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1. Strategic alliances are partnerships with other companies for specific reasons. Cross-border, or global strategic alliances are working partnerships between companies (often more than two) across national boundaries, and increasingly across industries.
2. Cross-border affiances are formed for
4many reasons, including market expansion, cost- and technology-sharing, avoiding protectionist legislation, and taking advantage of synergies.
I Technological advances and the resulting blending of industries, such as those in the telecommunications and entertainment industries, are factors prompting cross-industry alliances.
-4. Alliances may be short- or long-term; they may be full global partnerships, or they may be for more narrow and specific functions such as research and development sharing.
5. Alliances often run into trouble in the strategic implementation phasa Problems include loss of technology and knowledge base to the other partner, conflicting strategic goals and objectives, cultural clashes, and disputes over management and control systems.
6. Successful alliances require compatible partners with complementary skills, products, and markets. Extensive preparation is necessary in order to work out how to share management control and technology and to understand each other's cultura
7. Strategic implementation - also called - functional level strategies - entail setting up overall policies, administrative responsibilities, and schedules throughout the organization. Successful implementation results from setting up the structure, systems and processes of the firm, as well as the functional activities that create a “system of fits” with the desired strategy.
8. Differences in national culture and changes in the political arena or in government regulations often have unanticipated effects on strategic implementation.
9. Strategic implementation of global trade is increasingly being facilitated by e-commerce enablers - companies that specialize in providing the software and internet technology for complying with the specific regulations, taxes, shipping logistics, translations, and so on for each country with which their clients do business.
Visit the Deresky companion Web site at http://prenhall.com/Deresky for this chapter's Internet resources.
Cross-border strategic affiances are becoming increasingly common as innovative - companies seek rapid entry into foreign markets and as they try to reduce the risks of going it alone in complex environments. Those companies which do well are those which do their homework and pick complementary strategic partners. Too many, however, get “divorced” because “the devil is in the details,” which is what happens when “a marriage made in heaven” runs into unanticipated problems during actual strategic implementation
With subsidiaries, suppliers, distributors, manufacturing facilities, carriers, brokers and customers all over the globe, global trade is complicated and fragmented. Shipments cross borders multiple times a day. Are they compliant with all the latest trade regulations? Are they consistently classified for each country? Can you give your buyers, customers and service providers the latest information, on demand?
As indicated in the quote above, global trade is extremely complicated. Deciding on a global strategy is one thing; implementing it through all the necessary parties and intennediaries around the world is a whole new level of complexity Because of that
complexity, many firms decide to implement their global e-commerce strategy by outsourcing the necessary tasks to companies that specialize in providing the technology to organize transactions and follow through with the regulatory requirements. These specialists are called e-commerce enablers; they can help companies sort through the maze of different taxes, duties, language translations, and so on, specific to each country. Such services allow small- and medium-sized companies to go global without the internal capabilities to carry out global e-commerce functions.
- “Americans see themselves as the world's leading country, and it's not easy for them to accept having a European in charge.”
“It is difficult for Americans to develop a world perspective. It's hard for them to see that what may optimize the worldwide position may not optimize the US. activities.”
- “The horizon of Americans often goes only as far as the U.S. border. As a result, Americans often don't give equal importance to a foreign customer If a foreign customer has a special need, the response is sometimes: 'It works
here, why do they need it to be different?”
“It might be said that Americans are the least international of all people, because their home market is so big.”
Other European firms have had more successful strategic implementation in their U.S. plants by adapting to American culture and management styles. When Mercedes-Beflz of Germany launched its plant in Tuscaloosa, Alabama, U.S. workers and German “trainers” had doubts. Lynn Snow, who works on the door line of the Alabama plant was skeptical whether the Germans and the Americans would mesh well. But now she proudly asserts that they work together determined to build a quality vehicle. Said Jurgen Schrempp, CEO of Mercedes' parent, Dainiler Benz, “Made in Germany - we have to change that to 'Made by Mercedes,' and never mind where they are assembled.
