3. STRATEGIC ALLIANCES ISSUES F Stability and risk F Failure rate of 30 to 60 percent F Even profitable alliances can be torn by conflict

4. Successful Alliances Must: Not Only Make Strategic Sense But Also Require Good Implementation (See Exhibit 8.1 for Steps in Implementation of Strategic Alliances)

6. WHERE TO LINK IN THE VALUE CHAIN? F Depends on the objectives that the firm seeks to achieve F Exhibit 8.2 gives some examples of common links in the value chain

8. EXHIBIT 8.3 VALUE CHAIN LINKS IN U.S. ALLIANCES

9. SELECTING A PARTNER: THE MOST IMPORTANT CHOICE? F Seek –strategic complementarity –skill complementarity –compatible management styles

10. ISSUES TO CONSIDER IN CHOOSING A PARTNER F The level of mutual dependency F The "anchor" partner F The "elephant and the ant" complex F Operating policy differences F Difficulties of cross-cultural communication

11. TYPES OF STRATEGIC ALLIANCES F International cooperative alliances –informal –formal F International joint ventures

12. INFORMAL COOPERATIVE ALLIANCES F Non-legally binding agreements between companies from two or more countries –limited involvement between companies

13. FORMAL COOPERATIVE ALLIANCES F Higher degree of involvement than informal alliances F Formal contract F Popular in high tech industries because of high costs and risks

14. INTERNATIONAL JOINT VENTURES F Separate legal entity owned by two or more parent companies from different countries F No need for equal ownership F Equity based on cash or other contributions

15. EXHIBIT 8.5 TYPES OF ALLIANCES: SUMMARY

16. NEGOTIATING THE AGREEMENT F Joint venture contracts: legal documents that bind partners together F The formal agreement is not as important as the ability of managers to get along

17. EXHIBIT 8.6 ISSUES IN ALLIANCE AGREEMENTS  For both ICAs and IJVs –under which country’s law does the agreement operate? –how will profits be divided? –do you need a prenuptial agreement?

18. F Primarily for IJVs –what are the equity contributions of each partner? Exhibit 8.6 issues in alliance agreements, continued

19. ORGANIZATION DESIGN IN STRATEGIC ALLIANCES

20. DECISION MAKING CONTROL F Majority ownership does not necessarily = control F Operational decisions F Strategic decisions

21. MANAGEMENT STRUCTURES

22. DOMINANT PARENT F One parent controls strategic and operational decision making –dominant parent often has majority ownership –dominant parent treats the IJV as wholly owned subsidiary

23. SHARED MANAGEMENT F Both parents contribute approximately the same number of managers to the board of directors, the top management team, and functional area management

24. SPLIT CONTROL F Partners usually share strategic decision making and split functional decision making

25. INDEPENDENT MANAGEMENT F IJV managers act like managers from a separate company –IJVs often recruit managers from outside the parent companies

26. ROTATING MANAGEMENT F Key positions rotate among partners –popular in developing countries u trains management talent and transfers expertise

27. CHOOSING AN ALLIANCE MANAGEMENT STRUCTURE F If one parent has dominant equity position – dominant management structure more likely

28. F Equal ownership –shared, split, or rotating management structure preferred F Similar technologies or know-how –shared management structure preferred Choosing an alliance management structure, continued

29. F If different technologies –split management structure preferred F More strategic importance to one partner –dominant management structure preferred Choosing an alliance management structure, continued

30. HUMAN RESOURCE MANAGEMENT IN STRATEGIC ALLIANCES F The HRM functions of an IJV are more complex because managers (and sometimes workers) come from two or more firms or from two or more cultures

31. HRM ISSUES F HRM planning F Parent involvement F Staffing the alliance management and technical personnel F Staffing the alliance workforce F Assigning managers strategic or operations tasks

32. HRM issues, continued F Performance assessment F Loyalty F Career development F Cultural differences F Training

33. COMMITMENT AND TRUST: THE SOFT SIDE OF ALLIANCE MANAGEMENT F Without trust and commitment the alliance will fail entirely or never reach its potential

34. COMMITMENT F Taking care of each other and putting forth extra effort to make the venture work –attitudinal commitment –calculative commitment

35. TRUST F The confidence that the partner will deliver on their expected contributions to the venture and behave with good will –benevolent trust –credibility trust –“trust cycles”

37. WHY ARE TRUST AND COMMITMENT IMPORTANT? F Required for IJV participants to contribute tacit knowledge and quality inputs F Weakness of formal contracts –can never identify all the issues

38. KEY FACTORS TO BUILD AND SUSTAIN TRUST AND COMMITMENT F Pick your partner carefully F Know each side’s strategic goals F Seek win-win situations F Go slowly

39. Key factors to build and sustain trust and commitment, continued F Invest in cross-cultural training F Invest in direct communication F Find the “right” levels

40. EXHIBIT 8.9 THE “RIGHT” LEVELS OF TRUST AND COMMITMENT

41. ASSESSING ALLIANCE PERFORMANCE F Match strategic objectives with performance measures

42. EXHIBIT 8.10 SELECTED PERFORMANCE CRITERIA FOR STRATEGIC ALLIANCES F Management Processes F Organizational Learning F Competitive F Marketing F Financial

43. IF THE ALLIANCE DOES NOT WORK F Negotiate an end or improve implementation F Know when to quit/invest more F Avoid “escalation of commitment” F Plan end - “prenuptial agreements” F Death not always failure

44. CONCLUSIONS F The importance of international strategic alliances F Most important decision: picking the right partner F No set structure in ownership, decision making control, or management control