1. Global Alliances and Strategy Implementation Jacksonville University
Chapter 7:
Global Alliances and Strategy Implementation
PowerPoint by:
Mohamad Sepehri, Ph.D.
Jacksonville University
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

2. Chapter Learning Goals
Realize that much of international business is conducted through strategic alliances.
Understand the reasons that firms seek international business allies and the benefits they bring.
Understand the complexities involved in managing international joint ventures.
Appreciate the governmental and cultural factors that influence strategic implementation; as well as the impact of e-commerce.
Recognize the changing factors, opportunities, and threats involved in joint ventures in the Russian Federation.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

3. Opening Profile: Haeir Group—Growth Through Strategic Alliances, Acquisitions, and Global Networks
Haeir Group is the fourth-largest white goods (refrigerators, washing machines, and other appliances) manufacturer in the world.
Haeir has established an extensive sales network around the globe, primarily through strategic alliances with key partners in prospective global markets.
The foundation of Haeir’s human resource management strategy is rigorous performance management. As it grew, Haeir acquired 18 companies that it identified as running at a loss.
Haeir learned about the U.S. market by supplying small refrigerators to Wal-Mart stores as Haeir built their internationalization competencies.
Haeir uses a three-pronged approach to internationalization that includes a localization strategy combining design, production and marketing network as the core of its global branding strategy.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

4. Strategic Alliances (Cooperative Strategies)
Partnerships between two or more firms that combine financial, managerial, and technological resources and their distinctive competitive advantages to pursue mutual goals
Alliances are transition mechanisms that propel the partners’ strategies forward faster than would be possible for each company alone.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

5. Categories of Strategic Alliances
Joint Ventures: PSA Peugeot-Citroen Group and Toyota
Equity Strategic Alliances: TCL-Thompson electronics
Non-Equity Strategic Alliances: UPS and Nike
Joint ventures (JVs) are independent entities jointly created and owned by two or more parent companies. An international joint venture (IJV) is a joint venture among companies in different countries. The JV form for a firm may comprise a majority (more than 50% equity), a minority (less than 50% equity), or may be (equal equity). An example of a IJV is between France’s PSA Peugeot-Citroen Group and Japan’s Toyota in the Czech Republic. From this IJV Toyota gains knowledge of suppliers and their capabilities from one of Europe’s biggest indigenous car makers. Peugeot-Citroen gains experience from Toyota’s manufacturing system.
In equity strategic alliances two or more partners have different relative ownership shares in the new venture. An example is TCL-Thompson Electronics. France’s Thompson owns 33% of the combined company and China’s TCL owns 67%. Most global manufacturers have equity alliances with suppliers, sub assemblers, and distributors.
In non-equity strategic alliances, agreements are carried out through contract rather than ownership sharing. Such contracts are often with suppliers, distributors, or manufacturers, but they also may be for the purposes of marketing and information sharing. An example is UPS, which has a non-equity alliance with Nike. Nike contracts with UPS to manage its entire supply chain from factory, to warehouse, to customer, to repair.
Global strategic alliances are working partnerships between two or more companies across national boundaries and/or industries. Alliances also can be formed between companies and governments. Alliances may comprise full global partnerships (e.g., joint ventures in which two or more companies retain their national identities but develop a common, long-term strategy), or they may be more narrow and specific (e.g., aimed at production, marketing, or research and development). For example, Covisint has redefined the entire system of car production and distribution through a common electronic marketplace. Covisint is an e-business exchange developed by Daimler-Chrysler AG, Ford, General Motors, Nissan, and Renault.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

6. Global and Cross-Border Alliances: Motivations and Benefits
To avoid import barriers, licensing requirements, and protectionist legislation
To share the costs of research and development of new products and processes
To reduce political risk while making inroads into a new market
In the semi-conductor industry each new generation of memory chips is estimated to cost more than $1 billion to develop and technological evolution is rapid. In this and similar industries, such endeavors usually require the resources of more than one firm. For example, Toshiba has more than two dozen major joint ventures and strategic alliances around the world.
Alliances can reduce political risks while making inroads into a new market. Hong Kong Disneyland is jointly owned by the Chinese government, which owns a 57% stake. Beijing is interested in promoting tourism through the venture and in the employment of 5,000 Disney workers and 18,000 workers in related services.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

