Strategic Alliances Contribute to a Firms International Competitiveness - Coursework Example

STRATEGIC ALLIANCES: RESOURCE BASED VIEW By [Student’s Name] [Code + Course Name] [Name of Tutor] [Name of University] [City, State] [Date of Submission] Strategic Alliances Contribute to a Firm’s International Competitiveness What is a Strategic Alliance? The business dictionary defines a strategic alliance as an agreement that is made between two or more independent business organizations to work in unison towards a mutual objective (s). In contrary to a joint venture where the two organizations combine their operations to form a new entity, strategic alliance partners retain their autonomy during the period of collaboration. It is crucial that business owners and managers make a distinction between the alliances that are simply conventional and those are really strategic (Dyer & Nobeoka 2000). What Produces Positive Effects on Alliance Firms? In order to ensure that the effects of any alliance are positive, it is imperative that each of the firms entering the venture evaluates the core capabilities that are needed by the management in order to manage successful global alliances. Being good and sensible negotiators also goes a long way in ensuring that the organization does not get a raw deal in comparison to other alliance partners. This should also come alongside having expertise at building and managing the alliance. Such capabilities are crucial if benefits of the strategic alliance are to be achieved by all the partners. As such, if a particular firm has in its possession managers that can successfully manage and establish global partnerships, then the company’s, as well as the alliance’s product breadth, profitability and market scope will be enhanced worldwide (Hill, Jones and Schilling 2003). Before firms can get into a strategic alliance, it is important that they put adequate thought behind the structure that the relationship is going to assume, as well as any details regarding the management. Barney (1991), in his studies, argued that the definition of outcomes and results expected for the alliance partners from the relationship should be done well before hand. This prevents future conflicts amongst the partners. It is also necessary to define and document any elements that each party provides, and also any benefits that are brought out by a successful alliance. Identifying outcomes that will make the alliance be beneficial to all parties and going further to define structures and other operating issues that are necessary to be addressed in the achievement of such results is also an issue that could bring a positive outcome to the alliance firms (Barney 1991). Protection of the intellectual property rights of the parties to the alliance by way of entering legal agreements restrictions while transferring proprietary information is also a way in which positive outcomes could be achieved by firms in the alliance. When firms get into alliances, inside information is bound to get exchanged in the process of doing business. Such information could be used by partners to put others at a disadvantage in some instances. It is for this reason that legal agreements should be entered into by all parties to ensure that information is kept confidential and only used for the purposes of the alliance (Wang & Horsburgh 2007). Defining the basics of operations is also one of the issues that could bring about positive outcomes to the alliance. This is because each of the parties is assigned and charged with specific responsibilities according to their expertise and strengths. For instance, all matters pertaining to management functions, financial and economic functions, research, sales and marketing, and distribution should be allocated at the onset. This will not only make daily operations smoother, but also, improve accountability where all parties will be held responsible for the duties that they have been assigned. Many alliances fail due to poor management relationships (Barney 1991). In addition, periodical targets could be set such that appraisals at the end of the periods are carried out, and any unmet targets are accounted for, and at the same time solutions devised to prevent the recurrence of unmet targets (Winter 2003). Issues that Could Produce Negative Effects for Alliance Firms In the entire concept of strategic alliance, the worst case scenario is the total failure of the alliance which leads to parties going their separate ways. The reasons behind the failure of strategic alliances are rather complex, largely varying depending on the mode of industry or alliance. However, majority of the failures result from poor management of the alliance, execution and implementation of the joint venture business. Ill conceived strategies for the alliance and narrow focus in the selection of the industry and firms for partnership are also major contributors to the failure of alliances. Researchers have also noted that the cultural diversity that exists amongst partners in different levels; organizational, societal, professional, national and even managerial levels as a major reason behind the failure of strategic alliances (Ghemawat 2005). Nationality, gender, and functional background diversity of individual firms are crucial factors to consider in the formation