(Continued)
3.2.4 The Risks and Problems
More and more companies undertake strategic alliances to improve their business, but many of them fail. The risks and problems facing strategic alliances should be identified so that the companies can improve the performances.
Clash of cultures
Cultural clash may be one of the biggest problems for the companies in strategic alliances. Kilburn (1999) pointed out “These cultural problems consist of language, egos, chauvinism, and different attitudes to business can all make the going rough. Problems can be particularly acute between a publicly quoted Western holding company, keenly focused on share holders value, and Japanese partners who have different priorities”.
Language barrier may be the first thing that can cause problems. It is important for the integration of the staff from each of the partner into a coherent team. They should be able to communicate and understand each other well before they work together. In addition, there are many other barriers could cause misunderstanding and conflicts, such as customs, habits, personal relationship networks and so on.
Besides the national culture, the organisation culture inside the company can also cause problems. The firms face the problems with different ways of operation or management style. Businesses are run in different ways because of the cultural distance. There may be lots of conflicts when they work in a team.
Lack of trust
Risk sharing is the primary bonding tool in a partnership. What will happen if one company is successful and the other experiences a failure? A sense of commitment must be generated throughout the partnership. In many alliance cases one company will point the failure finger at the partnering company. Shifting the blame does not solve the problem, but increases the tension between the Building partnering companies and often leads to alliance ruin (Lewis, 1992). trust is the most important and yet most difficult aspect of a successful alliance. Only people can trust each other, not the company. Therefore, alliances need to be formed to enhance trust between individuals. The companies must form the three forms of trust, which include responsibility, equality, and reliability. Many alliances have failed due to the lack of trust causing unsolved problems, lack of understanding, and despondent relationships (Lewis 1992).
Lack of clear goals and objectives
In today’s business world, many strategic alliances are formed for the wrong reasons. This will surely lead to disaster in the future. Many companies enter into alliances to combat industry competitors. Corporate management feels this type of action will deter competitors from focusing on their company. On the contrary, this action will raise flags that problems exist within the joining companies. The alliance may put the companies in the spotlight causing more competition. Alliances are also formed to correct internal company problems. Once again, management feels that an increase in numbers signifies a quick fix. In this case, the company is probably already doomed and is just taking another Many strategic alliances, although entered along for the ride (Kilburn, 1999). into for all the right reasons, do not work. Dissimilar objectives, inability to share risks, and lack of trust lead to an early alliance demise. Why do the alliances fail? Cooperation on all issues is the key to a successful alliance. Many managers enter into an alliance without properly researching the steps necessary to ensure the basic principles of cooperation (Lewis 1992).
Lack of coordination between management teams
Action taken by subordinates that are not congruent with top-level management can prove particularly disruptive, especially in instances where companies remain competitors in spite of their strategic alliance. If it were to happen that one company would go off on its own and do its own marketing and sell its own product while in alliance with another company it would for sure be grounds for the two to break up, and they would most likely end up in a legal battle which could take years to solve if it were settled at all. An example of this would be “Volvo’s attempt to merge with Renault in 1993 temporarily destroying shareholders wealth in Volvo” (Bruner 1999).
Performance risk
Performance risk is the probability that an alliance may fail even when partner firms commit themselves fully to the alliance. The sources of performance risk according to a recent study by Das and Teng (1999) include environmental factors, such as government policy changes, war, and economic recession; market factors, such as fierce competition and demand fluctuations; and internal factors, such as a lack of competence in critical areas, or sheer bad luck.