7. Global and Cross-Border Alliances: Motivations and Benefits
To gain access to markets (EU), where regulations favor domestic companies
To gain rapid entry into a new or consolidating industry and to take advantage of synergies
Firms are forming strategic alliances with European companies to bolster their chances of competing in the European Union and to gain access to markets in Eastern Europe as they open up to world business.
Finally, alliances can help gain rapid entry into a new or consolidating industry and to take advantage of synergies. Technology is providing means for the overlapping and merging of traditional industries such as entertainment, computers, and telecommunications in new digital-based systems. In many cases, technological developments are necessitating strategic alliances across industries in order to gain entry into areas in which they have no expertise or manufacturing capabilities. Competition is so strong that they cannot afford to wait to develop those resources alone. For example, an alliance with Japan’s NEC gave AT&T access to new semiconductor and chip making technologies, helping it learn how to better integrate computers with communications.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

8. Implementing Alliances Between SMEs and MNCs: Strategies for Dancing with Gorillas
Stage of Relationship
Traditional Model: MNCs Partnering with Each Other
New Model:
Enterprises Partnering Locally with MNCs
Strategies for Small Enterprises Partnering with MNCs
Forming
A direct frontal approach through a dedicated alliance department or key individuals who are direct counterparts
Given asymmetry of access and attention, the direct approach is likely to fail; use indirect means of access
Use local allies such as regional institutions or partnering programs
Use MNCs reputational strength to gain support
Consolidating
Well-established processes for structuring, governance, and staffing alliances
Given the asymmetry of resources and long term objectives, these processes don’t apply; so plan for the short term with an eye on the long term
Capitalize on points of technology by proactively demonstrating skills and creating opportunities
Ensure modular or discrete knowledge transfer to ensure tangible outcomes
Extending
A relatively predictable pattern for the further development of alliances, including built-in contingencies for instability and dissolution
Given asymmetry and therefore dispensability of small enterprises; there is greater uncertainty vis-à-vis MNCs’ own plans and priorities; so be vague by design with an eye on the bigger prize
Proactively build networks within the MNC and add value
Adopt an ambiguous approach by design; pursue oblique goals without showing all cards initially, and keep options open
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

9. Challenges in Implementing Global Alliances
Many alliances fail or end up in takeover
Choosing the right form of governance
The benefits of cooperation versus the dangers of new competition
A recent survey by McKinsey & Company of 150 companies in alliances found that 75% had been taken over by Japanese partners. Many of the issues associated with international activities already discussed also contribute to the difficulty of creating successful alliances. These include problems with shared ownership, differences in national cultures, the integration of different structures and systems, the distribution of power, and conflicts about the locus of decision making and control.
Choice of governance—either contractual agreement or joint venture—often depends on the desire to control information about proprietary technology. Joint ventures provide greater control and coordination in high-technology industries.
Often cross-border partnerships become a “race to learn,” with the faster learner later dominating the alliance and rewriting its terms. Partners also often have problems with mistrust and secrecy when it comes to competitively sensitive areas. The cumulative learning gained through an alliance can potentially be applied to other products or industries beyond the alliance.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

10. Guidelines for Successful Alliances
Choose a partner with compatible strategic goals and objectives
Seek comple-mentary skills, products, and markets
Work out how each partner will deal with proprietary knowledge or competitively sensitive information
Recognize that most alliances only last a few years
Choosing a partner with compatible goals and objectives will result in synergies through combined markets, technologies, and management cadre.
Seek alliances where complementary skills, products, and markets will result. If each partner brings distinctive skills and assets to the venture, there will be reduced potential for direct competition.
Work out what will be shared, what will not, and how shared technology will be handled. Trust is necessary, but must be backed up with contractual agreements.
Most alliances only last a few years and break up once a partner feels it has incorporated the skills and information it needs to go it alone.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

11. Comparative Management in Focus: JVs in Russian Federation
Russia can be an attractive market for foreign companies. The rouble is now convertible and more stable, there is unexploited natural resource potential, and it has a skilled, educated population of 145 million. At the same time, though, Russia poses many risks and, at the very least, confusion for potential investors. For instance, President Putin has sought to take control of key industries (e.g., banks, newspapers, and oil). The state-controlled oil giants, Gazprom and Rosneft can only have foreign investors if those investments are in the minority. A survey of 158 foreign investors found that many think doing business in Russia is more risky and less profitable than doing business in China, India, or Southeast Asia.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

12. Comparative Management in Focus: Guidelines for Establishing JVs in Russian Federation
Investigate whether a joint venture is the best strategy—acquiring a Russian business may be better.
Set up meeting with appropriate authorities well in advance.
Be above board in paying taxes.
Set up stricter controls and accountability systems.
Managers of foreign companies planning to set up business in Russia should consider these recommendations.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

