Strategic alliances: Strategic alliances is an agreement between two or more companies to work together for a certain time in order to achieve some business objectives, help each other reach new technologies or to be able to build core competencies against other competitors. The traditional view about Strategic alliances is that they were formed for: -Defensive to protect profits -Means for preempting competition -Competitive and win – lose orientation. While nowadays there is a current perspective about strategic alliance that goes beyond the traditional view and it consists of: Collaboration can create opportunities for all participants to be successful -Can create multiple sources of competitive advantage -Win ??? win orientation that relies on both collaboration and competition. Strategic alliances could be formed for the following reasons: 1)Technology exchange: most of the recent strategic alliances (more than 50 %) are formed for technology exchange. this is done to obtain the necessary capabilities and resources needed for creating new technology or using some technologies to develop the companies’ competencies. )Global competition: strategic alliances are formed in order to allow the partners to build up more strength and be able to be more competitive in the global market against a common enemy better than each one fights alone. 3)Industry convergence: by this it means company gets together and become a single company in order to achieve more success in a certain industry. Risk that faces strategic alliances: Most alliances that work are done between two companies from industrial countries. But even any kind of strategic alliance has some risks that might occur during this partnership: Strategic alliances are sometimes used by partners to build competitive advantages against each other, or might even make one partners stronger than the other that will manage to take more market share from him. This will result in creating a new competitor for a partner that might enter a strategic alliance. To avoid this risk, partners signs agreement for example, that after the period of the strategic alliance is over, the partner is not allowed to use this certain technology before at least 3 years of time. The inability of partners to take advantage of or to effect technology transfer between the two partners. This can avoid by trying to understand the different cultures of the two partners and what could be the best way of getting the two sides communicate and exchange technology in an equal and fair way. -Another risk is leadership. Who will control who? Who will take the decisions in the strategic alliances? So a leadership can be a problem that will create issues between the two partners in a strategic alliance
To avoid this risk, companies getting into strategic alliances are asked to thinking about the structure and see what are the duties of each partner and set clear structure of who is controlling which part and who have the final decision. -Control is also an issue that can be a risk when it comes to strategic alliances. If a partner is production a product for the other partner in the strategic alliance, who can control the quality of the product, who can control the number of production? To avoid this risk, partners also put agreement about the quality of production and number of productions …
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How strategic alliance could be better? The strategies and financial capabilities of potential partners should be analyzed thoroughly. They key operating managers should be involved in the negotiating process Clearly define scope. Avoid escalating commitment syndrome The scope of the alliance should be kept simple in the beginning and build upon when necessary. Managing knowledge flow: the partners must get as much learning out of the alliance as possible, yet provide only essential info to partner.
Also they should remember learning is the key objective of the alliance. Alliances should be terminated when not useful. Governance issue that should push the partners to establish good and clear structure of how the alliance is being operated. Environmental forces placing new challenges for MNC Cross market integration: -Economies of scale: EOS leads to overproduction which then leads organizations to seek new markets locally and internationally. -Economies of Scope: the selling of similar types of product gave companies he opportunity to increase economies of scope. -Factor costs: The lack of home country resources of supply means that companies need to look for resources at the lowest possible cost, and where cheaper resources are not available, the move is then made to look for cheaper labor. -Liberalizing environments for trade: world trade agreements such as GATT and the formation of the WTO, reduced the barriers of international trades which helped MNC to collect more economic benefits from global coordination. Expanding Globalization: the major technological innovation happening nowadays especially in the communication and transportation sectors, also the advances in semiconductor technology had some big effect on the operations of international business. Companies started to change themselves by restructuring their efforts, such as rationalizing their product lines, standardizing parts design, and specializing manufacturing operations.
Also companies started to standardize pack sizes, multilingual labeling, and transferring practices and know how from different part of the word, plus some companies had the power to standardize of consumer taste. -Global competitors as change agents: since competitors are growing more and more in the international market, they are pushing the global companies to change continuously by coordinating their global strategies, and using funds from successful market to subsidize the company position in other national markets.
National Responsiveness: National environments differ on many dimensions. It can differs from on the national, social, economical and political levels so companies need to give a good attention and understand these differences and be sensitive and responsive to these characteristics of the host country. Driven by cultural differences: People from different area are different, especially culturally. Depending on the culture they come from, people have different orientation and values.
The most popular description of culture values is Hofstede study that describes national cultural differences along four key dimensions: power distance, uncertainty avoidance, individualism, and masculinity. This showed how people are different in their social norms and individual behaviour, also this affect the effectiveness of different organizational structures and management system that are adopted by the company in any specific market. These differences in cultures are also reflected in the national consumption patterns that are differentiated nationally. For example how people dress, what people eat.
To succeed in a diverse word;, international companies must modify their operations to collect more global efficiency through standardization and find ways to respond to the needs and opportunities created by cultural differences. Government demands: The diverse demand and expectations of home and host governments are the most severe constraints to the global strategies of many MNC. To MNC, the host governments represent the key to local market or resource access, which provided new opportunities of profit, growth, and improvement of its competitive advantage.
This is why companies should maintain the love-hate relationship with host government on an equal result that will give the company the chance to achieve more profit and growth in the host market, especially that government also can be the source of funds and technology for the company The presence of national champions also affects the operations of MNC, since these companies are being subsidized by the government in order to be competitive on the local and international market. Plus government can specify the level of local content, technology transfer, re-export commitment.
One more thing is to what level the company is accepted in the country since it could be considered as social disruption causing exodus from rural to urban areas, or rejection of traditional values. Growing pressure for localization: Consumer and market trends are emerging to counterbalance the forces of global standardization of products. So the end mass of consumerization due to the rising sophistication of the consumer if forcing companies to adapt their standard product to be more flexible and locally differentiated.
The competitive edge lies less with the company that has the most scale efficient global production capability and more with the one that is sensitive and responsive to local requirements and able to develop products and services to meet those demands. Also the advancement in the Computer Added Designs and the Computer Added Manufacturing has made flexible manufacturing a viable reality. Companies now can achieve the minimum efficient scale in smaller, distributed national plants close to their customers.
So companies can respond now to localized consumer preferences and national political constraints without compromising their economic efficiency. Worldwide innovation and learning: The emerging competitive game, the company that can most effectively access to information and expertise worldwide to develop and diffuse innovative products and process, will be the one that wins. Also newest consumer trends can emerge from anywhere in the world. Companies need to recognize the fact that innovations ca arise from anyway and anywhere in the world.