race to learn" between partners. The three key determinants of learning capabilities in alliances are: 1. intentthe objectives the partners have for systematic learning; 2. transparencythe organizational barriers to learning; and 3. receptivitythe willingness or ability of firm employees to learn. Instilling the necessary learning capabilities in organizational actors

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can pose a major challenge to architects of interorganizational relationships. The positive elements of pursuing alliances as a learning vehicle are speed, efficiency, and cost. Rather than developing a new capability (process, market, or technology) by trial and error through internal development, the alliance provides immediate access to the desired skill. An alternative to alliance learning would be to acquire a firm that carries the needed know-how. However, this strategy can prove to be confrontational and ultimately result in losing tbe desired skills by way of workplace disruptions, distrust, and defections (Hitt, Hoskisson, Ireland, and Harrison, 1991; Schweiger and Denisi, 1991). Licensing can also serve as an alternative for developing needed know-how; however, some of the most valuable technologies (management, process, and product) are often so embedded in the organizational framework that they are difficult to separate and transfer effectively to a new organization (Teece, 1985). In short, the strategic alliance relationship with learning as a primary intent has many advantages over the alternativesacquisition, in-house development, or licensing. The negative elements of learning alliances primarily accrue to the nonlearner. If an alliance partner does not have a learning motive, it may view partner learning efforts to be predatory or in bad faith, resulting in confiict or even dissolution. Further, the learning alliance assumes an organizational ability to learn and a willingness of the partner to allow learning to take place (Hamel, Doz, and Prahalad, 1989). The potential for learning in alliances to dramatically impact the competitive dynamics among competing firms makes it an alliance objective that must be seriously considered and appropriately grappled with. Leaning The second objective in ISA relationships is leaning. In this case the alliance is entered with the intention of having the partner replace an element of the firm's value-chain activities that was previously performed internally. An important assumption is that by ceding out certain operational segments, firms will be able to focus on what they do best, placing an emphasis on their core competence (Prahalad and Hamel, 1990). The firm picking up the value-chain activity is assumed to have its own core competence in that particular area. Leaning objectives, to the extent that the firm is moving away from unattractive value-chain activities, may be considered to be the opposite of the learning objective that seeks to take on particular activities and competencies.

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A natural opportunity for leaning in ISAs occurs tbrougb cooperative relationsbips witb firms located in countries tbat provide a comparative advantage in specific value-added activities. US companies, for example, may sbift production assignments to overseas alliance partners wbere labor costs are significantly cbeaper, wbile maintaining basic R&D and marketing functions in tbe United States. Tbe effect is to enable US companies to focus on tbe bigber value-added value-cbain activities wbile ceding out more labor-intensive segments to alliance partners. Tbe general rationale for tbis type of partnersbip is to delegate out a central business function to an alliance partner, tbereby freeing resources for more appropriate uses. Tbe advantage of sucb a strategy can result in substantial sbortterm gains in a production cost structure. Botb parties benefit tbrougb specialization in tbe functions tbat are most amenable to tbeir environments or organizations. Tbe risk in a leaning strategy is in determining wbicb activities are not critical to tbe core competence of tbe firm. If a firm mistakenly cedes out crucial activities it can severely cripple its long-term strategy. A central problem to tbis alliance objective is functional impotence resulting from a loss of skills. Wben a set of operations is removed from tbe "vocabulary" of tbe firm, tbe organization may forget bow to use it and end up losing it forever. Employees wbo were once engaged in a specific function tbat is later ceded out to tbe alliance partner eitber move to anotber company or are reassigned. Tbis can lead to a dependency relationsbip wbere tbe original firm can no longer perform production or otber functions internally witbout incurring substantial costs. US industries bave dependency relationsbips in sectors sucb as: composite materials, factory equipment, office equipment, beavy macbinery, consumer electronics, and power generation equipment (Lei and Slocum, 1992). Anotber problem witb tbe leaning strategy is associated witb tbe geograpbic and organizational separation of value-cbain functions. Performing design and researcb functions in one country wbile production takes place on tbe otber side of tbe world can lead to inefficiencies and slower response times (Markides and Berg, 1988). In addition, important feedback and interactive development and production processes are noticeably absent. Finally, tbe risk of creating a competitor is great. Tbe number of industries tbat bave relied on cooperative relationsbips to substitute internal processes only to be later overtaken by tbe partners are numerous (Hamel et al., 1989; Main, 1990). Once tbe production process falls into tbe bands of anotber producer, it tben bas all tbe opportunities to acbieve productivity and tecbnological gains from improvements and innovation (Reicb and Mankin, 1986).

