STRATEGIC IMPLEMENTATIONGLOBAL ALLIANCES

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall

Opening Profile: Haeir GroupGrowth Through Strategic Alliances, Acquisitions, and Global Networks Haeir Group is the fourth-largest white goods (refrigerators, washing machines, and other appliances) manufacturer in the world.Haeir has established an extensive sales network around the globe, primarily through strategic alliances with key partners in prospective global markets.7-*

Strategic Alliances(Cooperative Strategies)7-*

Categories of Strategic Alliances7-*Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall

Global and Cross-Border Alliances: Motivations and Benefits7-*

Global and Cross-Border Alliances: Motivations and Benefits7-*

Implementing Alliances Between SMEs and MNCs: 7-*Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall

Stage of RelationshipTraditional Model: MNCs Partnering with Each OtherNew Model:Enterprises Partnering Locally with MNCsStrategies for Small Enterprises Partnering with MNCsFormingA direct frontal approach through a dedicated alliance department or key individuals who are direct counterpartsGiven asymmetry of access and attention, the direct approach is likely to fail; use indirect means of accessUse local allies such as regional institutions or partnering programsUse MNCs reputational strength to gain supportConsolidatingWell-established processes for structuring, governance, and staffing alliancesGiven the asymmetry of resources and long term objectives, these processes dont apply; so plan for the short term with an eye on the long termCapitalize on points of technology by proactively demonstrating skills and creating opportunitiesEnsure modular or discrete knowledge transfer to ensure tangible outcomesExtendingA relatively predictable pattern for the further development of alliances, including built-in contingencies for instability and dissolutionGiven asymmetry and therefore dispensability of small enterprises; there is greater uncertainty vis--vis MNCs own plans and priorities; so be vague by design with an eye on the bigger prizeProactively build networks within the MNC and add valueAdopt an ambiguous approach by design; pursue oblique goals without showing all cards initially, and keep options open

Copyright 2011 Pearson Education, Inc. publishing as Prentice Hall

Challenges in Implementing Global AlliancesMany alliances fail or end up in takeover

Choosing the right form of governance

The benefits of cooperation versus the dangers of new competition7-*

Guidelines for Successful Alliances7-*

Comparative Management in Focus: JVs in Russian Federation7-*

Comparative Management in Focus: Guidelines for Establishing JVs in Russian Federation7-*

Comparative Management in Focus: Guidelines for Establishing JVs in Russian Federation7-*

Strategic Implementation7-*

Strategic Implementation7-*

Implementing a Global Outsourcing Strategy7-*

Managing Performance in International Joint Ventures7-*

Three Complementary Dimensions of IJV Control7-*

Knowledge Management in IJVs7-*EXHIBIT 7-4 Knowledge Management in IJVs

Government Influences on Strategic ImplementationUnpredictable changes in governmental regulations, new restrictions on foreign investors Tax breaksWar in SyriaRegime change7-*

Cultural Influence on Strategic Implementation7-*

WesternHungarianSource of DifferenceFocus on core competenciesFocus on empire buildingSystemicLive to workWork to liveCultural/ systemicPlay by rulesBeat the systemCultural/ systemicMarket-driven technologyVolume-driven technologySystemic

Dimensions of National and Corporate Culture Affecting Alliances7-*Organizational formality

Participation in decision making

Attitudes toward risk

Systemization of decision making

Managerial self-reliance

Attitudes toward funding and gearing

Management in Focus: Mittals Marriage to Arcelor In June 2006 Mittal Steel of India merged with Arcelor of Luxembourg to create the worlds largest steel company.

Resistance in Europe and by Arcelor:Arcelor had outdated views of MittalConcerns about losing control of a European multinational

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Management in Focus: Mittals Marriage to Arcelor Resistance in India:Concerns about breaking Marwari rulesMittal put family interests behind industry and shareholder interests.Lakshmi Mittal gave up half of his 90 percent share in Mittal, will share chairmanship.7-*

The foundation of Haeirs human resource management strategy is rigorous performance management. As it grew, Haeir acquired 18 companies that it identified as running at a loss.

