Cross cultural management 3e by cullen ch08

Learning Objectives• Know the steps for implementation of successful international strategic alliances • Understand how to link value chains in international strategic alliances • Unders

Chapter 8

International Strategic Alliances:

Design and Management

Learning Objectives

• Know the steps for implementation of successful

international strategic alliances

• Understand how to link value chains in international

strategic alliances

• Understand the importance of choosing the right

partners for alliances

• Know the important characteristics to look for in

• Know the steps for implementation of successful

international strategic alliances

• Understand how to link value chains in international

strategic alliances

• Understand the importance of choosing the right

partners for alliances

• Know the important characteristics to look for in

Learning Objectives

• Know the differences between equity-based

international joint ventures and other types of

international cooperative alliances

• Know the basic components of an international

strategic alliance contract

• Understand the control systems and management

structures used in alliance organization

• Know the differences between equity-based

international joint ventures and other types of

international cooperative alliances

• Know the basic components of an international

strategic alliance contract

• Understand the control systems and management

structures used in alliance organization

• Understand how companies assess the performance

of their international strategic alliances

• Know when companies should continue or dissolve

• Appreciate the unique problems in human resource

management

• Realize the importance of interfirm commitment and

trust

• Understand how companies assess the performance

of their international strategic alliances

• Know when companies should continue or dissolve

Strategic Alliances Issues

• Increasingly popular strategy to develop new product and to expand into new markets

• However, strategic alliances are very risky and

unstable

• Failure rate of 30% to 60%

• Even profitable alliances can be torn by conflict

• Increasingly popular strategy to develop new product

and to expand into new markets

• However, strategic alliances are very risky and

unstable

• Failure rate of 30% to 60%

• Even profitable alliances can be torn by conflict

Exhibit 8.1: Implementing a

Strategic-Alliance Strategy

Where to Link in the Value Chain

• Alliance combining same value-chain activities are to gain efficiencies, merge talents, or share risks

• Upstream/downstream alliances serve the objective of low-cost supply/manufacturing

• Operations/marketing alliances provide access to

markets

• Depends on the objective that the firm seeks to

achieve

• Alliance combining same value-chain activities are to

gain efficiencies, merge talents, or share risks

• Upstream/downstream alliances serve the objective of low-cost supply/manufacturing

• Operations/marketing alliances provide access to

markets

• Depends on the objective that the firm seeks to

achieve

Exhibit 8.2: Linking Value

Chains in Strategic Alliances:

Some Examples

Exhibit 8.3: The Mixture of

Value-Chain Links

Choosing a Partner: The Most Important Choice?

• Key criteria for picking an appropriate alliance partner

• Seek strategic complementarity

• Understand objectives and seek complementarity

• Pick a partner with complementary skills

• One that enhances but does not necessarily duplicate an alliance partner’s skills

• Key criteria for picking an appropriate alliance partner

• Seek strategic complementarity

• Understand objectives and seek complementarity

• Pick a partner with complementary skills

• One that enhances but does not necessarily duplicate an alliance partner’s skills

Criteria for Choosing Partners

• Seek out companies with compatible management

styles

• Seek a partner that will provide the “right” level of

mutual dependency

• Avoid the “anchor” partner

• Anchor partner: a partner that holds back the strategic alliance because it cannot or will not provide its share of the funding

• Seek out companies with compatible management

styles

• Seek a partner that will provide the “right” level of

mutual dependency

• Avoid the “anchor” partner

• Anchor partner: a partner that holds back the strategic alliance because it cannot or will not provide its share of the funding

Criteria for Choosing Partners (cont.)

• Be cautious of the “elephant-and-ant” complex

• Occurs when two companies are greatly unequal in size

• Assess operating-policy differences with potential

partners

• Assess the difficulty of cross-cultural communication

with a likely partner

• Be cautious of the “elephant-and-ant” complex

• Occurs when two companies are greatly unequal in size

• Assess operating-policy differences with potential

partners

• Assess the difficulty of cross-cultural communication

with a likely partner

Exhibit 8.4: International

Strategic Alliances for Small

Multinational Companies

Exhibit 8.4: International

Strategic Alliances for Small

Multinational Companies

Choosing an Alliance Type

• Three main types of strategic alliances

• Informal international cooperative alliances

• Formal international cooperative alliances

• International joint venture

• Three main types of strategic alliances

• Informal international cooperative alliances

• Formal international cooperative alliances

• International joint venture

Informal International Cooperative Alliance

• Non-legally binding agreements between companies

from two or more countries

• Agreements of any kind

• Provide links anywhere on their value chains

• Limited involvement between companies

• Non-legally binding agreements between companies

from two or more countries

• Agreements of any kind

• Provide links anywhere on their value chains

• Limited involvement between companies

Formal Cooperative Alliances

• Higher degree of involvement than informal alliances

International Joint Ventures (IJV)