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Leveraging The third strategic objective to be addressed in ISA relationships is leveraging. In this case the alliance represents a major integration of firm functions between partners in order to benefit from size and/or scope advantages. The competitive structure of numerous global industries often requires a critical mass in areas such as market reach, R&D dollars, and product offerings to compete with other dominant global players. While the costs of amassing the necessary size or scope may be prohibitive for an individual firm, two or more smaller firms can enter into an ISA to achieve similar results. The outcome is the leveraging of individual firm strengths with those of a partner for size and/or scope advantages. An illustration of the leveraging objective is as follows. In early 1991, the Eastman Kodak Co. subsidiary, Sterling Drug (US), and Sanofi S.A. (France) joined their pharmaceutical operations in what could be considered a leveraging alliance. The arrangement, which involved no equity exchange, enabled Sanofi to market its products through the extensive Sterling distribution system in both North and Latin America, while Sterling gained access to the extensive Sanofi distribution system throughout Europe (Ansberry, 1991). In addition to market sharing arrangements, the alliance included a significant R&D component. Traditionally, Sterling held a strong over-the-counter expertise while Sanofi maintained strengths in prescription drugs. The combination of their R&D efforts and budgets was considered by many to give their joint operations the critical mass necessary to be major players in the global Pharmaceuticals industry (Ansberry, 1991). Profits from projects pursued jointly were, by agreement, split SOSO, although no equity was exchanged in the original deal (Hirsch, 1991). The strategic rationale behind this specific alliance illustrates the leveraging concept. Two medium-sized pharmaceutical companies with complementary markets, product capabilities, and research budgets, combined efforts to become a powerhouse in a global industry. The extensiveness of this relationship was such that the two companies had to coordinate activities on virtually every level of business practice. The obvious advantage of this kind of alliance objective is the opportunity to expand assets, resources, capabilities, and opportunities significantly in a very short time frame. With the stroke of a pen (to a ISO-page document requiring 6 months of negotiations) two medium-sized pharmaceutical firms, one based in France and one in the United States, each with extensive regional

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operations and specific expertises, combined operations in a worldwide competitive effort. Two negative elements stand out in the leveraging strategy. Organizational inertia and bureaucratic stagnation is possible when any organization reaches the point of having multiple management layers and departments (Kelly and Amburgey, 1991; Fredrickson and Iaquinto, 1989); combining two large bureaucracies increases complexity and the potential for decision hang-ups. Procedural issues as well as trust, reciprocity, and monitoring issues affect the commitment and durability of the relationship (Parkhe, 1993). The other negative aspect of this strategy is the problem of a changing world. The top management of two major companies may see eye-to-eye regarding industry and competitive factors that make such an alliance favorable today. However, the question becomes, will this consensus in "world view" exist 1, 2, or S years from now? Extensive research suggests that industry evolution and the shifting of the competitive landscape are major contributors to alliance instability. In her analysis of almost 900 joint ventures, Kathryn Harrigan identifies several important "change forces" that significantly alter the environment for strategic alliances and lead to either reconfiguration, dismantling, or renegotiation of the agreement. Some of the most important change forces include the actual and perceived market performance of the joint venture, changes in industry structure, changes in competitor make-up, changes in the perceived mission of the parents, and changes in relative worth of individual assets, including technology (Harrigan, 1984). Linking The fourth ISA objective considered in this analysis is linking. This particular relationship approach is most frequently associated with vertical relationships (as opposed to horizontal) and are often singular in their functional scope. Strategic supplier and customer relationships are becoming much more prevalent as a specific example of this relationship type (Spekman, 1988). The traditional model in the United States has been to maintain multiple suppliers for any given component and then to foster an environment that makes them compete against one another. Annual or biannual bidding arrangements would lead to constant competitive pressure through low-price seeking and the willingness to shift suppliers with virtually interchangeable component parts. A changing trend, however, is for manufacturers to seek tighter links with supplier companies, based on the belief that closer cooperation and

