The Key Factors the Success of an International Strategic Alliance - Essay Example

?Executive Summary The success of an alliance Alliances generally depends on proper management with clearly set out objectives, that must be understood before the parties appends their signatures to the deals. Alliances have found a lot of relevance in the present global economy, and that is the reason why they are a wide range in addition they serve strategic objectives. This implores upon the parties to design structures of agreements that meet certain levels of governance, financial and operating systems should be customized to fit individual agreements. The success of an alliance must be built upon reliable infrastructure, which must support the underlying goals and objectives of the parties to the agreements. Unlike other kinds of associations such as mergers and acquisitions, company hierarchy frequently times allows for evaluation after entering into such deals. More often, when strategic alliance performance does not constitute monetary gains but merely other benefits, this proves hard to quantify as success it is based upon intangible criterion rather than stable financial growth procedures. Alliance goals and objectives from case studies often fluctuate considerably from the originally penned down deals and as such more difficult to define. These shortcomings are merely challenges and if handled effectively they will result in the success of an alliance; however, the four key factors are primal to success of any alliance. Introduction Rakowski and Patz (2009, p.5) defines Strategic alliance as a cooperative arrangement between two or more companies to achieve a shared goals, so that each reimbursements from the powers of the other, and gains reasonable lead. Most literature identifies two categories of strategic alliances; those that are equity based and the non-equity based. Those that are based on equity include minority stock investments, joint ventures, to the furthest end majority investments. However, the non-equity based alliances are purely based on contractual agreements that spell out the relationships between the parties. In these arrangements the different parties to such agreements do not lose their independence and their autonomy with the regards to operations, however, the alliance do have an impact on their operations (Singh and Delios 2012, p.196). The emergence of strategic alliances has been seen as a reaction to globalization Vaidya (2006, p.256) insist that it is one of the most significant impacts of globalisation in the last 3 and a half decade coupled with the integration of markets and the increasing uncertainty and complexity in the business environment. Strategic alliances entail sharing of techniques and knowledge between parties involved plus schemes that involve the decrease of risks and expenses in areas such as relationships with suppliers and the development of new products and technologies. Strategic alliance has often been discussed within the realms of a joint venture, as it at times involves rivals, however more often it has a shorter lifespan than the former. Strategic partnership is a closely related concept, this paper explores the key factors influencing the success of international strategic alliances, through a two case study analysis. It is often stated that to understand the key reasons of the success, then it is imperative to grasp the rationale behind strategic alliances. The paper unearths that success depends on the levels of trust, communication, commitment and collaboration deciphering between the parties. For these factors above to flow seamlessly, the parties to the strategic alliance must have a fit with respect to alliance goals and objectives (Cullen and Parboteeah2013, p.315) its mechanics of operation and the performance evaluation criteria. Ogbor (2009, p.372) asserts that any company willing to enter into alliance with another party must look out for compatible goals; and complimentary capabilities. Globalization and Strategic Alliance With the proliferation of globalization and incorporation of markets into an international market, companies are influenced by changes occurring in the environment outside their domestic forte. Markets have come to global, have converged tastes, influenced by the fast changing pace of technology, albeit with a shorter product life cycle. These factors have resulted in some form of vulnerabilities to companies and for them to survive in the ever-dynamic market systems and grow in this highly competitive world, this has necessitated alliances formation. In addition, in international markets, certain markets have proved futile to penetrate due to a number of factors but majorly cultural reasons; alliance formation might enable a company to gain entry easily into a market where hitherto it was unable (Hubbard 2013, p.177). These kinds of relationships in business are multi facet and usually transform with situation, but ideally, it represents a kind of an umbrella to such kind of relationships. These relationships vary considerably but range from; joint ventures, co-marketing and consortia among others; in fact, the meaning of the term in business and economics application is not limited to these relations, but a multivariate of relationships. In economics an alliance amongst firms present what is known as an incomplete contract, this is due to the fact the parties