The German-trainers recognized that the whole concept of building a Mercedes' quality car had to be taught tp the American workers in a way that would appeal to them. They abandoned the typically German strict hierarchy and instead designed a plant in which any worker could stop the assembly line to correct manufacturing problems- In addition, taking their cue from Japanese rivals, they formed the workers into teams which met every day with the trainers to problem solve. Out the window went formal offices and uniforms, instead using casual shirts with personal names on the pocket. To add to the collegiality, gettogethers for a beer after work are common. “The most important thing is to bring together the two cultures,” says Andreas Renschler, who has guided the M-Class
since it began in 1993, “You have to generate a kind of ownership of the plant.”5 The local community has also embraced the mutual goals, often having beer fests, and including German-language stations on local cable TV.
The impact of cultural differences in management style and expectations is perhaps most noticeable and important when implementing international joint ventures. The complexity of a joint venture requires that managers from each party learn to compromise in order to create a compatible and productive working environment, particularly when operations are integrated.
Cultural impac[s on strategic implementation are often even more pronounced in the service sector, because of many added variables, especially the direct contact with the consumer. Wal-Mart, for example, has not been immune to implementation problems overseas, particularly resulting from culture and lifestyle differences and from infrastructure problems. With its rapid global expansion efforts leading Wal-Mart to Indonesia, China, and South America, WalMart has found that it cannot insist on doing everything “the Wal-Mart way.” In Sao Paulo, for example, bumper-to-bumper traffic impedes timely delivery of merchandise. Also, because Wal-Mart doesn't own its distribution system, it loses its all-important logistic advantage. Often stores in Brazil process three hundred deliveries a day, compared with seven a day in the United States.51 Add to the infrastructure problems, Wal-Mart's use of a bookkeeping system that failed to take into account Brazil's complicated tax system; failure to recognize postdated checks as the primary source of credit in Brazil since its currency problems; and merchandise errors such as American footballs instead of soccer balls, and you have an implementation plan that failed to take account of local culture and customs.52
In China, too, strategic implementation necessitates an understanding of the pervasive cultural practice of guanxi in business dealings. Discussed in previous chapters, gun nxi refers to the relationship networks that “bind millions of Chinese firms into social and business webs, largely dictating their success.” Tapping into this system of reciprocal social obligation is essential to get permits, information, assistance to access material, and financial resources and tax considerations. Nothing gets done without these direct or indirect connections. In fact, a new term has arisen - guanxihu - which refers to a bond between specially connected firms that generates preferential treatment to members of the network. Without guauxi, implementing a strategy of withdrawal is even difficult. Joint ventures can get hard to dissolve and as bitter as an acrimonious divorce situation. Problems include the forfeiture of assets and the inability to gain market access through future joint venture partners - all experienced by Audi, Chrysler, and Daimler-Benz. For example,
Audi's decision to terminate its joint venture prompted its Chinese partner, First Automobile Works, to expropriate its car design and manufacturing processes. The result was an enormously successful, unauthorized Audi clone, with a Chrysler engine and a First Automobile Works nameplate.
Culture is one variable which is often overlooked when deciding on entry strategies and alliances, particularly when we perceive the target country to be familiar to us and similar to our own. However, cultural differences can have a subtle and often negative effect.
As many of Europe's largest MNCs - including Nestl Electrolux, Grand Metropolitan, Rhone-Poulenc - --experience increasing proportions of their revenues from their positions in the United States, and employ over 2.9 million Americans, they have decided to shift headquarters of some product lines to the United States. As they have done so, however, there is growing evidence that managing in the United States is not as easy as they anticipated it would be because of their perceived familiarity with the culture. Rosenzweig documents some reflections of European managers on their experiences of managing U.S. affiliates. Generally, he has found that European managers appreciate that Americans are pragmatic, open, forthright, and innovative. But they also say that the tendency of Americans to be informal and individualistic means that their need for independence and autonomy on the job causes problems in their relationship with the head office Europeans; Americans simply do not take well to directives from a foreign-based headquarters. Resenzweig gives some comments from French managers below.
There are many areas of influence by host governments on the strategic choice and implementation of foreign firms. The profitability of those firms is greatly influenced, for example, by the level of taxation in the host country and by any restrictions on profit repatriation Also important influences are government poliLies on ownership by foreign firms, on labor union rules, on hiring and
remuneration practices, on patent and copyright protection, and so on. For the most part, however, if the corporation's managers have done their homework, all
these factors are known beforehand and are part of the location and entry strategy decisions. But what hurts is for managers to set up shop in a host country and then have major economic or governmental policy changes after they have made a considerable investment.
