Strategic Management Or Way To Do Business
In the beginning of capitalism, entrepreneurs believed that independency is the way to do business. Many believed that this is influenced by our national culture which strongly emphasis the importance of independency. The strong influence of the independency and individualism culture leads business organizations of the past to have strong interdependencies toward each other.
However, as nations learned that international economic cooperation will bring mutual benefits, companies also learned that strategic alliances could deliver them various business advantages. Nevertheless, many have stated that managing strategic alliances between corporations is not as easy at it seems. Many alliances saw great economic benefit in the planning stages, but these advantages never appear in implementation due to one or several obstacles.
Concerning the issue, this paper will discuss the critical success factors in managing strategic alliances on businesses. There are actually several types of strategic business alliances, but within this paper we put emphasis on cross-border strategic alliances (Lendrum, 2003). 2. Critical Success Factors for Cross Border Strategic Alliance Cultural factor that is most often mentioned which leads to failure in meeting the objectives of strategic business alliance is cultural issue.
As mentioned previously, most business look great in the planning stages because there are generally minimum information of cultural factors prior to the implementation stage. What generally occurs is that strategic alliances looked great on paper, but cultural clashes took away management ability to reap the previously identified benefits. It is generally take years before all members of the collaborated management team to focus on common vision and agree to put their cultural differences aside and apply for a single unifying tradition (Lendrum, 2003).
There are various forms of strategic alliances; the most common among them however, are in the form of mergers and acquisitions. According to a survey by Arthur Andersen Accounting Firm (2000), most companies performing mergers and acquisitions stated that the benefits of M&A could only be obtained through considerable struggle. Another research even stated that in this form of strategic alliances, 70% of all change initiatives, like installing new technology, downsizing, restructuring and changing corporate culture, fails.
The research further explained that inability to integrate different culture is the primary cause of the tendency to fail (‘How to Make’, 2001). In addition to culture, another factor is about human resource management. This factor relates to the notion that cultural issues have a strong relationship with human resource management. This is true because culture is a set of rules and tendencies extracted from human behavior. Tackling cultural issues means properly dealing with HRM issues also.
The research by Digiacomo and Associates (2001) above have also elaborated that the failure in cross-border strategic alliances generally happen because of these occurrences: first, management fail to adequately inform or socialize all members of the company regarding the strategic alliance; second, people would feel left out and generate skepticism; third, misunderstandings are generated between employees with different culture; fourth, misunderstandings and misperceptions deteriorate relationship and created mistrust; five, in the extreme level of mistrust within the company employees rejected to make good relationship with members of the new board. As we can see, cultural clashes started with poor human resource management and they happen among people within the company. Management of the company might have avoid the problems mentioned above if the managers understood and paid enough attention to the various HR issues that must be addressed (Apfelthaler, Muller & Rehder, 2002). The third critical factor of managing strategic alliances is regarding brand integration. Brand is one of the most powerful of selling products or services. Brand building is one of the toughest and time consuming endeavors in marketing new products.
However, successful brand-building activities could create a brand with powerful selling power (Lendrum, 2003). In the case of cross border alliances, the question that arises is whether existing brand should be merged with local brands or not? Cross border brand alliances generally offer fresh opportunities for corporations to gain new markets that are usually hard to penetrate. However, merging with wrong brand could generate failure and the loss of local market for a long period of time. Thus, deciding which local brand to merged with is an important managerial decision. A good decision would be based on the alliance’s potential to build brand name’s equity.
Management should obtain the understanding how each brand interacts with local markets and create sales. Understanding these interactions, managers can design effective marketing strategies to maximize sales of the merged company’s brand portfolio (Aaker, 1990). 3. Cross Border Alliances: Automotive Industry The three critical factors as mentioned above would help managers to maximize the potential of their strategic alliance. In this section, we will use an example from the automotive industry, how alliances of this particular industry use the three critical factors to pursue value creation and increasing performance after the alliance took place. The case under discussion would be the strategic alliance between Fiat and GM (Camuffo, 2002).
The strategic Alliance between Fiat and GM is an alliance of cultures from two different continents, Europe and America. However, at the time of the acquisition, the two companies were pursuing a similar market in Latin America (Camuffo, 2002). In the merger between Fiat and GM, for instances, both companies have considerable awareness of the importance of cultural issues. GM manager states that the merger employs a partnership structure, with the purpose of avoiding most of the cultural and market shock that generally come along with a full merger (Camuffo, 2002). The alliance was performed by avoiding unnecessary concerns about who is controlling who, who is winning and losing, etc.
The philosophical focus is to generate business results from the alliance. Management realizes that this is an important sentiment, because cultural clashes can destroy worker’s morale and furthermore, cost them their share of the market (Camuffo, 2002). Concerning the human resource management, manager at General Motors also state that the merger based on solid motivational ground. It means that the merger is performed between two parties willing to collaborate for the mutual benefit of each other. The merger was performed on a ground that ensures all people, including all management talent, are actively engage. The merger was also performed with an understanding of each other’s expertise in the market.
For instance, GM management realizes that they have weak penetration in certain markets like Japan, thus, they encouraged Fiat Auto to lead the way in creating synergies to enter the market (Camuffo, 2002). The merger was conducted with the philosophy that they are not looking for financial gain and neglected others. In fact, most mergers and acquisitions performed within the automotive industry are not only means to reduce and share financial risk. Above all else, the alliance was a device to increase knowledge bases and obtain a wider set of organizational capabilities. The Fiat-GM alliance focuses on risk sharing and knowledge base enhancement for both partners. This undoubtedly requires extensive cooperation between managers and employees of the two companies.