of a strategic alliance. To start with, the parties to an alliance face individually unique challenges that are capable of influencing the outcomes to the alliance. For international alliances, the issues that could be influenced by nationality revolve around conflict, communication, and collaboration challenges. These issues are rather interpersonal in nature, and they could influence the partners negatively. In other instances, there could be the occurrence of racial diversity for firms which traverse continents to form alliances. In this regard, nationality diversity is likely to affect the ability of the alliance firms to attain partner goals. Issues of a similar nature may also occur with functional and gender background diversity. For gender diversity, it does not only influence interactions of the partner firms, but also the results of the alliance. In the same way, functional background is the extent to which any firm consists of members from diverse functional units. Experts in the field have concluded that it could lead to negative outcomes if the teams involved do not come to a consensus regarding their differences (Hitt, Ireland & Hockisson 2001). It has been estimated that of all strategic alliances formed, 50 percent are likely to fail and one major reason for failure of alliances, in addition to the above, is the chance of partners to behave in an opportunistic manner. Some firms enter into alliances with hidden agenda of taking advantage of their alliance partners. As other partners work towards benefits for the mutual benefit of all, the opportunistic firms go in with the incentive of absorbing other partners’ skills, knowledge, financial resources and other forms of assets (Tallman & Fladmor-Lindquis 2002). The rivalry that comes with the competition then goes ahead to produce opportunistic hazards. Opportunistic hazards are numerous and range from escalating transaction costs, creation of obstacles to fostering confidence in the cooperation of partners and the increase in coordination difficulty as well as coupling uncertainty between exchange parties (Jap and Anderson 2003). How May the Negative Issues Turn into Positive Outcomes? The negative issues could be used by the partner firms to give positive outcomes. In the case of diversity, the partners could use the diversity as a means to acquiring new ideas, skills, technological knowhow, as well as a source of new markets. By venturing into areas where there exists people with different cultures, a firm may seize the opportunity by carrying out a marketing research for some of its other products which it would then supply to the new market. Also, if the firm discovers the existence of untapped resources or unfilled gap, then it could take advantage of the opportunity and serve the market with the needs (Ghemawat 2005). Opportunistic hazards could actually crumble an alliance that is destined for great heights and the formation of contracts that could mitigate future risks could certainly cause the birth of mistrust amongst partners. When the seeds of mistrust are sown amongst partners, then the union could disintegrate because partners shy away from their partners as they may not be sure what their partners may have up their sleeves. Thus, all partners should work towards the growth of the alliance, as opposed to seeking individual growth. Instilling commitment to the alliance is the surest method of curbing opportunistic partnerships by making the partners own their share of responsibility to the growth of the alliance (Jap and Anderson 2003). The Performance Difference From Alliances Point Of View And Competitive Advantage and Competitiveness The resource based view of alliances lays its focus on the value maximization of an organisation by way of pooling and utilization of valuable resources. In this way, the partners to the alliance are viewed as attempting to search for the optimal resource boundary through which the value of their resources may be realized in a much better way than through the combination of resources. A firm is claimed have competitive advantage when it implements a strategy aimed at creating value, and which has not currently been implemented by existing or potential competitors. Resources are inputs into a firm’s production process that are either knowledge-based or property-based. Property-based resources typically refer to tangible input resources, whereas knowledge-based resources are the ways in which firms combine and transform these tangible inputs.The reason why the competition may not be making use of the strategy could be inadequate resources, and a lot of literature on strategy has established that there exists a close relationship between competence, in this case resources, and competitive advantage. As such, it would be in line to conclude that strategc alliances help in improving the strategic positions of organizations in the market by providing resources from other partner organizations, thus enabling them to share in risks and costs. Such resources are important in providing a cushion for the partner firms to weather downturns as well as other setbacks, which further ensures more even and predictable flow of resources (Eisenhardt and Schoonhoven 1996). VRIN ( Valuable, Rareness, Inimitability and Nun-substitutability ) In view of the resource-based