STRATEGIC ALLIANCES ISSUES

2. STRATEGIC ALLIANCES ISSUES • Stability and risk • Failure rate of 30 to 60 percent • Even profitable alliances can be torn by conflict

3. SUCCESSFUL ALLIANCES MUST:NOT ONLY MAKE STRATEGIC SENSE BUT ALSO REQUIRE GOOD IMPLEMENTATION(SEE EXHIBIT 10.1 FOR STEPS IN IMPLEMENTATION OF STRATEGIC ALLIANCES)

5. WHERE TO LINK IN THE VALUE CHAIN? • Depends on the objectives that the firm seeks to achieve • Exhibit 10.2 gives some examples of common links in the value chain

7. EX 10.3 VALUE CHAIN LINKS IN U.S. ALLIANCES

8. SELECTING A PARTNER: THE MOST IMPORTANT CHOICE? • Seek • Strategic complementarity • Skill complementarity • Compatible management styles

9. ISSUES TO CONSIDER IN CHOOSING A PARTNER • The level of mutual dependency • The "anchor" partner • The "elephant and the ant" complex • Operating policy differences • Difficulties of cross-cultural communication

10. TYPES OF STRATEGIC ALLIANCES • Informal international cooperative alliances • Formal international cooperative alliances • International joint ventures

11. INFORMAL COOPERATIVE ALLIANCES (ICAs) • Nonlegally binding agreements between companies from two or more countries • Limited involvement between companies

12. FORMAL COPPERATIVE ALLIANCES • Higher degree of involvement than informal ICAs • Formal contract • Popular in high tech industries because of high costs and risks

13. INTERNATIONAL JOINT VENTURES • 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

14. EX 10.5 TYPES OF ALLIANCES: SUMMARY

15. NEGOTIATING THE AGREEMENT • Joint venture contracts: legal documents that bind partners together • The formal agreement is not as important as the ability of managers to get along

16. EXHIBIT 10.6 ISSURES IN ALLIANCE AGREEMENTS • For both ICAs and IJVs • Under which country’s law does the agreement operate? • How will profits be divided? • Do you need a prenuptial agreement?

17. Primarily for IJVs • What are the equity contributions of each partner?

18. ORGANIZATION DESIGN IN STRATEGIC ALLIANCES

19. DECISION MAKING CONTROL • Majority ownership does not necessarily = control • Operational decisions • Strategic decisions

20. MANAGEMENT STRUCTURES

21. DOMINANT PARENT • One parent controls strategic and operational decision making • Dominant parent often has majority ownership • Dominant parent treats the IJV as wholly owned subsidiary

22. SHARED MANAGEMENT • Both parents contribute approximately the same number of managers to the board of directors, the top management team, and functional area management

23. SPLIT CONTROL • Partners usually share strategic decision making • Partners split functional decision making

24. INDEPENDENT MANAGEMENT • IJV managers act like managers from a separate company • IJVs often recruit managers from outside the parent companies

25. ROTATING MANAGEMENT • Key positions rotate among partners • Popular in developing countries • Trains management talent and transfers expertise

26. CHOOSING AN ALLIANCE MANAGEMENT STRUCTURE • If one parent has dominant equity position • Dominant management structure more likely

27. Equal ownership • Shared, split, or rotating management structure preferred • Similar technologies or know-how • Shared management structure preferred

28. If different technologies or know-how • Split management structure preferred • If the venture has more strategic importance to one partner • Dominant management structure preferred

29. HUMAN RESOURCE MANAGEMENT IN STRATEGIC ALLIANCES • The HRM functions of an IJV are more complex because managers (and sometimes workers) come from two or more firms or from two or more cultures

30. HRM ISSUES • HRM planning • Parent involvement • Staffing the alliance management and technical personnel • Staffing the alliance workforce • Assigning managers strategic or operations tasks

31. HRM ISSUES (CONTINUED) • Performance assessment • Loyalty • Career development • Cultural differences • Training

32. COMMITMENT AND TRUST: THE SOFT SIDE OF ALLIANCE MANAGEMENT • Without trust and commitment the JV will fail entirely or never reach its potential

33. TRUST • The confidence that the partner will deliver on their expected contributions to the joint venture • “Trust cycles”

34. WHY IS TRUST IMPORTANT? • Required for IJV participants to contribute tacit knowledge and quality inputs • Weakness of formal contracts can never identify all the issues

35. KEY FACTORS FOR COMMITMENT • Pick your partner carefully • Know your strategic goals and your partner's • Seek win-win situations • Go slowly • Invest in cross-cultural training • Invest in direct communication

36. ASSESSING ALLIANCE PERFORMANCE • Match strategic objectives with performance measures

37. EXHIBIT 10.8 SELECTED PERFORMANCE CRITERIA FOR STRATEGIC ALLIANCES • Management Processes • Organizational Learning • Competitive • Marketing • Financial

38. IF THE ALLIANCE DOES NOT WORK • Negotiate an end or improve implementation • Know when to quit/invest more • Avoid “escalation of commitment” • Plan end - “prenuptial agreements” • Death not always failure

39. CONCLUSIONS • The importance of international strategic alliances • Most important decision: picking the right partner • No set structure in ownership, decision making control, or management control