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coordination will lead to a more effective relationship, because the sharing of information, specifications, and expertise over time will result in shorter lead times, higher quality, and greater control in the manufacturing process (Frazier, Spekman, and O'Neal, 1988). The advantage to the linking strategic objective is that it brings about opportunities for greater coordination and a tighter relationship between partners than would be available in an arm's-length supplier relationship. For example, closer links with suppliers, which included just-in-time manufacturing, enabled the G.E. Transportation Systems operation to reduce the number of vendors for its manufacturing inputs, which at one point totalled close to 6,000, by close to 60 percent. Similar processes enabled Xerox to substantially improve its supplier relationships, thereby reducing net product costs by 40 percent over 4 years and reducing rejects of incoming materials by 93 percent (Savage, Nix, Whitehead, and Blair, 1991). The major negative element of this strategy is infiexibility. When a traditional supplier relationship is reevaluated annually or biannually, there is little problem in severing a relationship when it becomes necessary; with an alliance relationship it becomes much more difficult. As the relationship deepens and intensifies over time, specific assets and personnel are exclusively devoted to the relationship. If the firm encounters a downturn in business or a reduction in customer orders, it is much more difficult to sever the relationship with the one supplier with which the firm has developed an involved relationship than it would be otherwise, and the damage to both may be severe. Leaping The fifth alliance objective is leaping. In this case a company benefits from the expertise of another firm whose core competency is substantially different, thereby allowing the former to expand into largely disparate but potentially viable areas in which it would otherwise not venture. This objective is called leaping because the areas of expertise sought for in the partner enable the firm to explore product or market opportunities, leaping over otherwise formidable entry barriers, that would be difficult to exploit internally due to a lack of specific firm capabilities. An example of leaping is the strategic alliance between Sony and ESPN to develop and jointly market a new line of sports video games ("ESPN, Sony to Market," 1993). In this case Sony had an established expertise in consumer electronics applications in many areas. ESPN, through its sports cable broadcasting, had established a solid reputation with, and understanding of, sports fans. The successful leap into

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developing and marketing sports video games would bave been difficult for eitber company to acbieve alone; Sony would bave bad a bard time acbieving tbe necessary sporting tbrill in an electronics medium and would lack tbe image cbaracteristics popular among sports fans. Likewise, ESPN bad an understanding of wbat sports fans were looking for, but lacked tbe tecbnological capability to develop an electronic game. Successful firms develop deep and abiding expertise areas tbat enable tbem to compete witb tbe best in tbeir field. Brancbing into a wbolly unrelated field does not matcb witb tbe description of "wbat we do around bere" and is likely an unfruitful, if not excessively costly, proposition. Leaping alliances make tbis possible. Similarly, leaping may represent cultural or geograpbic expansions necessary to access foreign markets. In many cases companies may bave products tbat are appropriate for a particular country or market, but may bave little expertise in tbe cultural practices of tbe residents. Tbis is particularly true of less-developed countries, and may explain wby culturally sensitive sectors sucb as retailing involve alliances. An illustration is tbe expansion of botb K-Mart and Wal-Mart into Mexico; botb use joint-venture partners instead of wbolly owned subsidiaries (Malkin, 1993). Tbis is different, for example, from tbe subsidiary strategies pursued by botb Wal-Mart and K-Mart in Canada wbere cultural differences are not as extreme. In bis study of joint ventures in developing countries, Beamisb (1987) notes tbat in tbe bigb-performing joint ventures, multinational enterprise (MNE) executives looked to tbeir local partners for greater operating contributions tban MNE executives in low-performing ventures, tbus illustrating tbe benefits of utilizing alliance partners to assist in leaping over cultural or sociological barriers in otberwise foreign (i.e., unfamiliar) surroundings. Tbe leaping strategy bas some overlap witb learning and leveraging but tbe extent of substantive differences merits a separate category. Leaping differs from learning in tbat tbe leaping firm is not likely to bave tbe desire to internalize tbe expertise of its partner. Tbe tecbnological infrastructure is so different tbat tbis would be a far too onerous task. In tbe Sony example, Sony is unlikely to bave tbe interest or capacity to develop tbe sports knowledge and understanding of ESPN; likewise ESPN is unlikely to digress into consumer electronics. Leaping differs from leveraging in tbat tbe leaping segment of tbe firm typically does not represent tbe core tecbnological tbrust and integration tbat tbe leveraging relationsbip would encompass. Tbe negatives associated witb leaping alliances are primarily tbose of cultural incompatibility. Any ISA arrangement presents