Haeir learned about the U.S. market by supplying small refrigerators to Wal-Mart stores as Haeir built their internationalization competencies.

Haeir uses a three-pronged approach to internationalization that includes a localization strategy combining design, production and marketing network as the core of its global branding strategy.* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallAlliances are transition mechanisms that propel the partners strategies forward faster than would be possible for each company alone.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallJoint ventures (JVs) are independent entities jointly created and owned by two or more parent companies. An international joint venture (IJV) is a joint venture among companies in different countries. The JV form for a firm may comprise a majority (more than 50% equity), a minority (less than 50% equity), or may be 50-50 (equal equity). An example of a 50-50 IJV is between Frances PSA Peugeot-Citroen Group and Japans Toyota in the Czech Republic. From this IJV Toyota gains knowledge of suppliers and their capabilities from one of Europes biggest indigenous car makers. Peugeot-Citroen gains experience from Toyotas manufacturing system.

In equity strategic alliances two or more partners have different relative ownership shares in the new venture. An example is TCL-Thompson Electronics. Frances Thompson owns 33% of the combined company and Chinas TCL owns 67%. Most global manufacturers have equity alliances with suppliers, sub assemblers, and distributors.

In non-equity strategic alliances, agreements are carried out through contract rather than ownership sharing. Such contracts are often with suppliers, distributors, or manufacturers, but they also may be for the purposes of marketing and information sharing. An example is UPS, which has a non-equity alliance with Nike. Nike contracts with UPS to manage its entire supply chain from factory, to warehouse, to customer, to repair.

Global strategic alliances are working partnerships between two or more companies across national boundaries and/or industries. Alliances also can be formed between companies and governments. Alliances may comprise full global partnerships (e.g., joint ventures in which two or more companies retain their national identities but develop a common, long-term strategy), or they may be more narrow and specific (e.g., aimed at production, marketing, or research and development). For example, Covisint has redefined the entire system of car production and distribution through a common electronic marketplace. Covisint is an e-business exchange developed by Daimler-Chrysler AG, Ford, General Motors, Nissan, and Renault.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallIn the semi-conductor industry each new generation of memory chips is estimated to cost more than $1 billion to develop and technological evolution is rapid. In this and similar industries, such endeavors usually require the resources of more than one firm. For example, Toshiba has more than two dozen major joint ventures and strategic alliances around the world.

Alliances can reduce political risks while making inroads into a new market. Hong Kong Disneyland is jointly owned by the Chinese government, which owns a 57% stake. Beijing is interested in promoting tourism through the venture and in the employment of 5,000 Disney workers and 18,000 workers in related services.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallFirms are forming strategic alliances with European companies to bolster their chances of competing in the European Union and to gain access to markets in Eastern Europe as they open up to world business.

Finally, alliances can help gain rapid entry into a new or consolidating industry and to take advantage of synergies. Technology is providing means for the overlapping and merging of traditional industries such as entertainment, computers, and telecommunications in new digital-based systems. In many cases, technological developments are necessitating strategic alliances across industries in order to gain entry into areas in which they have no expertise or manufacturing capabilities. Competition is so strong that they cannot afford to wait to develop those resources alone. For example, an alliance with Japans NEC gave AT&T access to new semiconductor and chip making technologies, helping it learn how to better integrate computers with communications.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice Hall* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallA recent survey by McKinsey & Company of 150 companies in alliances found that 75% had been taken over by Japanese partners. Many of the issues associated with international activities already discussed also contribute to the difficulty of creating successful alliances. These include problems with shared ownership, differences in national cultures, the integration of different structures and systems, the distribution of power, and conflicts about the locus of decision making and control.

Choice of governanceeither contractual agreement or joint ventureoften depends on the desire to control information about proprietary technology. Joint ventures provide greater control and coordination in high-technology industries.

Often cross-border partnerships become a race to learn, with the faster learner later dominating the alliance and rewriting its terms. Partners also often have problems with mistrust and secrecy when it comes to competitively sensitive areas. The cumulative learning gained through an alliance can potentially be applied to other products or industries beyond the alliance.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallChoosing a partner with compatible goals and objectives will result in synergies through combined markets, technologies, and management cadre.