13. Comparative Management in Focus: Guidelines for Establishing JVs in Russian Federation
Make it clear your firm does not pay bribes.
Assign the firm’s best managers and given them enough authority.
Take advantage of local knowledge by hiring Russian managers.
Designate considerable funds for promotion and advertising to establish an image.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

14. Strategic Implementation
Involves putting decisions about global alliances and entry strategies into action
Successful implementation requires creating a “system of fits”
Resources must be allocated
Leadership is the key
Implementation plans are detailed and pervade the entire organization because they entail setting up overall policies, administrative responsibilities, and schedules throughout the organization. Until strategic plans are put into operation, they remain abstract ideas that have no effect on the organization.
Successful implementation requires the orchestration of many variables into a cohesive system that complements the desired strategy. This is called creating a system of fits. The structure, systems, and processes of the firm should be coordinated and mutually reinforce one another. Creating such a system may require altering some of its elements to make them work—such as changing the organizational structure.
Resources must be allocated to make the strategy work. This entails budgeting money, facilities, equipment, people and other support.
People are the ones who make things happen. Leaders must skillfully guide employees and processes in the desired direction. Additionally, in equity-sharing alliances, it is necessary to determine which top managers in each company will be in each position and to determine who will be CEO. Increasingly joint-CEOs are appointed.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

15. Strategic Implementation
Implementation McDonald’s Style
Form paradigm-busting arrangements with suppliers.
Hire locals whenever possible.
Know a country’s culture before you hit the beach.
Tweak the standard menu only slightly from place to place.
Keep pricing low to build market share. Profits will follow when economies of scale kick in.
Maximize autonomy.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

16. Implementing a Global Outsourcing Strategy
Examine your reasons for out-sourcing.
Evaluate the best outsourcing model.
Gain the co-operation of manage-ment and staff.
Consult your alliance partners.
Invest in the alliance.
Outsourcing abroad is often in the news because of concerns about jobs being “lost” to others overseas. However, the strategic view of outsourcing is that it can produce gains in efficiency, productivity, quality, and profitability by fully leveraging talent around the world. For example, Proctor & Gamble (P&G) outsources IT infrastructure and Human resources around the world, and they want 50% of all new products to come from other countries by This slide and the next present guidelines for successful outsourcing.
Make sure the advantages will outweigh the disadvantages from employees, customers, and the community.
Opening your own subsidiary in the host country may be better than contracting with an outside firm if you need to keep control of proprietary technology and processes.
Open communication and training is essential to get your domestic managers on board.
Consult with your partners and teat them with the respect that made you decide to do business with them.
Plan to invest time and money in training in the firm’s business practices, particularly in terms of quality control and customer relations.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

17. Managing Performance in International Joint Ventures
IJV Control
Ensures that the way a joint venture is managed conforms to the parent company’s interests
Choice of Partner
Suzuki and TVS Motor in India
Orgznal. Design
The strategic freedom in choosing suppliers, product lines, customers, and so on
Ignoring the unique controls required by IJVs can limit the parent company’s ability to efficiently use its resources, coordinate its activities, and implement its strategy. Establishing IJV control entails the choice of partner, the establishment of strategic fit, and the design of the IJV organization.
Choice of partner is the most important single factor determining IJV success or failure. Even so, many firms rush the partner selection process because they are anxious to make inroads into an attractive market. IJV performance is a function of the fit between the strategies of the parents, the IJV strategy, and the specific performance goals the parents adopt. Managers must determine the specific task-related skills and resources needed from a partner and, thus, their own firm’s weaknesses in task-related skills and resources that can be overcome with help from an IJV partner. The IJV between Suzuki and TVS Motor, which manufactures motorbikes in India, is an example of one that was unsuccessful. By government regulation, Suzuki’s only avenue for entry into India was through IJV. TVS, however, complained that its was not able to develop its own capabilities because Suzuki wanted to keep all of its technology to itself. Ultimately, TVS bought out Suzuki.
Strategic freedom refers to the relative amount of decision-making power that a JV will have, relative to the parents, when choosing suppliers, product lines, customers, etc. An IJV is usually easier to manage when one parent plays a dominant role and has more decision making power than the other in daily operations. It also is easier to manage an IJV if the local manager has considerable management control. When ownership is unequal, partners claim control relative to their ownership share. Where ownership is divided among several partners, daily operations are likely to be delegated to the local IJV management. The increased autonomy of the IJV can resolve many potential disputes and reduce common HR problems—such as staffing friction, blocked communication, and blurred organizational culture.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