• Separate legal entity owned by two or more parent

companies from different countries

• No need for equal ownership

• Equity based on cash or other contributions

• Ex.: One partner brings technology while other

partner brings financial contributions

• Separate legal entity owned by two or more parent

companies from different countries

• No need for equal ownership

• Equity based on cash or other contributions

• Ex.: One partner brings technology while other

partner brings financial contributions

Exhibit 8.5: Types of Alliances

Negotiating the Agreement

• IJV negotiation issues

Exhibit 8.6: Selected

Questions for a

Strategic-Alliance Agreement

Organizational Design in Strategic Alliances

• Depends on the type of alliance chosen

• Informal ICAs often have no formal design issues

• Formal ICAs may require separate organization unit

housed in one company

• IJV—Parent companies set up separate legal entity

• Depends on the type of alliance chosen

• Informal ICAs often have no formal design issues

• Formal ICAs may require separate organization unit

housed in one company

• IJV—Parent companies set up separate legal entity

Decision-making Control

• Majority ownership does not necessarily control

• Operational decisions

• Strategic decisions

• In IJVs, strategic decision making takes place at the

level of IJV’s board of directors or top management

• Majority ownership does not necessarily control

• Operational decisions

• Strategic decisions

• In IJVs, strategic decision making takes place at the

level of IJV’s board of directors or top management

Management Structures

• Dominant parent: controls or dominates strategic

decision making

• Often has majority ownership

• Treats the IJV as wholly owned subsidiary

• Shared management: both parent companies

contribute approximately the same number of

managers to the alliance organization

• Dominant parent: controls or dominates strategic

decision making

• Often has majority ownership

• Treats the IJV as wholly owned subsidiary

• Shared management: both parent companies

contribute approximately the same number of

managers to the alliance organization

Management Structures

• Split control management control: partners usually

share strategic decision making and split functional

decision making

• Independent management structure: alliance

managers act more like managers from a separate

company

• IJVs often recruit managers from outside the parent companies

• Split control management control: partners usually

share strategic decision making and split functional

decision making

• Independent management structure: alliance

managers act more like managers from a separate

company

• IJVs often recruit managers from outside the parent companies

Management Structures

• Rotating management: key positions rotate among

partners

• Popular in developing countries

• Trains management talent and transfers expertise

• Rotating management: key positions rotate among

partners

• Popular in developing countries

• Trains management talent and transfers expertise

Choosing a Strategic Alliance Management Structure

• If partners have similar technologies or know-how and contribute equally

• Shared management structure preferred

• If partners have different technologies but contribute

equally

• Split management structure preferred

• If one partner has dominant equity position

• If partners have similar technologies or know-how and contribute equally

• Shared management structure preferred

• If partners have different technologies but contribute

equally

• Split management structure preferred

• If one partner has dominant equity position

• Dominant management structure more likely

Human Resource Management

in Strategic Alliances

• HRM functions include recruiting and staffing for

alliance positions

• The HRM functions of an IJV are more complex

• Managers (and sometimes workers) come from two

or more firms or from two or more cultures

• HRM functions include recruiting and staffing for

alliance positions

• The HRM functions of an IJV are more complex

• Managers (and sometimes workers) come from two

or more firms or from two or more cultures

Critical HRM Problems and Issues

• HRM planning: Employees need to know strategic

intent of alliance

• Parent involvement: As alliances get older and larger, they tend to develop their own HRM practices

• Staffing the alliance management and technical

personnel—crucial and risky decision

• HRM planning: Employees need to know strategic

intent of alliance

• Parent involvement: As alliances get older and larger, they tend to develop their own HRM practices

