International strategic alliances: partnership and cooperation

Definition of Strategic Alliance

A strategic alliance is a strategic cooperative agreement, or agreements, between two or more firms to pursue a set of agreed upon strategic goals while remaining independent organizations. An international strategic alliance has two features: 1. Cooperative: a partnership agreement between two or more firms, which remain independent organizations. 2. Strategic: it is a response to strategic challenges or opportunities that the partner firms face.

External drivers for Alliances

The rise in strategic alliances can be explained as a reaction to technological change and globalization: 1. Strategic alliances facilitate access to global markets. 2. Organic growth alone is often insufficient for meeting a firms required rate of growth a strategic alliance can help a firm to grow a business faster. 3. Third, strategic alliances greatly reduce speed to market - innovation and new product development.

Internal drivers for Alliances

1. Resource need: seeking a resource needed to respond to external threats or opportunities 2. Learning: seeking not simply to gain a resource but to become part of a partnership to create new knowledge 3. Risk limitation: seeking to spread financial risk 4. Speed to market: seeking to achieve market presence at a faster speed than going it alone 5. Cost minimization: seeking to reduce costs

Types of Strategic Alliance

Partnerships between non-competing firms: 1. International expansion alliance 2. Vertical integration alliance 3. Diversification alliance Alliances between competitors: 1. Complementary alliance 2. Shared supply alliance 3. Quasi-concentration alliance

Partner selection criteria

Partner-related criteria: associated with the efficiency and effectiveness of partners' cooperation, such as partners corporate culture, compatibility, motivation, commitment, and reliability. Task-related criteria: associated with the operational skills and resources which an alliance requires for its competitive success, such as financial resources, marketing resources, customer service, R&D technical resources, organizational resources, and production resources.

Optimal business partner

The most successful strategic alliances are those that achieve both high strategic fit and high cultural fit. Strategic fit is the degree to which a potential alliance partner augments or complements a firms strategy. Cultural fit is the compatibility between partner firms as reflected in the similarity of their corporate culture and their national culture.

Control in Strategic Alliance

Control can be defined as the process by which one entity influences, to varying degrees, the behaviour and output of another entity through a wide range of bureaucratic, cultural and informal mechanisms. Insufficient control can limit a firms ability to align the strategic direction of the partnership with its own strategy, and it can limit a firms ability to protect its interests in the partnership.

Control Mechanisms
Managers must always remember that control in a strategic alliance can b exercised through both equity capital provision and non capital resourcing. Equity Capital provision allows the firm to influence strategic control. While Non capital resourcing allows the firm to influence operational control.

Alliance risks
Multinational firms engaged in international strategic alliances face two different kinds of risks: Relational risk in strategic alliances is the probability and consequences of not having satisfactory cooperation. Performance risk is the likelihood that an alliance may fail even when partner firms commit themselves fully to the alliance.

The role of trust

Alliance risks can be reduced through trust between alliance partners. Trust is the willingness of one party to relate with another in the belief that the others actions will be beneficial rather than detrimental to the first party, even though this cannot be guaranteed.