Chapter 12

1. International Business Oded Shenkar and Yadong Luo Chapter 12 Building and Managing Global Strategic Alliances (GSAs) Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

2. Do You Know? • Why so many firms have chosen global strategic alliances (GSAs) to expand globally? • Why many GSAs have failed? • What types of GSAs can firms choose? • How firms should select appropriate partners in another country? Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

3. Do You Know? • How to decide the ownership level in an equity joint venture? • What ways inter-partner cooperation can be nurtured to maximize joint payoff? • How to balance the tension between cooperation and control? Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

4. Building and Managing Global Strategic Alliances GSA: Motorola and Siemens AG • Semiconductor 300 (SC300) is a Global Strategic Alliance (GSA) operated by Siemens and Motorola. • SC300 is a 50/50 GSA that seeks to build on strategic success in producing 8” semiconductors and produce true state of the art 12” wafers that will provide vastly more powerful integrated circuits at truly competitive costs. • Siemens has world-class technology; Motorola provides expertise in logic products and quality control. It’s a good match. Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

5. Defining Global Strategic Alliances • GSA’s are cross-border alliances and partnerships between two or more firms from different countries who pursue mutual interests through resource and capability sharing. Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

6. Types of GSA • Equity Joint Ventures (EJV) form legally and economically separate organizations, created by two or more parent organizations that invest financial and other resources (like land, facilities, equipment, materials, intellectual property, or labor). These can be 50/50 or any other percentages of ownership • Cooperative Joint Ventures (CJV) are contractual arrangements where profits and responsibilities are assigned through contractual agreement. Most of these create business activities without creating new organizations. CJV types: Joint exploration, R&D, production, marketing, supply, or management Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

7. CJV Types • Joint Exploration, non-equity alliances where exploration and development costs are shared, usually in extraction industries • Joint R&D, where R&D costs, rights, and profits are contractually shared • Joint Production, where production stages are shared, usually in technology and aerospace • Joint Marketing, shares marketing and distribution channels to reach a larger set of targets …/… Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

8. CJV Types • Joint Supply, where supply chain and inputs are shared with an emphasis on stability and quality of supply • Joint Management, cross border partners share in management functions like HR, production, organizational design, IT development, or value chain integration Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

9. Rationales for Building GSAs • GSA’s allow a company to enter activities that may be too costly or risky to assume alone • GSA’s allow the acquisition of partner knowledge and resources that build competitive strength • GSA’s allow the enhancement of scale economies and improve product rationalization • GSA’s allow the prevention or reduction of competition with a major rival, whether that competition is contemporaneous or anticipated …/… Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

10. Rationales for Building GSAs • GSA’s help a firm boost local acceptance in the eyes of foreign consumers • GSA’s help firms bypass entry barriers in target countries Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

11. Challenges Facing GSAs • GSA’s involve complex relationships and expectations. • They can be difficult to manage especially when firms have different strategic interests and objectives, different cultures, divergent expectations, and incongruent structures. Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

12. Challenges Facing GSAs • Loss Of Autonomy And Control • Risk Of Technology Or Property Leakage • Differing Strategic Goals • Chance That Partners May Become Global Competitors Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

13. Challenges Facing GSAs Exhibit 12-1:Key issues underlying building GSAs Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

14. Building Global Strategic Alliances It is important to effectively: • Select Local Partners who have compatible goals, resources, cultures, commitment, and capabilities • Negotiate Alliance Contracts that are workable, involved and understood. This is a difficult cross cultural negotiating exercise • Structure Global Strategic Alliances to ensure effective and representative ownership, sharing of resources, and equity distributions Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

15. Building Global Strategic Alliances Exhibit 12-2: The Five-Cs scheme of partner selection Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

16. Building Global Strategic Alliances Exhibit 12-3: Major issues and terms during alliance contract negotiations Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

17. Managing Global Strategic Alliances • It is important to be able to manage inter-partner learning, exercise effective managerial control, accentuate cooperation and trust, and establish effective exits. Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

18. Managing GSA Learning • When firms get together in a GSA, both firms have to “come up to speed” and learn about one another in order to effectively operate. • Creating operational and managerial synergy and effective relationships requires a degree of openness that is difficult to obtain. • Firms will seek to protect their intellectual and proprietary rights and technologies, write safeguards into contracts, agree on specific skills to be shared (and not shared), and mitigate leakage risk by avoiding undue dependence. Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

19. Managing GSA Learning Exhibit 12-4: Managing global strategic alliances Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

20. Managing GSA Managerial Control • Managerial control is achieved through equity ownership. • Controlling entities will nominate and appoint key personnel, set agendas of the Board of Directors, establish major managerial policies and procedures, retain budget control, set contract stipulations, allocate resources, and shape interpersonal relationships. Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

21. Managing GSA Managerial Control Exhibit 12-5: How to maintain managerial control over alliance activities Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

22. Managing GSA Cooperation & Trust This is performed by accentuating personal attachment and reducing conflicts, • Personal attachment is accentuated through personal contact, socialization, longer appointments, and careful selection of people and expatriates • Conflicts are reduced through pursuing mutual understanding of actions and positions, having alliance executives jointly set milestones, clearing the alliance of parent goals and strategies, maintaining flexibility, and promoting understand and empathy among HR groups Chapter 12: Building and Managing Global Strategic Alliances (GSAs)

23. Managing GSA Exit There are many reasons for exit. When goals are not being met, this is a good reason for alliance exiting. Among chief reasons for exit: • Differences In Strategic Or Operational Objectives • Differences In Managerial Styles • Differences In Conflict Resolution Styles • Inability To Meet Shifting Targets • Inability To Meet Financial Requirements • Acquisition Of One Or More Of The Partners • Bankruptcy, Termination, Dissolution Of Liquidation Of One Or More Of The Partners Chapter 12: Building and Managing Global Strategic Alliances (GSAs)