Seek alliances where complementary skills, products, and markets will result. If each partner brings distinctive skills and assets to the venture, there will be reduced potential for direct competition.

Work out what will be shared, what will not, and how shared technology will be handled. Trust is necessary, but must be backed up with contractual agreements.

Most alliances only last a few years and break up once a partner feels it has incorporated the skills and information it needs to go it alone.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallRussia can be an attractive market for foreign companies. The rouble is now convertible and more stable, there is unexploited natural resource potential, and it has a skilled, educated population of 145 million. At the same time, though, Russia poses many risks and, at the very least, confusion for potential investors. For instance, President Putin has sought to take control of key industries (e.g., banks, newspapers, and oil). The state-controlled oil giants, Gazprom and Rosneft can only have foreign investors if those investments are in the minority. A survey of 158 foreign investors found that many think doing business in Russia is more risky and less profitable than doing business in China, India, or Southeast Asia.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallManagers of foreign companies planning to set up business in Russia should consider these recommendations.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice Hall* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallImplementation plans are detailed and pervade the entire organization because they entail setting up overall policies, administrative responsibilities, and schedules throughout the organization. Until strategic plans are put into operation, they remain abstract ideas that have no effect on the organization.

Successful implementation requires the orchestration of many variables into a cohesive system that complements the desired strategy. This is called creating a system of fits. The structure, systems, and processes of the firm should be coordinated and mutually reinforce one another. Creating such a system may require altering some of its elements to make them worksuch as changing the organizational structure.

Resources must be allocated to make the strategy work. This entails budgeting money, facilities, equipment, people and other support.

People are the ones who make things happen. Leaders must skillfully guide employees and processes in the desired direction. Additionally, in equity-sharing alliances, it is necessary to determine which top managers in each company will be in each position and to determine who will be CEO. Increasingly joint-CEOs are appointed.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice Hall* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallOutsourcing abroad is often in the news because of concerns about jobs being lost to others overseas. However, the strategic view of outsourcing is that it can produce gains in efficiency, productivity, quality, and profitability by fully leveraging talent around the world. For example, Proctor & Gamble (P&G) outsources IT infrastructure and Human resources around the world, and they want 50% of all new products to come from other countries by 2010. This slide and the next present guidelines for successful outsourcing.

Make sure the advantages will outweigh the disadvantages from employees, customers, and the community.

Opening your own subsidiary in the host country may be better than contracting with an outside firm if you need to keep control of proprietary technology and processes.

Open communication and training is essential to get your domestic managers on board.

Consult with your partners and teat them with the respect that made you decide to do business with them.

Plan to invest time and money in training in the firms business practices, particularly in terms of quality control and customer relations.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallIgnoring the unique controls required by IJVs can limit the parent companys ability to efficiently use its resources, coordinate its activities, and implement its strategy. Establishing IJV control entails the choice of partner, the establishment of strategic fit, and the design of the IJV organization.

Choice of partner is the most important single factor determining IJV success or failure. Even so, many firms rush the partner selection process because they are anxious to make inroads into an attractive market. IJV performance is a function of the fit between the strategies of the parents, the IJV strategy, and the specific performance goals the parents adopt. Managers must determine the specific task-related skills and resources needed from a partner and, thus, their own firms weaknesses in task-related skills and resources that can be overcome with help from an IJV partner. The IJV between Suzuki and TVS Motor, which manufactures motorbikes in India, is an example of one that was unsuccessful. By government regulation, Suzukis only avenue for entry into India was through IJV. TVS, however, complained that its was not able to develop its own capabilities because Suzuki wanted to keep all of its technology to itself. Ultimately, TVS bought out Suzuki.

