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.
]]>Organisation Theory
The research in this area emphasizes the technology and learning views of alliances. And the social network theory of alliances becomes more popular.
Organisational Learning
Organisational learning refers to the capability of organisations to acquire, disseminate, and retain new knowledge so as to improve future performance (Child and Faulkner, 1998), and is of particular interest if each partner possesses a different set of capabilities and experiences.
There are various levels of learning. Child and Faulkner (1998)indicate there are three levels of organisational learning: technical, systemic, and strategic. It can provide access to techniques, facilitate the transfer of new systems, and enhance a firms' ability to undertake new strategic initiatives. The distinction between 'collaborative' learning and 'competitive' learning (Hamel 1991). The collaborative learning allows firms to access to the other firm's know-how. Competitive learning is a consequence of each firm's attempt to learn as much as possible from the other, while offering as little as possible. Through organisational learning, the companies can develop their capabilities and create value. The both parners can achieve more values than simply one plus one.
]]>Organisation Theory
The research in this area emphasizes the technology and learning views of alliances. And the social network theory of alliances becomes more popular.
Organisational Learning
Organisational learning refers to the capability of organisations to acquire, disseminate, and retain new knowledge so as to improve future performance (Child and Faulkner, 1998), and is of particular interest if each partner possesses a different set of capabilities and experiences.
There are various levels of learning. Child and Faulkner (1998)indicate there are three levels of organisational learning: technical, systemic, and strategic. It can provide access to techniques, facilitate the transfer of new systems, and enhance a firms' ability to undertake new strategic initiatives. The distinction between 'collaborative' learning and 'competitive' learning (Hamel 1991). The collaborative learning allows firms to access to the other firm's know-how. Competitive learning is a consequence of each firm's attempt to learn as much as possible from the other, while offering as little as possible. Through organisational learning, the companies can develop their capabilities and create value. The both parners can achieve more values than simply one plus one.
]]>3.2.3 Different Perspectives
There are many different theoretical perspectives of the bulk of writing on strategic alliances. The most popular of them are the economics-based view, strategic management theory, and organisation theory.
Economics-based View
In the business world, theories of strategic alliances from economics view are popular. There are three main perspectives in economics:
Market Power Theory
Transaction Cost Theory
The Resource-based View
Market Power Theory
The market power approach of Michael Porter (1980) dominated the strategic management studies in the 1980s. In his book Competitive Strategy, he suggests that the competitive intensity of industries is determined by five fundamental forces: the degree of rivalry between competing firms, the power of suppliers and buyers, the threats from new entrants and potential substitute products or services. As a result, the strategy should be to position the company to take best advantage of the five forces. Alliances can enhance market power, and the greater market power can enhance the returns. Collaboration may be a faster and cheaper way to gain market power than mergers and acquisitions.
Porter’s (1980) framework assumes that the structure of the industry and national environment dictates a firm’s most appropriate generic strategy—cost leadership, differentiation, or focus. The process of forming strategic alliances is within an analysis of industrial and national structural determinants in this way. Market power theory contributes to the understanding of the links between cooperative strategies and industrial and national context.
Transaction Cost Theory
The perspective on strategic alliances offered by transaction-cost theory views the arrangements as potentially cost-reducing methods of organising business transactions.
Transaction cost are those costs incurred in arranging, managing, and monitoring transactions across markets, such as the cost or negotiation, drawing up contracts, managing the necessary logistics, and monitoring accounts receivable (Child and Faulkner 1998). Transaction cost theory regards the basic choice in organising economic transactions as being between effecting these through market exchanges and internalizing them within a single firm. Alliances combine elements of both markets (in that they represent decision making mechanisms in which no one firm has complete authority) and hierarchies (in that they are ways to govern incomplete contracts between economic actors) (Gomes-Casseres, 1996). This view of alliances as such hybrid structures is discussed in detail by Williamson (1991). Gomes-Casseres (1996) extends this view by considering the way in which ‘constellations’ of hybrid structures can be identified in certain industries.
Transaction cost economics contributes important insights into the governance forms that alliances may assume in view of the circumstances under which they are formed (Child and Faulkner 1998). It provides a powerful framework to identify those situations in which alliances are more efficient than either turning to the market or internalizing transactions. The level of transaction costs involve the considerations in choosing whether to cooperate with other companies, and the form of that cooperation.
The Resource-Based View
Transaction cost economics talked above treats the company as a ‘nexus of contracts’. The primary benefit concerned is the reduction in transactional cost. The resource-based view pushes the logic of transaction cost theory further. It regards the company as a bundle of resources, capabilities, and competencies intended to generate maximum benefits. It is primarily concerned with increasing the value of rents that can be obtained from companies’ resources (Peteraf 1993). The primarily benefit is sustainable competitive advantage. Collaboration provides the company with access to complementary capabilities which provide a potential in building competencies.
The resource-based view holds that a company can achieve and keep a competitive advantage by configuring its tangible and intangible assets in a way that is difficult or indeed impossible to imitate perfectly, or by having resources, skills, or capabilities that are durable, and not appropriable, perfectly transferable, or replicable (Barney 1991; Peteraf, 1993). In some cases of the resource-based view, the Trojan horse strategy is not based on appropriating resources possessed by a partner but on preventing the partner from developing or maintaining its own resources. Thus, companies can restrict their competitors’ innovative capacity by cooperating with them (Dussauge and Garrette, 1999).
