International Strategic Alliances
According to the author Charles Hill, “Global Business Today”, “Collaboration between competitors is fashionable; recent decades have seen an explosion in the number of strategic alliances”. Indeed, the global economic system is nowadays so complex and the competition sometimes too strong that some companies cannot survive by acting independently (many products and different choices on the global marketplace). In such an environment, constantly changing, elaborating strategic partnerships or alliances can be a really useful strategic decision.
Strategic alliances are developing a lot in many industries and this for many strategic reasons. We will actually “discuss in which circumstances firms should elaborate strategic alliances in their international operations”. First of all, we will precisely define strategic alliance in an international context, using different authors’ views and opinions. Then, we will see in which circumstances firms should develop such alliances. We will also explain how to choose the right alliance and how to manage “winning” partnerships.
Definition of Strategic Alliances
In their book “International Business”, the authors A. M. Rugman and R. M. Hodgetts mentioned that “a strategic alliance is a business relationship in which two or more companies work together to achieve a collective advantage”. They also claimed that “one of the most common ways of benefiting from economic integration is by creating a strategic alliance”. According to the author Charles Hill, “Global Business Today”, “strategic alliances refer to cooperative agreements between potential or crucial competitors for the benefits of all companies concerned”.
So an international strategic alliance is generally defined as a formal link created by two (or sometimes more) organisations, of different nationalities, in order to realise a particular project jointly by coordinating several skills, competences and resources such as products or services, intellectual property, manufacturing processes and distribution channels for example. Of course, the different organisations can be present in the same international markets. For example, two firms can conduct research together to market a product or a service.
It can also be a firm giving a license to another one in order to produce and sell a product in a new market. We will evoke other examples of strategic alliances later on, but it is important to know that alliances can really take a number of forms in lots of industries and part of the world. Building a strategic alliance is actually a way for firms not to conduct a project on their own, which would imply many risks and an individual confrontation to competitors. In addition, alliances are also an alternative to mergers and acquisitions (Eleanor Davies, “Strategic Alliances”, lecture, 2008).
By the way, let’s see what are the major differences between strategic alliances and mergers/acquisitions. First of all, in the case of an alliance, each firm remains completely independent. In addition, the different parties involves have a common goals to achieve without any loss of interest or autonomy. On the other hand, in the case of mergers/acquisition, companies have to abandon their independence as a new organisation is created (one chain of command notably).
In their book “International Business”,the authors A. M. Rugman and R. M. Hodgetts, mentioned that it is possible to make a distinction between joint ventures and strategic alliances. Indeed, alliances are most of the time created between firms belonging to the same line of business or industry, whereas joint ventures may have partners from very different businesses. Furthermore, in the book “International Business”, written by F. Burton and F. McDonalds, distinctions between international strategic alliance and joint ventures are also made. Indeed, they mentioned that “an international strategic alliance is a collaborative agreement in which partner firms of different nationalities have a presence in the same international or global markets”. On the other hand, “an international joint venture is a partnership of two or more independent firms which share resources when at least one partner’s headquarters are located outside the venture’s country of operation or when the venture operates outside all the partners’ home countries”.
In every strategic partnership, parties involved need to set up an important communication process at all stages of the organisation: the workforce level, the operational level and, of course, the top management according to I. Ronkainen, E. Moynihan, M. Czinkota, M. Moffett, “Global Business”. As a consequence, strategic alliances clearly involve a multiple decision making process, with regular bargaining and negotiation phases. Theses characteristics are actually a risk for companies as they can slow down decision-making processes or even create disagreements between partners, (Eleanor Davies, “Strategic Alliances”, lecture).
To avoid such situation, we will explain how to elaborate “winning” alliances in the second part I. B. Types of Strategic Alliances In the book “Marketing Management”, the author Philip Kotler, claims that most of strategic alliances actually take the form of “marketing alliances”: Four main categories are evoked:
- Product / Services alliances: When a firm licenses another to manufacture its products, or when two firms jointly market their complementary products or a new product.
- Logistic alliances: When one firm offers logistical services for another firm’s product. This is notably the case of the company “Abbott” that delivers the complete range of “3M’s” medical products to hospitals all over the U. S. territory.
- Promotional alliances: For example, when a firm agrees to carry out the promotion for the product of another firm. To illustrate that, we can evoke the company “McDonalds” that often carries a promotion for new “Walt Disney’s movies” (“Happy Meals “).
- Pricing collaborations: This occurs when firms get together to elaborate a special pricing collaboration. For example, many hotels and car rental companies have joined to offer specific and mutual discounts.
We can also classify strategic alliances into two main groups (according to the “Alliance Strategy Group”, online):
- Vertical partnerships: Relationships between buyers and suppliers for example.
- Horizontal partnerships: Relationships between companies selling similar products or services.
When using strategic alliances in international operations? One of the most important advantages of strategic alliances is that it brings “together complementary skills and assets that neither company would easily develop on its own”.