To facilitate such goal, management of both companies has agreed to engage on a balanced structure and non-invasive character of alliance. They believed the structure would be more suitable to foster cooperation and furthermore, facilitate the achievement of mutual advantages (Camuffo, 2002). Moreover, in terms of managing brand alliances, GM-Fiat merger employed two types of strategies. First, the companies maintained the promotion of individual brands. However, they were also acknowledged the need to adjust the commercial and marketing design of the individual brands. Managing the new and larger set of portfolios has its advantages. Management could manage which brands goes to which market with more choices of brands and features offered to customers (Camuffo, 2002).
Second, the company also exploited as much as possible, the qualities of each brands, their technologies, their materials, components and even brand equity, to produce new brands that will have enhanced traits in the eyes of consumers. The company can integrate various qualities of each brand. In order to facilitate this need, they created a system of model integration. First, the two partners joined together to create common platform as standardization efforts, but with considerable opportunities for brand characterization. Afterwards, the two companies work on different projects depends on their specialty. An then, the group consisting of representatives will work on the vehicles segments, trying to discover the most profitable unification on all designs.
Furthermore, the group created specific solutions for individual brands to obtain conformance with the strategies of Fiat-GM alliances (Camuffo, 2002). 4. Cross Border Alliances: Pharmaceutical Industry In the pharmaceutical industry strategic alliances do not happen only between business entities. In the business of innovating drugs and formula for health and other purposes, companies can join research department of universities and schools. In this paper, we will see how the School of Pharmacy and Pharmaceutical Sciences perform a strategic alliance with Pfizer Global Research and Development; the research division of Pfizer inc. Pfizer Inc is the world’s largest bio-medical organization, which is privately funded.
The first factor, cultural differences exist within the alliance was overcame by holding on to the same goal of performing the alliances. This type of industry has a smaller chance of being disrupted by cultural differences because most of the work is done individually. However, research and development is actually a group endeavor too. Thus, managers of the alliance companies must still aware of the existing possibility of problems in corporate management (Cochrane, 2007). In terms of managing human resources, the companies took advantage of the alliance to develop their relatively small departments. This development will increase the number of faculty members and graduates in the university.
For Pfizer, this development will allow the company to hire more employees and researchers from members of the faculty. This is an important factor o enhance product development in Pfizer Inc (Cochrane, 2007). Concerning the managing brand alliances, the university is glad to have Pfizer support. The company is a reputable corporation which will enhance the faculty’s name and significance in the pharmaceutical sciences. It is grateful for Pfizer’s commitment in working partnership with the university. Furthermore, the university is also glad to have Pfizer helping them train researchers whose research and discoveries will enhance the particular field.
On the other hand, Pfizer’s brand is also obtaining a good reputation by joining with one of the world’s leading academic center in pharmacokinetics and pharmacodynamics. Furthermore, the company will obtain advance understanding of pharmacokinetics and pharmacodynamics along with application of new techniques in designing new products with more precision and speed (Cochrane, 2007). 5. Discussions There are actually various types of strategic alliance, domestic alliances, cross border alliances, capital-intensive alliance, human resource alliance, equity alliance, non-equity alliance, etc. These alliances have their own characteristics. Some alliances prefer the domination of one entity over the other. This is more common in the capital intensive alliance and equity alliance.
On the other hand, in non-equity alliance, companies could work together without any financial commitment, like: specific projects alliance and program development alliance. However, these types of alliance do not guarantee the shape of relationship between members of the alliance (Liebeskind, Oliver, Zucker & Brewer, 1996). The type of relationship between members of the alliance is a separate decision made by management of both companies regardless of any financial or non-financial commitment. Thus, companies can choose to be equal partners regardless of the fact that one of them invest considerable sum of money into the other, or companies can choose to have a leader-follower relationship regardless of the fact that there is no financial investment made by the leader to the follower’s account.
Therefore, to understand whether an alliance constitute as partnership, we need to observe the commitment made between members of the alliance. In the case of the Fiat-GM strategic alliance, management of both companies that their alliance is a partnership because each company has advantages over a certain market repeatedly states it. In we take a closer look at this arrangement; it is a bit peculiar that the arrangement should take place remembering that Fiat was having problems marketing its products in the Europe and Latin America market. GM is obviously the one who contributes more strength to the alliance with its stable market share in US, Latin America and other markets on the globe.
The reason behind this form of alliance is that Fiat helps GM open new market opportunities in Europe in which GM has weak penetration upon. Furthermore, GM and Fiat realizes that in order to create successful brand collaboration, an equal partnership is required instead of a leader-follower format. In the case of the School of Pharmacy and Pharmaceutical Sciences in Buffalo and Pfizer Inc, the alliance arrangement was also in the form of partnership. Pfizer will continue to make donations and other types of contribution sot the university while the university allows the company to foster good relationship with members of its faculty and make them a part of the company.
They also have specific arrangement about how the right and the financial aspects of the researches and developments should be distributed between the two parties. Bibliography Aaker, David A. and Kevin L. Keller. 1990, ‘Consumer Evaluations of Brand Extensions’, Journal of Marketing, 54 (January), 27-41. Arthur Andersen. 2000, ‘Beyond the Headlines: A Survey of Lessons Learned from Merger and Acquisition Activity’, Apfelthaler, G. , Muller, H. J. , & Rehder, R. R. 2002, ‘Corporate global culture as competitive advantage: Learning from Germany and Japan in Alabama and Austria? ’, Journal of World Business, 37,108-118. Camuffo, Arnaldo. Volpato, Giuseppe. 2002.
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