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CHAPTER 8 INTERNATIONAL STRATEGIC ALLIANCES: MANAGEMENT AND DESIGN

CHAPTER 8 INTERNATIONAL STRATEGIC ALLIANCES: MANAGEMENT AND DESIGN. STRATEGIC ALLIANCES ISSUES. Stability and risk Failure rate of 30 to 60 percent Even profitable alliances can be torn by conflict.

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CHAPTER 8 INTERNATIONAL STRATEGIC ALLIANCES: MANAGEMENT AND DESIGN

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  1. CHAPTER 8 INTERNATIONAL STRATEGIC ALLIANCES: MANAGEMENT AND DESIGN

  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 8.1 for Steps in Implementation of Strategic Alliances)

  4. WHERE TO LINK IN THE VALUE CHAIN? • Depends on the objectives that the firm seeks to achieve • Exhibit 8.2 gives some examples of common links in the value chain

  5. SELECTING A PARTNER: THE MOST IMPORTANT CHOICE? • Seek • strategic complementarity • skill complementarity • compatible management styles

  6. 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

  7. TYPES OF STRATEGIC ALLIANCES • International cooperative alliances • informal • formal • International joint ventures

  8. INFORMAL COOPERATIVE ALLIANCES • Non-legally binding agreements between companies from two or more countries • limited involvement between companies

  9. FORMAL COOPERATIVE ALLIANCES • Higher degree of involvement than informal alliances • Formal contract • Popular in high tech industries because of high costs and risks

  10. 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

  11. 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

  12. ORGANIZATION DESIGN IN STRATEGIC ALLIANCES

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

  14. MANAGEMENT STRUCTURES

  15. 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

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

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

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

  19. ROTATING MANAGEMENT • Key positions rotate among partners • popular in developing countries • trains management talent and transfers expertise

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

  21. 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

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

  23. HRM issues, continued • Performance assessment • Loyalty • Career development • Cultural differences • Training

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

  25. COMMITMENT • Taking care of each other and putting forth extra effort to make the venture work • attitudinal commitment • calculative commitment

  26. TRUST • The confidence that the partner will deliver on their expected contributions to the venture and behave with good will • benevolent trust • credibility trust • “trust cycles”

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

  28. KEY FACTORS TO BUILD AND SUSTAIN TRUST AND COMMITMENT • Pick your partner carefully • Know each side’s strategic goals • Seek win-win situations • Go slowly

  29. Key factors to build and sustain trust and commitment, continued • Invest in cross-cultural training • Invest in direct communication • Find the “right” levels

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