]]>3.2.2 Reasons for Choosing Strategic Alliances
There are many reasons for the company to choose strategic alliances: to share costs and reduce risks, to enhance their productive capacities, to reduce uncertainties in their internal structures and external environments, to acquire competitive advantages that enables them to increase profits, or to gain future business opportunities that will allow them to command higher market values for their outputs (Webster, 1999). Partners choose a specific alliance form not only to achieve greater control, but also for more operational flexibility and realization of market potential. Their expectation is that flexibility will result from reaching out for new skills, knowledge, and markets through shared investment risks. The strategic motives for organizations to engage in alliance formation vary according to firm-specific characteristics and the multiple environmental factors. A list below show various reasons for undertaking strategic alliances (Agarwal and Ramaswami, 1992; Auster, 1994; Doz and Hamel, 1999; Doz et al., 2000; Hennart, 1991; Lorange and Roos, 1993):
• market seeking;
• acquiring means of distribution;
• gaining access to new technology, and converging technology;
• learning and internalization of tacit, collective and embedded skills;
• obtaining economies of scale;
• achieving vertical integration, recreating and extending supply links in order to adjust to environmental changes;
• diversifying into new businesses;
• restructuring, improving performance;
• cost sharing, pooling of resources;
• developing products, technologies, resources;
• risk reduction and risk diversification;
• developing technical standards;
• achieving competitive advantage;
• cooperation of potential rivals, or pre-emptying ompetitors;
• complementarity of goods and services to markets;
• co-specialization;
• overcoming legal/regulatory barriers; and
• legitimation, bandwagon effect, following industry trends.
Growth strategies and entering new markets
The Coopers and Lybrand study (1997) rates growth strategies and entering new markets among the top reasons for forming strategic alliances. Companies do not have the time and resources to establish new markets one by one. Therefore, forming an alliance with an existing company already in that marketplace is a quite appealing alternative. Partnering with an international company can make the expansion into unfamiliar territory a lot easier and less stressful for a company. It is especially helpful for global business. It can get better local acceptance, and remove the local constraints on trade.
Obtain new technology or better business function
Technology is one of the key factors for the success of companies. But not all companies can provide the technology that they need to effectively compete in their markets on their own. Therefore, they are teaming up with other companies who do have the resources to provide the technology or who can pool their resources so that together they can provide the needed technology. Both sides receive benefit from the partnership.
Besides the technology, undertaking strategic alliances is to outsource business functions. They may be marketing, production, accounting, sales, or any other process. With strategic alliances, companies can oursource these funtions to others that can do it better and cheaper. Indeed, many companies are forming alliances looking for the best quality or technology, or the cheapest labor or production costs (Quinn, 1995).
Reduce risk and share costs of research and development
In order to develop a new product or production method, the financial risk involved is too high for a single company to undertake. In such cases, two or more companies come together and agree to spread the risk among all of them.
Achieve or ensure competitive advantage
Nowadays, the business world is technologically advanced, ever-changing. For many small companies, in order to stay competitive and even survive, the only way is to form an alliance with another company or companies. The firm manages to compete against much larger firms by creating teams with other companies, both large and small, on a project-by-project basis (Bernstein, 1999). By forming alliances with other companies, small businesses are able to accomplish bigger projects more quickly and profitably, than if they tried to do it on their own.
]]>3.2.1 Definition of Strategic Alliances
There are many definitions of strategic alliances. It is difficult to define it accurately. Matthews (1999) defines strategic alliance (SA) is "an agreement between two or more ‘partner’ organisations, committing them to pool their efforts and resources in some way". The level of agreement can be either ‘overall business’ or project-based, but stops short of requiring full commitment by the partners, so allowing them each to retain their separate identity. And Wheelen and Hungar (2000) define it as "an agreement between firms to do business together in ways that go beyond normal company-to-company dealings, but fall short of a merger or a full partnership". The definition given by Phan and Peridis (2000) is a kind of long term, trust-based relations that entail highly relationship-specific investments in ventures that cannot be fully specified in advance of their execution. Simply, strategic alliances are a type of co-operation or collaboration between companies to achieve mutual benefits.
In many cases, the term 'joint venture' is regarded the same as strategic alliances. These two definitions are slightly different. In America, joint venture alse can be used as joint venture company, in the context of a separate business entity created by two or more partners. But in UK, joint ventures are not regarded as separate entities. Rather, a joint venture usually is organised as a partnership or through a jointly owned corporation (Hall 1984), which is the same as strategic alliances.
]]>There are indeed many reasons, finance, culture, government policy, marketing, etc. But I think from the strategic view of the company, maybe they don't espect to keep the relation.
For example, when they try to entry a new market with different culture, or completely unfamiliar environment, it's a way to have a try. they don't seek the profit, only the local experiences. And their partner may seek the advanced management method, resource, or anything else.
They can try to get mutual benefit through this relationship, but they have different goals. That's why the relationship may end in a short period. Er, in this way, it seems not failed. Mmm, it should be considered.
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