18. Three Complementary Dimensions of IJV Control
Scope of Activities and Control
Extent/De-gree of Control
Mechanism of Control
Research suggests parent companies tend to focus their efforts on those activities they consider most important to their strategic goals, rather than monitoring all activities.
The extent of control is primarily determined by the decision-making autonomy granted to the IJV management, which is dependent upon how much confidence the partners have in the top IJV managers.
Mechanisms for control include the parent organizational and reporting structure, staffing policies, and close coordination with the IJV general manager. Monitoring the general manager includes bonuses and career opportunities and requiring executive committee approval for specific decisions and budgets.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

19. Knowledge Management in IJVs
EXHIBIT Knowledge Management in IJVs
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

20. Government Influences on Strategic Implementation
Unpredictable changes in governmental regulations
China’s new restrictions on foreign investors
Caterpillar and tax breaks
Ousting of Indonesian President Suharto in 1998
Firms are influenced by taxation in the host country, restrictions on profit repatriation, and government policies on foreign ownership, labor union rules, hiring and remuneration practices, and on patent and copyright protection. If the company has done its homework, however, all these factors should be known up front. The problem comes when a firm sets up shop in a host country that then makes major economic or governmental policy changes. For example, China recently added new restrictions on foreign investors, prolonging the time firms must wait to find out if their deals will go through. As another example, when China revoked tax breaks and restricted foreign ownership in 1993, Caterpillar found there was no longer enough domestic demand for their products. As a final example, when Indonesian President Suharto was ousted, the new government reviewed and cancelled business deals linked to the Suharto family. These included two water-supply privatization projects with Britain’s Thames Water PLC and France’s Suez Lyonnaise des Eaux SA.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

21. Cultural Influence on Strategic Implementation
Western
Hungarian
Source of Difference
Focus on core competencies
Focus on empire building
Systemic
Live to work
Work to live
Cultural/ systemic
Play by rules
Beat the system
Market-driven technology
Volume-driven technology
When managers are responsible for implementing alliances among partners from diverse institutional environments, such as transition and established market economies, they are faced with the critical challenge of reconciling conflicting values, practices, and systems. In other situations, culture is the issue and the cultural variable has been overlooked when deciding on and implementing alliances.
This slide summarizes some of the information in Exhibit 7-3 in the text. It illustrates some of the differences among Hungarian managers and Western expatriates.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

22. Dimensions of National and Corporate Culture Affecting Alliances
Organizational formality
Participation in decision making
Attitudes toward risk
Systemization of decision making
Managerial self- reliance
Attitudes toward funding and gearing
Research reveals six dimensions of national and corporate cultural differences between the management styles of UK firms and continental European firms. Among these, risk orientation is key because risk-taking propensity impacts managers’ approaches to strategic options. Risk-taking firms are likely to be aggressive and deal well with change. Risk-averse firms tread more carefully and employ incremental strategies.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

23. Management in Focus: Mittal’s Marriage to Arcelor Breaks the Marwari Rules
In June 2006 Mittal Steel of India merged with Arcelor of Luxembourg to create the world’s largest steel company.
Resistance in Europe and by Arcelor:
Arcelor had outdated views of Mittal
Concerns about losing control of a European multinational
Mittal’s initial proposal initially met with overwhelming hostility from Arcelor, and Arcelor initially rejected two bids from Mittal. Mittal realized that Arcelor had outdated views of them. To combat these, they provided a comparison of their deal with that of Russian rival Severstal and a plan for corporate governance rules to promote Arcelor’s business model. Though Severstal also was bidding to takeover Arcelor, France viewed Mittal’s takeover as “a betrayal of old continental European traditions to a new cost-cutting imperative of globalization.”
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall

24. Management in Focus: Mittal’s Marriage to Arcelor Breaks the Marwari Rules
Resistance in India:
Concerns about breaking Marwari rules
Mittal put family interests behind industry and shareholder interests.
Lakshmi Mittal gave up half of his 90 percent share in Mittal, will share chairmanship.
The deal also met resistance in India. Lakshmi Mittal belongs to the Marwari ethnic group, which believes it is critical for companies to maintain family ownership. Malarwi families have extensive business networks among families and favor doing business with other Malarwis.
Lakshmi Mittal was able to shepherd the deal through by managing both the strategic and cultural difficulties.
Copyright ©2011 Pearson Education, Inc. publishing as Prentice Hall
© 2010 Pearson Prentice Hall