• Staffing the alliance management and technical

personnel—crucial and risky decision

Critical HRM Problems and Issues

• Staffing the alliance workforce

• Assigning managers strategic or operations tasks

• Performance assessment—needed for retention,

promotion and salary decisions

• Loyalty—managers may often feel dual loyalty

• To parent and to alliance

• Staffing the alliance workforce

• Assigning managers strategic or operations tasks

• Performance assessment—needed for retention,

promotion and salary decisions

• Loyalty—managers may often feel dual loyalty

• To parent and to alliance

Critical HRM Problems and Issues

• Career development—must provide clear information

on how alliance assignments fit within careers

• Cultural differences

• Training

• Career development—must provide clear information

on how alliance assignments fit within careers

• Cultural differences

• Training

Exhibit 8.7: HRM Issues in

Strategic Alliances

Exhibit 8.7: HRM Issues in

Strategic Alliances

Commitment and Trust

• Commitment: putting forth extra effort to make the

venture work

• Attitudinal commitment: willingness to dedicate

resources and efforts and face risks to make the

alliance work

• If partners demonstrate these aspects of commitment,

alliance will develop based on fair exchange

• Occurs when partners believe that they receive

• Commitment: putting forth extra effort to make the

venture work

• Attitudinal commitment: willingness to dedicate

resources and efforts and face risks to make the

alliance work

• If partners demonstrate these aspects of commitment,

alliance will develop based on fair exchange

• Occurs when partners believe that they receive

Calculative Commitment

• Commitment also has a practical side: calculative

commitment

• Alliance partner evaluations, expectations, and

concerns regarding potential rewards from the

• Alliance partner evaluations, expectations, and

concerns regarding potential rewards from the

relationship

• Businesses require tangible outcomes for a

relationship to continue

• Commitment and trust go hand in hand

• Credibility trust: confidence that the partner has the

intent and ability to meet promised obligations and

commitments

• Benevolent trust: confidence that the partner will

behave with goodwill and with fair exchange

• Commitment and trust go hand in hand

• Credibility trust: confidence that the partner has the

intent and ability to meet promised obligations and

commitments

• Benevolent trust: confidence that the partner will

behave with goodwill and with fair exchange

Exhibit 8.8: The

Trust/Commitment Cycle

Why Is Trust Important?

• When there is no trust, partners hold back or take

advantage of each other

• Formal contracts can never identify all issues that will arise

• Technology and knowledge also include tacit elements that can only be learned through trust

• When there is no trust, partners hold back or take

advantage of each other

• Formal contracts can never identify all issues that will arise

• Technology and knowledge also include tacit elements that can only be learned through trust

Building and Sustaining Trust and Commitment

• Pick your partner carefully

• Know each side’s strategic goals

• Seek win-win situations

• Go slowly

• Invest in cross-cultural training

• Invest in direct communication

• Find the right levels of trust and commitment

• Pick your partner carefully

• Know each side’s strategic goals

• Seek win-win situations

• Go slowly

• Invest in cross-cultural training

• Invest in direct communication

• Find the right levels of trust and commitment

Exhibit 8.9: The “Right” Levels

of Trust and Commitment

Assessing the Performance of

an International Strategic Alliance

• If strategic intent is to produce immediate results,

standard financial and efficiency measures can be

used

• Other strategic alliance provide indirect strategic

benefits

• IJV and ICA performance criteria: often must include

criteria other than financial, such as organizational

learning

• If strategic intent is to produce immediate results,

standard financial and efficiency measures can be

used

• Other strategic alliance provide indirect strategic

benefits

• IJV and ICA performance criteria: often must include

criteria other than financial, such as organizational

learning

Exhibit 8.10: Selected

Performance Criteria for

Strategic Alliance

Exhibit 8.10: Selected

Performance Criteria for

Strategic Alliance

If the Alliance Does Not Work

• Negotiate an end or improve implementation

• Know when to quit/invest more

• Avoid “escalation of commitment”

• Companies continue in an alliance longer than

necessary because of financial and emotional

investments

• Plan end—“prenuptial agreements”

• Negotiate an end or improve implementation

• Know when to quit/invest more

• Avoid “escalation of commitment”

• Companies continue in an alliance longer than

necessary because of financial and emotional

investments

• Plan end—“prenuptial agreements”