view of strategic management, competitive advantage is very closely linked to the internal characteristics of an organization. In particular, if an organisation is in a position to possess and exploit valuable, rare, inimitable and non-sustainable capabilities and resources, then this will translate into competitive advantage as well as performance that shall be above average. The statement is referred to as the VRIN framework. (Talaja 2012). The framework was developed by Barney, who sought to prove that certain characteristics are necessary for an organization, if the organization is to achieve competitive advantage. These are valuable, rare, imperfectly inmitable and non-substitutable resources. In further explanation, the framework notes that the value of resources is in their ability to neutralize threats, while at the same time enabling the organization to exploit any opportunities that are present in the market. In other words, resources are said to be valuable if the company is able to implement and design strategies that improve effectiveness and efficacy due to the strength of the resources. In this case, the value of the resources must be estimated using the corporate strategy concept, and also the precise environment in which the organization operates. As pertains to rareness, it meas that the competition lacks any access to the particular resource, or better still, they only have limited access to the resource in question, and this is due to the fact that valuable resources that are available to all organizations do not create a competitive advantage. Valuable resources that are not rare and are not irrelevant to an organization, but instead of creating competitive advantage, they ensure survival of the organization, while enabling it to achieve competitive parity in the industry. In this case therefore, an organization that fails to exploit valuable resources end up having competitive disadvantages for themselves(Cardeal & Antonio 2012). In regards to resources that are imperfectly imitable, competitors may not obtain them in a particular market, and if the competition is not able to acquire worthy and sufficient replacements for the resource, then the existing resource is not sustainable. It is therefore important to note that the value and rarity of a particular resource are crucial conditions if an organization is to achieve competitive advantage. However, to achieve sustainable competitive advantage, the resource must be imperfectly imitable and non substitutable(Cardeal & Antonio 2012). Competitive advantage is separated from the performance of the organization, though it is highly valued as a determining factor of an organization’s performance levels. It is also responsible for mediating the relationship between the rareness of resources and performance, as well the relationship between performance and the value of the resources (Talaja 2012). Majority of the studies that have been carried out to evaluate the relationship between the performance of an organization and its resources use the resource heterogeneity approach. By that approach, specific resource or capability is claimed to be valuable, rare, imperfectly imitable or non-substitutable, and then the amount of that resource or capability that a company owns is correlated with competitive advantage or performance. This classification of research is able to provide evidence that a particular resource is able to help an organizationattain competitive advantage, though it does not verify the influence of the characteristics of the resource in question, in this case VRIN (value, rarity, inimitability and non-substitutability) (Cardeal & Antonio 2012). VRIN in Alliances In view of resource based views, organizations with valuable, rare and inmitable resources have high potential for achieving superior performance. In the formation of alliances, firms with valuable, rare, inimitable and non-substitutable resources are often reluctant to get into alliances with partners whose resourcs do no have the above characteristics. For this reason, such organizations often tend to seek partners wo also possess a competitive advantage of some kind. The ideology that an organization may benefit unfairly from another organization could be seen as exploitation, and in a bid to avoid this, the organizations search for partners who possess the same qualities, or higher that those they posess. Performance of an alliance highy depends on the resources that are available to the partners, and the more the resources, the higher the possibility of returns. These resources are contributed by the individual partners before the alliance is formed, and this is done through an agreement. For instance, a company with adequate financial resources could go into an alliance with accompany that is less-endowed financially, but with highly capable human resource. These two organizations will then come into an agreement onhow these two resources shall be used to the benefit of the alliance.During the implementation of an alliance, organizations must make an agreement in regards to their contribution towards the partnership and the benefits they shall reap from the partnership to avoid future conflicts. Resources in an alliance are managed by mutual agreement. The parties agree well in advance on how the management