remain separate entities. Their interests and actions do not automatically converge, however due to unforeseen situations; these parties often make decisions pertaining to the contract jointly. The commonness of such contracts to an economist provides the basic reason for the existence of the firm, alliance is the best manner in which the incomplete contracts are governed, utilizing a given nature of joint decision making to tackle unforeseeable circumstances. All alliances exhibit a given form of strategy from the parties involved in the dealings. The strategies build the relationship amongst the partners is known as cooperative strategy. This is the attempt by the parties involved to realize their individual goals through a collective or cooperation with other organizations. The strategic alliances are volunteer amongst firms involving exchange, co-development among others, they can occur as a result of a wide range of motives and goals, take a variety of forms, and occur across vertical and horizontal boundaries Factors influencing success of an alliance: Some of the fundamental perspectives of the behaviour of firms, which relate to alliance formation and alliance performance, can be understood by considering the series of interrelated factors in alliances. This series of factors includes the organizational and firm characteristics that influence the inclination of firms to enter into strategic alliances, the preference of appropriate partner, alliance association characteristics, and the success or otherwise of the alliance over a period of time. There are a number of factors on strategic alliance creation, however, in strategic management, the two most recognized by writers are; collaborate match and strategic orientation of the other partner. Shenkar and Luo (2008, p.334) emphasize that in selecting a local partner, a firm must seek fit between a candidate’s capabilities and that of their own. The candidate’s capabilities the author identifies those as strategic, organizational and financial. Partner Match Firms entering into alliances face significant dilemma due to the unpredictability of the behaviour of other party and the probable costs to the company from opportunistic character by the party, in case it occurs. In spite of the rapid growth of this type of business models in both the home and global markets, most business leaders concur that this mode of operations is risky (Thompson and Martin 2005, p.580). The partner can create an unfavourable condition by limiting its contributions to the alliance or just behaving in a manner that suggests that it wants to take advantage of the situation (opportunistic behaviour). According to Rond, (2003, p.48) the strategic alliance are often unpredictable which at times causes the agreement to drift to directions not anticipated when the relationship were formed. Sofat et al (2012, p.308) posits that ‘there are constraints like strained relations between parties due to challenges, cultural issues with foreign partners’. This means that fast transformations in the business environment may lead firms to modify their demands, requirements and orientation, hence disturbing their on-going relationship. For firms to create relations that efficiently tackle their needs while reducing the dangers posed by such concerns, they must take into account the barriers to successful contractual agreements and a seamless alliance and they must have an idea of their needs and requirements. Additionally, firms must seek to know information on the reliability of the partners particularly when the success largely is reliant on the other party’s behaviour. Clegg, Wang and Berrell (2007, p.10) advocating for HTNV’s reliability as this is the initial step in looking for partners in China. This calls for the development of alliances in which the partners that a firm has chosen might have similar styles in terms management and possibly organisational culture. Intricate similarities that include domain semblance and objective comparability and compatibility usually enhance the effectiveness of strategic alliances. Strategic Orientation The strategic orientation of a firm shows that a firm perceives strategic alliance as the key that could assist it to develop or acquire certain benefits, which may include market share or more innovative alternatives (FINKELSTEIN, Hambrick and Canella 2009, p.276). These strategies by firms are important as the firms consider those that enhances their competitive image and to gain an advantage over their rivals. According to Das (2012, p.139) strategic alliances are developed to guide businesses on how to manage environmental uncertainties, how to surmount deficiency of resources and, especially, how to successfully handle the organisations wide range of inter-organisational relationships. Most literature on this subject have identified that the key to a strategic alliance between two firms are; commitment, collaboration, communication, trust, and conflict resolution (Conklin 2011, p.15).These four fundamental factors imply that the parties to their alliance recognize their mutual relations and their readiness to commit their resources and efforts for the survival and success of the pact. Communication Communication flow between the parties is vital for creating a prosperous relationship and the flow must be always occurring to both ends. Pahl and Richter (2009, p.21) admit that