Effective global alliances are usually tediously slow in the making but can be among the best mechanisms to implement strategies in global markets. hi a highly competitive environment, alliances present a faster and less risky route to globalization. It is extremely complex to fashion such linkages, however, especially where many interconnecting systems are invglved, forming intricate networks. Many alliances fail or end up in a takeover in which one partner swallows the other. McKinsey & Company, a consulting firm, surveyed 150 companies that had been in alliances and found that 75 percent of them had been taken over by Japanese partners.9 Problems with shared ownership, the integration of vastly different structures and systems, the distribution of power between the companies invoWed, and conflicts in their relative locus of decision making and control are but a few of the organizational issues that must be worked out. But recent economic woes in Asia have turned the tables somewhat, with Western companies having to buy out their financially stressed allies in order to survive.
Often, the form of governance chosen for multinational firm alliances greatly influences their success, particularly in technologically intense fields - pharmaceuticals, computers, and semiconductors. In a study of 153 new alliances, researchers found that the choice of the means of governance - whether a contractual agreement or a joint venture - depended on a desire to control information about proprietary technology.10 Thus, joint ventures are often the chosen form for such alliances because they provide greater control and coordination in high-technology industries.
Cross-border partnerships, in particular, often become a “race to learn” - with the faster learner later dominating the alliance and rewriting its terms. In a real sense, an alliance becomes a new form of competition. In fact according to researcher David Lei,
Perhaps the single greatest impediment managers face when seeking
to learn or renew sources of competitive advantage is to realize that
co-operation can representS another form of unintended competition, particularlyto shape and apply new skills to future products and businesses.1t
All too often, cross-border affies have difficulty in collaborating effectively especiall in competitively sensitive areas, creating mistrust and secrecy which then
undermine the purpose of the affiance. The difficulty that they are dealing with is
the dual nature of strategic alliances - the benefits of cooperation versus the danger of introducing new competition through sharing their knowledge and tech nologica skills about their mutual product or the manufacturing process. Manager may fear that they will lose the competitive advantage of the firm's :1
proprietary technology or the specific skills that their personnel possess. The cu mulativ learning that a partner attains through the alliance could potentially be
applied to other products or even other industries that are beyond the scope of the
alliance, and therefore would hold no benefit to the partner holding the original
knowledge.12 As noted by Lei, the Japanese, in fact have far outlearned their U.S.
allies in developing and applying new technologies to other uses. Examples are in
the power-equipment industry (e.g., Westinghouse - Mitsubishi), the office equip men industry (Kodak - Canon), and in the consumer electronics industry (General
Electric - Samsung). Some of the trade-offs of the duality of cross-border ventures
are shown in Exhibit 7-2. -
The enticing benefits of cross-border alliances often mask the many pitfalls. In
addition to potential loss of technology and knowledge or skill base, other areas
of incompatibility often arise, such as conflicting strategic goals and objectives,
cultural clashes, and disputes over management and control systems. Sometimes
it takes a while for such problems to evidence themselves, particularly if insufficien homework has been done in meetings between the two sides to work out the
implementation details. The affiance between KLM Royal Dutch Airlines and
Northwest Airlines linking their hubs in Detroit and Amsterdam, for example, resulte in a bitter feud among the top officials of both companies over methods of
running an airline business - the European way or the American way - and over
cultural differences between the companies, as well as a power struggle at the top
over who should call the shots.
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