Unpredictable changes in governmental regulations can be a death knell to businesses operating abroad. While this problem occurs in many countries, one country which is often the subject of concern by foreign firms is that of China. In a survey of European investment in China, for example, 54 percent of companies questioned said their performance in China was worse than they had anticipated. Caterpillar, Inc., was one of the companies with rapid market growth in producing diesel engines in China in the early 1990s - construction was booming and foreign investment was flooding iw But in 1993, China, afraid that foreign investment was causing inflation, revoked tax breaks and restricted foreign investment. The tables turned on Caterpillar after that because there was not enough domestic demand for their products.44 In addition, as reported in the Wall Street Journal, “the world's auto industry guessed wrong on China.”45 Certainly the market potential is there - only one Chinese out of every 110 has a car - but big problems are causing foreign car ventures to withdraw Peugeot-Citroen SA of France abandoned their factory in China, and Daimler-Benz AG of Germany withdrew before it even started. Beijing is even worrying GM, which has invested millions in China, including 21 joint ventures and other projects. Out of concern that China cannot handle a surge in cars on its inadequate roads, with little parking and few service stations, the government has stopped an auto-loan program, and many cities can no longer issue license plates for private cars- Also Beijing has prohibited government officials below the rank of minister from buying big cars.
Political change, in itself, can of course bring about sudden change in strategic implementation of alliances of foreign firms with host-country projects. This was evident in May of 1998 when President Suharto of Indonesia was ousted following economic problems and currency devaluation. The new government began reviewing and canceling some of the business deals linked with the Suharto family, including the cancellation of two water-supply privatization projects with foreign firms - Britain's Thames Water PLC and France's Suez Lyonnaise des Eaux SA. The Suharto family had developed a considerable
fortune from licensing deals,monopolies, government “contracts,” and protection from taxes. Alliances with the family was often the only way to gain entry for foreign companies.
committee approval for specific decisions and budgets. These studies show that a variety of mechanisms are available to parent companies to monitor and guide IJV performance.
The extent of control exercised over an liv by its parent companies seems to be primarily determined by the decision-making-autonomy the parents delegate to the 1W management - which is largely dependent on staffing choices for the top IJV positions and thus on how much confidence the partners have in these managers. In addition, if top managers of the IJV are from the headquarters of each party, then the more similar are their national cultures, the more compatible their managers will be. This is because there are many areas of control decisions where agreement will be more likely between those of similar cultural backgrounds.43
The many activities and issues involved in strategic implementation - such as negotiating, organizing, staffing, leading, communicating, control, and so on - are the subjects of other chapters in this book. Elsewhere we include discussion of the many variables involved in strategic implementation which are specific to a particular country or region, such as goals, infrastructure, laws, technology, ways of doing business, people, and cuiture. Here, we take a look at three pervasive influences on strategy implementation: government policy, culture, and the Internet.
Of course, we cannot assume equal ownership of the W partners; where ownership is unequal, the partners will claim control and staffing choices proportionate to the ownership share. The choice of the IT'! general manager, in particular, will influence the relative allocation of control because that person is responsible for running the IJV and for coordinating relationships with each of the parents.37
Where ownership is divided among seveal partners, the parents are more likely to delegate the daily operations of the IJV to the local IJV management - a move that resolves many potential disputes. In addition, the increased autonomy of the 1W tends to reduce many common human resource problems: staffing friction, blocked communication, and blurred organizational culture, to name a few, which all result from the conflicting goals and working practices of the parent companies?8 Regardless of the number of parents, one way to avoid such potential problem situations is to provide special training to managers about the unique nature and problems of IJVs.-
Various studies reveal three complementary and interdependent dimensions of flV control: (1. the focus of lJV control - the scope of activities over which parents exercise control; (2. the extent, or degree, of IJV control achieved by the parents; and (3. the mechanisms of IJV control used by the parents.
We can conclude from two research studies - Geringer's study of 90 developed country IJVs and Schaan and Beamish's study of 10 IJVs in Mexico - that parent companies tend to focus their efforts on a selected set of activities that they consider important to their strategic goals, rather than attempting to monitor all activities.Schaan also found a considerable range of mechanisms for control used by the parent firms in his study (detailed in Exhibit 7-6., including indirect mechanisms such as parent organizational and reporting structure, staffing policies, and close coordination with the IW general manager (GM). Monitoring the GM typically includes indirect means, perhaps bonuses and career opportunities, and direct mechanisms, such as requiring executive