communication should flow not only vertically but also horizontally among and within partners and the alliance. For the parties to reap intended benefits from the alliance, communication must be conducted in such a way that the parties perceive communication between and amongst them to be effective and efficient (Great Britain 2006, p.78).Effective communication should be clear, relevant and straight to the point and through the agreeable mediums of travel and it should be constant. This is a crucial element as it provides the parties with the means of grasping the exact intentions and terms of the alliance goals, roles and responsibilities. It also helps with the sharing and dissemination of individual experiences. Simply, a more successful alliance relationship is anticipated to show greater degrees of communication quality, and open information exchange between the parties, and more participation in planning and goal setting than less successful alliances (Harrigan 2003 p.30). Sherwood and Covin (2008) admit that the partners’ communications appear to be salient characteristics of effective organizational knowledge. Trust The importance of mutual trust amongst between the parties to alliance agreements should not be put to doubt, in fact, most writers do stress it as the most important item for a successful alliance (Hoetker, Mellewigt and Weibel 2006, p.54). Trust entails the levels of confidence amongst the parties to the alliance, such that none will take advantage of the shortcomings of the other party and exploit such vulnerabilities. Trust is an emotive subject that should addressed soberly during negotiations as there are strong cognitive and emotional bases for such. Conducting of due diligence though paramount before choosing a partner must be handled with care as the other party may perceive such as not having confidence in them (Rosenbloom 2002, p.258). In the case, it was observed how close personal relations came out between individuals in organisations that made a contract with one another. In turn, the ties exercised burden for conformity to prospect pointed to the critical function of informal, personal relations across organisations in building the frameworks necessary to govern such relations. Vagadia (2012, p.90) holds that a definite lowest level of inter firm trust is necessary for any strategic alliance to be made and for the alliance to function. social networks have been found to serve as critical foundations upon which parties can provide for enforceable or avoidance based trust Hendrikse, (2008, p.322). Social networks often promote ties amongst the parties in a variety of ways but majorly through these two ways (Gilsing2005, p.64). First, by working as efficient transfer networks, the initial social framework enables the firms to be conscious of each other’s existence. This has the benefit of motivating good practices and behaviour between the parties and shared partners. Alliances are formed to benefit the parties involved and as such, each party must be aware that the other has much to lose from behaving opportunistically thus enhancing confidence in the other party. The agreement or contract usually contains potential sanctions, which might include a raft of terms such as loss of reputation, amongst other consequences. Fundamentally, the existence of trust in such relationship lowers the awareness of risk linked to opportunistic behaviour. Parties who trust one other generate greater benefits such, serving customers better, increased market share and this corresponds to greater profits and they become adaptable to each other Lamb (2009, p.86 ). According to the transaction cost theory, the exchanges governed by trust, enables the parties involved in transactions to reduce cost as they reap the benefits of cooperation. Parties can reduce costs, which involve activities such as bargaining and monitoring costs in their individual books of accounts. Several studies posit that the critical factor that might determine the level of arrangement amongst the parties to the agreement is trust between alliance partners. Consequently, it has often been stated that trust is so critical to alliances that it is taken as the cornerstone of the strategic partnership prosperity (Das 2011, p.70). Commitment According to Ulijn (2010, p.14) it was found that trust and commitment played critical roles in alliances between Korean and Japanese companies; this illustrates the value of commitment to international strategic alliances. To understand what commitment entails it is important for the party’s to value future orientation in which they endeavour to develop and sustain a connection that can deter unusual occurrences. A soaring level of dedication from the parties provides the basis upon which both they aim to achieve not only individual but also collective objectives (Antoldi, Cerrato and Depperu 2011, p.34). Such kinds of dedications are characterised by non-opportunistic investments by the parties to the alliance exclusive, amicable agreements among the firms and the lack of major disagreements among the parties. Parties who are committed to the laid down agreement are often cooperative, addresses communication breakdowns that might appear. Additionally, the parties do not maintain a hard line stand as they are accommodative and approach conflicting issues with a flexible mind. The development of commitment between parties within an