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challenges to the successful integration of management styles as well as bridging the cultural gap between nations. However, efforts to cooperate between companies that occupy radically different industry and technological capabilities can prove to be particularly difficult to manage due to organizational cultural differences. Organizational traditions in such areas as decision-making processes, risk preferences, and managerial styles can represent enormous invisible barriers to the successful implementation of desired alliance objectives. Such cultural distance can be extreme between industry groups, for example consumer nondurables versus high technology (Ott, 1989). However, when cultural differences from international firms are added, the potential for cultural distances increase geometrically. Parkhe (1991) makes an important distinction between differences in alliance partners that are technologically complimentary, and differences that are culturally based and emphasize variances in managerial outlook. The former represent the actual opportunity inherent to leaping alliances; the latter may represent the greatest threat to their successful implementation. Locking Out The sixth ISA strategic objective to be considered is locking out. In this scenario two or more partners come together in order to thwart competition and benefit from the combined market power or structural relationship of the cooperating firms. The intention is not particularly to advance a new technology, innovation, or market, but rather to protect existing advantages from potential competition. Harrigan (1984) identifies strategic alliances as a primary means by which firms can coopt outsiders as potential competitors in an effort to protect established "turf" that may otherwise be at risk. There is some overlap between the leveraging and locking-out objectives in that both may involve economies of scale. However, the following primary difference distinguishes them sufficiently. Leveraging enables the participating firms to participate in markets and activities that they were otherwise unable to, particularly in industries where global strategic advantages are present (Hout, Porter, and Rudden, 1982). Locking out merely preserves a competitive advantage that already exists. Examples of such alliances may include large manufacturers consolidating supplier networks to make it more difficult for competing firms to gain access. Consolidating a customer network may also be a motive for firms to join forces rather than compete with one another. The recent alliance between two northern European hotel chains is illustrative. Scandic Hotels, operating in Sweden, Norway, Denmark,

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and Germany (among otber countries) combined its botel booking and marketing system witb Arctia Hotels, wbicb also operates in Scandinavia as well as Russia and Estonia. Management of tbe botels remains separate, but tbe booking advantage makes tbeir network tbe largest in Nortbern Europe and keeps tbe two cbains from baving to build new botels and aggressively conquer eacb otber's markets tbrougb price wars and otber competitive measures (Farnswortb, 1993). Tbe botel example represents tbe locking-out strategy from a borizontal perspective. From a vertical perspective, restrictive contracts between manufacturers and retailers can also serve as a locking-out alliance strategy. Selective dealersbip arrangements are restrictions tbat allow only tbose retailers wbo are willing to service a brand in specified ways (i.e., service or sales metbod) to deal in a product line. Exclusive dealersbips require tbat only one brand be sold. Requirements for stocking a full line of mercbandise may also be stipulated by tbe manufacturer. Sucb relationsbips are common witbin tbe European new-car dealer market, for example, wbere retailers are typically limited to one make of car. Sucb practices bave been criticized as being exploitive of consumers as well as restrictive of competition, even to tbe level of impeding international trade ("Restraint of Trade," 1994). Tbe primary negative element of locking-out alliances is tbeir epbemeral nature. Tbe antitrust issues related to strategic alliances are often complex and untested in many countries. As potential competitors fall to unfair market obstructions and as customers complain about tbe lack of competition, governments may quickly disallow an alliance and tbreaten a competitive advantage strongbold. Additionally, alliances used to neutralize competition may make tbe involved firms enjoy a false sense of competitive advantage, ultimately making tbem vulnerable to more innovative and nimble competitors.
MANAGERIAL IMPLICATIONS

Two important elements of tbis discussion bave been: first, to distinguisb between ISA structures, functions, and objectives; and second, to recognize tbat differing ISA objectives exist and bave important implications for competitive advantage. Tbe simple understanding tbat all alliances are not alike witb regard to practical reality and managerial conception, is an important step on tbe road to better alliance performance. Six alliance objectives were noted bere. However, tbis list is not necessarily eitber exbaustive or purely exclusive.