shall be done, and also how the profits shall be shared. This is often done in accordance with the contribution of the each organization, a factor known as asymmetric division. An organization that contributes more resources to the alliance gets to receive higher benefits and vice versa (Antoncic et.al. 2009). Dynamic Capabilities of Strategic Alliances Every day, a series of revolutions take place within the global economy, and this transforms the theoretical base for the coalignment of the organization, in addition to communication and informational processes. It is at this point that the dynamic capabilities of an organization, or in this case of an alliance are put to the test. High speed management comes in handy in instances of environmental change by setting its goal as being the maintenance and achievement of competitive advantage that is sustainable. This is done by ensuring innovative, adaptive, flexible, rapid and efficient response measures are in place (Das, 2012 ). According to RBV, organizations that are in a similar industry perform differently due to the fact they thay control resources that are not similar in any way. Such organizations may come together and work on developing an alliance portfolio. Alliance based portfolio refers to the collection of managerial routines available to the partner firms to counter the challenges that arise with the management of the portfolio. By way of experimental learning, the routines are developed with the accumulation of experience in the building and management of the alliance portfolios. Recent studies have come up with some process dimensions of capabilities including relational governance, portfolio coordination and partnering proactiveness. Relational governance refers to the engagement that a firm has to the activities aimed at the development of informal safeguards in the alliances. Oon the other hand, portfolio coordination relates to the measures that a firm applies in order to synchronise nad integrate knowledge and activities across the portfolio, while partnering proactiveness is the efforts that a firm exerts in the identification and exploitation of alliance opportunities. When applied appropriately, all the partners to an alliance are capable of building on their capabilities, both jointly and severally, and therefore able to benefit as individual firms and also as an alliance because they are able to face any changes in the environment with ease (Ungson & Wong, 2008 ). Conclusion In the contemporary business world, organizations have strategies which show the long-term direction as well as the scope that they intend to follow. A good strategy such as a strategic alliance enables an organization to utilize its resources effectively in a dynamic environment and to maximize the wealth of the shareholders. Strategic alliances enable firms to take advantage of opportunities, while at the same time, overcome challenges that hinder the realization of its set objectives. However, strategic alliances could produce both positive and negative effects on alliance firms. It is, therefore, imperative for strategic partners to set out a clear vision in order to maximize on the strength and improve on the shortfalls. Reference List Antoncic, B et, al. 2009. Managing Global Transitions: International Researcj Journal. Vol.7, No.3:pp 1581-6311. Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management. Vol. 17:pp. 99-120. Cardeal, N. & Antonio, N. 2012. Valuable, rare, inmitable resources and organisation (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage? African Journal of Business Management. Vol.6, No. 37: pp. 10159-10170. Das, T.K. 2012. Management dynamics in strategic alliances. Information Age Publishing Inc., USA. Dyer, J., & Nobeoka,K. 2000. Creating and managing a high-performance knowledge-sharing network: The Toyota case. Strategic Management Journal, vol. 21: pp. 345-367. Eisenhardt, K.M. & Schoonhoven, C.B. 1996. Resource-based view of strategic alliance formation: Stategic and social effects in entrepreneurial firms. Organisation Science. Vol. 7, no. 2: pp.136-150. Ghemawat P, 2005, Regional strategies for global leadership. Harvard Business Review. Hill C, Jones G and Schilling M, 2003, Strategic Management: Theory: an integrated approach. London: Cengage Brain. Hitt M, Ireland RD & Hockisson R, 2001, Strategic management: Concepts: Competitiveness and Globaliazation. London: Cengage Brain. Jap, S. D. and Anderson, E. (2003) Safeguarding Inter-organizational Performance and Continuity under Ex Post Opportunism. Management Science, Vol. 49, No. 12 (Dec., 2003), pp. 1684-1701. Talaja, A.2012. Testing VRIN framework: Resource value and rareness as sources of competitive advantage and above average performance. Management. Vol.17: pp.51-64. Tallman S. & Fladmor-Lindquist, 2002. Internationalization, globalization, and capability-based strategy. California Management Review, vo.45: pp. 116-135. Wang, Z. & Horsburgh, S. 2007. Linking Network Coherence to Service Performance: Modelling Airline Strategic Alliances. Journal of Marketing Channels, vol. 14 no.3:pp. 51-81. Winter, S. G. 2003. Understanding dynamic capabilities. Strategic Management Journal. Vol. 24: pp. 991-995. Ungson, G.R. & Wong, Y-Y.2008. Global strategic management. M.E.Sharpe, Inc., New York. 392 Read More