alliance would act as a countermeasure in case the alliance breaks down (Uddin 2011, p.43). Collaboration According to Camarinha-Matos and Picard (2008, p.76) utilizing the oxford 2000 definition of an alliance, the author suggests that the alliance is a means of sharing risks and benefits when facing new collaboration opportunities. Essentially, this implies that collaboration is the critical facet of the strategic alliance bond. The parties to the agreement must collaborate in any activity that pertains to the agreement so as achieve their targeted strategic goals. These collaborative relations involve many interactions (Carter et al 2011, p.333), and can be modified depending on the circumstances and situations, largely due to the impersonal relations. The success or otherwise of an alliance is dependent on the thorough understanding of not only scope but also nature of collaboration amongst the parties. Most writers conclude a high level of collaboration assist in providing flexibility and adaptability that are important in overcoming bottlenecks, and conflicts as well as resolving conflicts to enable bi-partite benefits to accrue from the associations. Gibbs and Humphries (2009, p.15) attributes 50 percent of the total fortune 1000 revenue to alliances especially those dependent on collaborative channels in the last decade. In summary, a successful alliance relation is usually portrayed by higher degrees of dedication, cooperation, communication, and mutual trust, which if lack, will lead to a crumbling alliance. Case studies Jaguar and Land rover The domestic alliance between Jaguar (before the takeover by Tata) and Land rover at the very essence is the epitome of strategic alliance due the fact that it embodied the four factors that made it successful amongst others. Their alliance is unique is that both produce luxury products albeit in different styles, Jaguar cars are luxury saloons while Land rover were off road specialist. The alliance did not require either to change their brand names or products but it was about exchange of knowledge and skills to further advance their products. The success of this alliance in short is attributed to trust, perfection of the art of communication and collaboration, this was a model alliance amongst world businesses. Magic Corporations This was the result of a six strategic alliance to build a precursor of PDA, Sony, Apple, Motorola Phillips, AT&T and Matsushita came together to develop telescript communication software. Opportunistic tendencies and backstabbing by the members of this alliance led to the downfall of this iconic alliance amongst the techno business world. These six companies were in direct competition for market with their products, though with some small variations for instance Motorola accused Matsushita that it was undermining its role in the arrangement, this was the eventual break down of this promising alliance in the technology industry. Conclusion Conflicts do arise when organisations that is in alliance in normal interdependencies amongst themselves. Theoretically, firms are in such arrangements are normally prompted by the capabilities of collectively addressing any problem that may arise, the relationship, therefore, becomes a linkage to the parties to manage an environment that was more uncertain and unstable for each to individually control. Literature often cites two categories of conflicts functional or dysfunctional. The former would improve the alliance’s growth whereas the latter within the alliance would compromise on the importance of alliance growth. Dysfunctional conflicts should be addressed properly and effectively as they have the potential of straining relations amongst the parties and the alliance. Therefore, it is imperative for any firm or groups of firms to observe that they key to a successful alliance rests in higher levels of collaboration, effective and efficient communication, commitment to the contract, and mutual trust. These core elements go a long way in addressing the strategies for each partner and the collective strategies of the alliance. For this four core elements to function properly, they must be preceded by the alliance partners having a fit with respect to the objectives and goals of the alliance. Additionally, the partners must take cognizance of the workings and operations plus the performance assessment criterion of the alliance. In global business, several strides have been made with respect to the theory of the firm; there has been the growth of competition and countering the slow decline of monopoly in almost every society in the world. Firms have transformed from single units to multiple units, from local, to regional and finally to multinational corporations with footholds in every sphere of the globe. The workings of business have made substantial strides from pure monopolies in to a large number of competitors to collaborative and collaboration based form of competition. In the current settings, alliances have provided the platform for these types of collaboration to flourish, metamorphosing into large productive networks. However, other authors argue that alliances kill competition, with other writers equating them to cartels. In business, cartels are unethical alliances by different companies as the sole intentions of such associations are merely to exploit their customers. 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