1. STRATEGIC ALLAINCES AND OTHER MODES OF ENTRY

2. Strategic Alliances are agreements to collaborate with either actual or potential competitors Entry modes address the best means of entering a foreign market

3. Recent development in the use of Strategic Alliances. u Firms used to focus on maintaining control in overseas ventures u Firms used to focus on exploiting competitors vulnerabilities as a means of survival, or leveraging home country advantage u Nowadays firms are more focused on building collaborative relationships as a means of survival.

4. Why the change in focus? u The need to pursue multiple sources of competitive advantage. u The rapid changes in the environment (costs, short PLC, need for scale economies, protectionism) u Inadequate resources and inability of a single MNC to go it alone u The need to simultaneously achieve the three goals of efficiency, flexibility and worldwide learning.

5. Strategic Alliances u The concept describes a series of inter- firm cooperative arrangements. u These arrangements include joint ventures, short-term contractual agreements, cross-shareholding deals etc..

6. Why Strategic Alliances are increasingly attractive? u Need for technology exchange (boundaries between industrial sectors are getting blurred, e.g.... lens) u To participate effectively in global competition, using global standards, Learning u Risk reduction by pooling resources together, short PLC, R&D Cost u Protectionism

7. MNC response Simultaneously pursue multiple sources of competitive advantage Create interdependent and integrated networks within the organization Build collaborative relationships with governments, competitors, customers, suppliers, etc.

8. MNC response u We don’t have the human, financial, or technological resources necessary to respond effectively to the reality of global competition. u No longer obsessed with preempting the competition u New focus on building competitive advantage through selective and often simultaneous reliance on both collaboration and competition

9. Advantages of Strategic Alliances u Help get access to a foreign market (CAT in Japan.) u Sharing of fixed costs (Boeing’ SA with Japanese companies) u It helps to bring together firms with complementary skills and assets (France’s Thompson and Japan’s JVC)

10. u Collaboration to help establish industry standards (Phillips and Matsushita in digital compact cassette)

11. Disadvantages of Strategic Alliances u Possible exploitation by partners (Bridgestone and Goodyear) u May give partners low cost access to technology and market. u possibility of divided loyalty, increasing managerial cost

12. u Distribution of risks and costs may not be as clear u Different cultural context may make alliances difficult, e.g.... measure of performance in Japan and U.S..

13. Making alliances work u About 2/3 of alliances fail u Choosing the right partners, financially solvent, skilled, and share vision of alliance, and not opportunistic e.g... GM and Daewoo in South Korea did not work out. In 2002 GM bought Daewoo u Have realistic expectations ( not appropriate to use same performance measures across national boundaries)

14. u Avoid unnecessary complexity in structure u While it is important to be explicit about control issues, flexibility is very important.

15. Other Modes of Entry

16. Other Modes of entry u Exporting - initial step into IB u avoids costs of establishing manufacturing overseas. u firm establishes location and experience curve economies faster. u high transportation cost, subject to trade barriers, navigating local channels of distribution.

17. Turnkey Operations u this is a means of exporting process technology u contractor handles details of every project, and then turns the key over to owner for operation. u common in construction, refining and chemical industries

18. u good entry mode where FDI is restricted u creating competitors u no long term presence in a market.

19. Licensing u a licensor grants the rights to intangible property to licensee for a period of time for a fee. u intangible property can include patents, process, copyrights, and trademarks

20. u cross-licensing, in addition to royalty payment, the foreign partner licenses a know how. ( Amgen a U.S. biotech firm has such arrangement with Japanese Pharm. company Kirin, and sells Kirin’s drugs in the U.S. u allows for low development costs and reduces risks u lack of control over technology

21. u difficult to coordinate global strategies u difficult to achieve location and experience curve economies. u Licensing has been popular as a means of technology transfer.

22. Franchising u a specialized form of licensing u it is for a longer term, and the franchisee must follow strict rules of doing business. u has same advantages and disadvantages as licensing. u quality control is another problem in franchising.

23. Joint Ventures u a firm that is owned by two or more firms (Fuji-Xerox) u allows benefiting from a local partner’s knowledge u allows for sharing of costs and risks, but lack of control u preferable entry mode in many countries

24. Wholly Owned Subsidiary u the firms owns 100% of the stock u this can be done by acquisition or internal set up u many countries frown upon wholly owned subsidiary

25. u allows MNC to protect technology u allows for control and global strategic coordination u takes advantage of both firm specific and country specific advantage u it involves a lot of cost and risk, danger of nationalization as in Iran

26. Which Entry Mode to Choose u It depends on a lot of variables that are not mutually exclusive u Costs, Level of Risk and control that is manageable u legal requirement of host country u nature of assets (technological complexity) and experience of firm in IB