Strategic freedom refers to the relative amount of decision-making power that a JV will have, relative to the parents, when choosing suppliers, product lines, customers, etc. An IJV is usually easier to manage when one parent plays a dominant role and has more decision making power than the other in daily operations. It also is easier to manage an IJV if the local manager has considerable management control. When ownership is unequal, partners claim control relative to their ownership share. Where ownership is divided among several partners, daily operations are likely to be delegated to the local IJV management. The increased autonomy of the IJV can resolve many potential disputes and reduce common HR problemssuch as staffing friction, blocked communication, and blurred organizational culture.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallResearch suggests parent companies tend to focus their efforts on those activities they consider most important to their strategic goals, rather than monitoring all activities.

The extent of control is primarily determined by the decision-making autonomy granted to the IJV management, which is dependent upon how much confidence the partners have in the top IJV managers.

Mechanisms for control include the parent organizational and reporting structure, staffing policies, and close coordination with the IJV general manager. Monitoring the general manager includes bonuses and career opportunities and requiring executive committee approval for specific decisions and budgets.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallManaging the performance of an IJV for the long term, as well as adding value to the parent companies, necessitates managing the knowledge flows within the IJV network. Thus, managers must recognize that it is critical to overcome cultural and system differences in managing knowledge flows in order to gain advantage for the alliance.

Knowledge management is the active management of creating, disseminating, evolving, and applying knowledge to strategic ends. As defined by Berdow and Lane, these processes are:

Transfer: managing the flow of existing knowledge between parents and from parents to the IJV.Transformation: managing the transformation and creation of knowledge within the IJV through its dependent activities.Harvest: managing the flow of transformed and newly created knowledge from the IJV back to the parents.

Those companies found to be most successful in developing and harvesting information for the benefit of the parents were those that had personal involvement by the principals of the parent company in shared goals, in the activities and decisions being made, and in encouraging joint learning and coaching.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallFirms are influenced by taxation in the host country, restrictions on profit repatriation, and government policies on foreign ownership, labor union rules, hiring and remuneration practices, and on patent and copyright protection. If the company has done its homework, however, all these factors should be known up front. The problem comes when a firm sets up shop in a host country that then makes major economic or governmental policy changes. For example, China recently added new restrictions on foreign investors, prolonging the time firms must wait to find out if their deals will go through. As another example, when China revoked tax breaks and restricted foreign ownership in 1993, Caterpillar found there was no longer enough domestic demand for their products. As a final example, when Indonesian President Suharto was ousted, the new government reviewed and cancelled business deals linked to the Suharto family. These included two water-supply privatization projects with Britains Thames Water PLC and Frances Suez Lyonnaise des Eaux SA.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallWhen managers are responsible for implementing alliances among partners from diverse institutional environments, such as transition and established market economies, they are faced with the critical challenge of reconciling conflicting values, practices, and systems. In other situations, culture is the issue and the cultural variable has been overlooked when deciding on and implementing alliances.

This slide summarizes some of the information in Exhibit 7-3 in the text. It illustrates some of the differences among Hungarian managers and Western expatriates.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallResearch reveals six dimensions of national and corporate cultural differences between the management styles of UK firms and continental European firms. Among these, risk orientation is key because risk-taking propensity impacts managers approaches to strategic options. Risk-taking firms are likely to be aggressive and deal well with change. Risk-averse firms tread more carefully and employ incremental strategies.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallMittals initial proposal initially met with overwhelming hostility from Arcelor, and Arcelor initially rejected two bids from Mittal. Mittal realized that Arcelor had outdated views of them. To combat these, they provided a comparison of their deal with that of Russian rival Severstal and a plan for corporate governance rules to promote Arcelors business model. Though Severstal also was bidding to takeover Arcelor, France viewed Mittals takeover as a betrayal of old continental European traditions to a new cost-cutting imperative of globalization.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice HallThe deal also met resistance in India. Lakshmi Mittal belongs to the Marwari ethnic group, which believes it is critical for companies to maintain family ownership. Malarwi families have extensive business networks among families and favor doing business with other Malarwis.

Lakshmi Mittal was able to shepherd the deal through by managing both the strategic and cultural difficulties.

* 2010 Pearson Prentice Hall 2010 Pearson Prentice Hall