INTERNATIONAL STRATEGIC ALLIANCES

Strategic alliances among international businesses are common. Globalisation of business is the order of the day. But internationalizsation can be a very expensive process. A firm may discover that it is short on some of the internal resources necessary to effectively compete against its rivals internationality. Therefore, a firm may seek partners to share these costs. A firm may develop a new technology but lack a distribution network or production facilities in all the national markets it seeks to serve.

NATURE OF STRATEGIC ALLIANCES

Strategic alliances are cooperative argeements between firms. Alliances and/or cooperative agreements can involve joint research efforts, technology sharing, joint use of production facilities, marketing one anothers products, or joining forces to manufacture components or assemble finished products. Alliances are formed among actual or potential competitors. ICICI and HLL, for example, have launched a partnership project for contract farming in wheat and basmati rice in Haryana and Madhya Pradesh.

A joint venture is a special type of strategic alliance in which two or more firms join together

to create a new business entity, which is legally

separate and distinct from its parents. Joint ventures are normally established as stand-alone

entities and owned by the founding parents in

agreed proportions. Many are owned equally, popularly called 50-50 partnership ventures, although unequal ownership is not uncommon.

BENEFITS OF ALLIANCES
Collaborative markets. agreements facilitate entry into foreign

Yet another rationale for forming strategic alliances is risk sharing.

Alliances are formed among firms of developed and

developing countries for mutual motivations. The partner

from the developing country seeks the technology, knowhow, or capital from the developed country. The partner from the developed country seeks an opportunity to benefit from comparative advantages of the lesser-developed country. These advantages often include low cost labour and untapped reserves of raw materials.

This strategic alliance can provide or attain costs reductions; access to complementary skills; cooperation in supplying a range of products into opportunity markets that would not be available to a small volume supplier; joint contributions to marketing and promotion costs for entry into new markets; access to capital and grants; access to required plant and equipment; increased bargaining power; cooperation in undertaking training; improved performance and efficiency and thus the chances of survival.

PITFALLS OF STRATEGIC

ALLIANCES

INCOMPATIBILITY OF PARTNERS
Incompatibility between the partners of a strategic alliance is a primary cause of failure in a cooperative agreement. Often incompatibility can lead to outright conflict.

ACCESS TO INFORMATION
Access to information is another drawback of strategic alliance. For collaboration to work effectively, one partner (or both) may have to provide the other with information it would prefer to keep secret. It is often difficult to identify information needs ahead of time.

DISTRIBUTION OF EARNINGS
This is the most serious problem between alliance

partners. As the partners share risks and cost,

they also share profits. This amounts to oversimplification of the issue. There are other financial considerations that can cause conflict. For example, the partners must also agree on the proportion of the joint earnings that will be distributed to themselves, as opposed to being reinvested in the business.

POTENTIAL LOSS OF AUTONOMY

Loss of autonomy is another potential drawback of a strategic alliance. It was for this reason that the late Dhirubhai Ambani never countenanced the idea of an alliance. Like Rahul Bajaj, Ambani did not take partners because he could never play second fiddle. Just as firms share risk and profits, they also share control, thereby limiting what each can do. Most attempts to introduce new products or services change the way the alliance does business.

CHANGING CIRCUMSTANCES
Changing circumstances may also affect the viability of a strategic alliance. The economic conditions that motivated the cooperative arrangement may no longer exist, or technological advances may render the alliance obsolete.

SCOPE OF STRATEGIC ALLIANCES

The scope of cooperation between firms varies significantly as shown in Fig. An alliance may be comprehensive that is one in which the partners participate in all facets of conducting business. On the other hand, an alliance may have a more narrowly defined focus concentrating on any elements of the business such as R&D. These latter alliances are called functional alliances. The degree of collaboration will depend on the basic goal of each partner.

SCOPE OF STRATEGIC ALLIANCES

Partner 1 R&D FIN MKTG. PROD. PROD. Partner 2 MKTG. FIN R&D

Production Strategic Alliance Marketing Strategic Alliance Finance Strategic Alliance R&D Strategic Alliance Comprehensive Strategic Alliance

COMPREHENSIVE ALLIANCES
These include collaborative agreements that cover all stages of manufacture, such as R&D, design, production, marketing and distribution. These alliances mainly assume the form of joint venture. A joint venture is an ideal form of organisation to handle a comprehensive alliance. As an independent entity, the joint venture can handle all operations without giving scope for incompatible partners to interfere in the day-today activities. Maruti Suzuki, automobile major in India, is the best example to be cited in this context.

FUNCTIONAL ALLIANCES
These are alliances which have narrow scope
and cover production, marketing, finance, or

R&D activities. These do not take the form of joint ventures.

PRODUCTION ALLIANCE
A production alliance is a functional alliance in

which two or more firms join, each manufacturing products or providing services in a shared or common facility. Production alliances may use a facility already owned by one partner, or may involve the construction of a new facility altogether.

MARKETING ALLIANCE
A marketing alliance is a functional alliance in which two or more firms share marketing services or expertise. In most cases this involves one partner introducing its products or services into a market in which the other partner already has a presence. The established firm helps the newcomer by promoting, advertising and / or distributing its products or services. The established firm may negotiate a fixed price for its assistance or may share in the newcomers profits.

FINANCIAL ALLIANCE
A financial alliance is a collaborative

arrangement of firms that wish to reduce the financial risks associated with a project. Partners may equally share finance or one partner may contribute the bulk of the finance while the other partner(s) provides special expertise of make other kinds of contributions.

R&D ALLIANCE
In R&D alliance the partners agree to undertake joint research to develop new products or services. These alliances are not usually

formed as joint ventures.

MAKING ALLIANCE WORK

Many international alliances are ending up in

failure. For example, one study of 49 alliances

found that two-third run into serious financial and managerial troubles within two years of their formation, and that although many of these problems are solved, 33 per cent are ultimately rated as failures by the parties involved. The partners in an alliance must address six issues :

The partners in an alliance must address six issues :

Assessment of fit with strategy

Partner selection

Alliance structure
Negotiating process Joint management consideration Management of expectations