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It is possible that a leaping alliance could also have elements of learning or leaning, for example. The important point, however, is to identify and understand the dominant objective characteristics and implications (both negative and positive) of a particular alliance and consider whether it is appropriate for the given firm strategy. Once an alliance objective has been selected, it is important to consider how it fits with the overall strategic objectives of the firm. Short- and long-term implications should be considered, along with the commitment of firm resources and the bearing such an objective will have on overall firm capabilities. Once the appropriate alliance strategy has been identified, the next step is to analyze how the alliance partner is approaching the relationship. The mismatch of strategic objectives in approaching international strategic alliances can lead to miscommunication, misunderstanding, and ultimately dissolution of the partnership. Table 3 presents a matrix of possible alliance objective combinations. The alliances appearing on the diagonal (letters A, G, L, P, S, and U in Table 3) are tbe most likely to be unproblematic. Both partners are in agreement about the objectives of tbe alliance and there is less chance of misunderstanding at this level. Needless to say, tbere are many other areas of implementation where problems may occur, but at least tbe fundamental objectives are aligned. Other combinations may tend to be unproblematic because it is unlikely sucb a misunderstanding could occur. For example, combination J (Table 3) suggests an alliance where one partner has a leaning objective while tbe other has a leaping objective. This is unlikely to bappen simply because tbe specific functions related to these alliance objectives are so different that when juxtaposed tbe two objectives would quickly be determined to be incompatible. Tbe majority of tbe off-diagonal combinations are conceivable and potentially contain tbe seeds of partner instability. Therefore, using tbis matrix can be useful to consider bow tbe mismatcbing of tbe various alliance objectives can lead to problems for managers engaging in alliances. For example, if one partner views an alliance as a
Table 3. Alliance Objective Combinations Locking Learning Learning Leaning Leveraging Linking Leaping Locking out
A

Leaning B
G

Leveraging
C

Linking D I M P

Leaping E J N
Q

out

H L

F K 0 R T U

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primarily learning, while tbe otber views it as leaning (combination B, Table 3), incompatible assumptions of permanence, sharing, and competition will likely lead to unfortunate outcomes. Tbe leaning firm will tend to see tbe arrangement as a long-term, stable relationsbip, but tbe learning firm will view it as a sbort-term means to an end. Another possible scenario would be one partner assuming tbe alliance objective to be linking while tbe otber as primarily locking out (combination R, Table 3). In tbis case tbe linking firm will be seeking to coordinate operations to tbe extent that efficiencies can be realized. Tbe locking-out firm will be potentially placing more demands on tbe partnership witb respect to competitor relationsbips tban tbe linking firm is comfortable witb. Witbin tbe matrix in Table 3 tbere are 21 possible combinations of objectives. An appropriate use of tbis matrix is to identify wbicb objective makes sense for tbe alliance from a strategic perspective. It would tben be useful to consider bow combinations witb the otber five objectives could present problems to tbe firm should tbe partner be assuming them. Sucb an exercise would enable managers to be careful in tbeir alliance formulation and implementation to avoid tbe pitfalls accompanying each objective combination.
CONCLUSION

In conclusion, tbere are three important steps in developing appropriate ISA arrangements. Tbe first is to conceive of and adequately define a primary objective for the alliance arrangement. Tbis article has argued that several alliance objectives are possible and can bave significantly differing implications for tbe firm. Tbe next step is to ensure that sucb an objective is appropriate given tbe firm's broader strategies and objectives. If tbere is a good alliance/strategy fit, tben tbe final step is to ensure that tbe partner's alliance objects are compatible. Sucb strategic planning activities are likely to reduce confiictual foundations for ISAs and increase tbe possibility that tbey will ultimately contribute to firm competitive advantages as planned. REFERENCES
Anderson, E. (1990) "Two Firms, One Frontier: On Assessing Joint Venture Performance," Sloan Management Review, Winter, 19-30. Ansberry, C. (1991) "Kodak, Sanofi Plan Alliance in Drug Sector," Wall Street Journal, January 9, A3. Beamish, P. and Banks, J. (1987) "Equity Joint Ventures and the Theory of

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