International Management

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Chapter 7:

Implementing Strategy: Continuing on from Chapter Six

Strategic Alliances; Small Businesses; Emerging Economy Firms

Chapter Learning Goals

Realize that much of international business is conducted through strategic alliances.

Understand the reasons that firms seek international business allies and the benefits they bring.

Become familiar with the ways that SMEs can expand through alliances with MNCs

Recognize the changing factors, opportunities, and threats involved in joint ventures in the Russian Federation.

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Chapter Learning Goals

Focus on how emerging economy firms can implement expansion strategies

Understand the complexities involved in managing international joint ventures.

Appreciate the governmental and cultural factors that influence strategic implementation; as well as the impact of e-commerce.

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Chapter Learning Goals

Realize that much of international business is conducted through strategic alliances.

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Chapter Learning Goals

Understand the reasons that firms seek international business allies and the benefits they bring.

Strategic Alliances (Cooperative Strategies)

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Strategic Alliances

Partnerships between two or more firms that combine financial, managerial, and technological resources and their distinctive competitive advantages to pursue mutual goals

Strategic Alliances (Cooperative Strategies)

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Alliances are transition mechanisms that propel the partners’ strategies forward faster than would be possible for each company alone allowing organizations to respond to the globalization of the marketplace and the opportunities presented by technological advances.

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Chapter Learning Goals

Become familiar with the ways that SMEs can expand through alliances with MNCs.

Categories of Strategic Alliances

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Joint 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.

An example of a 50-50 IJV is between France’s PSA Peugeot-Citroen Group and Japan’s Toyota in the Czech Republic. From this IJV Toyota gains knowledge of suppliers and their capabilities from one of Europe’s biggest indigenous car makers. Peugeot-Citroen gains experience from Toyota’s manufacturing system .

Categories of Strategic Alliances

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In equity strategic alliances two or more partners have different relative ownership shares in the new venture.

An example is TCL-Thompson Electronics. France’s Thompson owns 33% of the combined company and China’s TCL owns 67%.

Most global manufactures have equity alliances with suppliers, sub assemblers, and distributors.

Categories of Strategic Alliances

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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.

Categories of Strategic Alliances

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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 government .

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).

Alliances may be more narrow and specific (e.g., aimed at production, marketing, or research and development).

Global and Cross-Border Alliances: Motivations and Benefits

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To avoid import barriers , licensing requirements, and protectionist legislation

To reduce political risk while making inroads into a new market

To share the costs of research and development of new products and processes

Global and Cross-Border Alliances: Motivations and Benefits

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For Example

In 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 .

Global and Cross-Border Alliances: Motivations and Benefits

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Alliances can also 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.

Global and Cross-Border Alliances: Motivations and Benefits

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To gain access to specific markets where regulations favor domestic companies; China, Russia

To gain rapid entry into a new or consolidating industry, to take advantage of synergies, and overcome strong competition.

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Challenges in Implementing Global Alliances

Alliances: faster and less risky route to globalization

Problems with

Shared ownership

differences in national cultures

Integration of vastly different

Conflicts in decision making and control

Challenges in Implementing Global Alliances

Many alliances fail or end up in takeover

Choosing the right form of governance: 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.

Partners also often have problems with mistrust and secrecy when it comes to competitively sensitive areas.

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Guidelines for Successful Alliances

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Choose a partner with compatible strategic goals and objectives.

Seek comple-mentary skills, products, and markets

Work out how each partner will deal with propritary knowledge or competitively sensitive information

Recognize that most alliances only last a few years

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Chapter Learning Goals

Recognize the changing factors, opportunities, and threats involved in joint ventures in the Russian Federation.

Comparative Management in Focus: JVs in Russian Federation

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Russia can be an attractive market for foreign companies. The ruble 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 investors found many think doing business in Russia is more risky and less profitable than doing business in China, India, or Southeast Asia.

Comparative Management in Focus: Guidelines for Establishing JVs in Russian Federation

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Investigate whether a joint venture is the best strategy—acquiring a Russian business may be better.

Set up meeting with appropriate authorities well in advance.

Be above board in paying taxes .

Set up stricter controls and accountability systems.

Comparative Management in Focus: Guidelines for Establishing JVs in Russian Federation

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Make it clear your firm does not pay bribes

Assign the firm’s best managers and given them enough authority

Take advantage of local knowledge by hiring Russian managers

Designate considerable funds for promotion and advertising to establish an image

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Chapter Learning Goals

Focus on how emerging economy firms can implement expansion strategies.

Strategic Implementation

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Involves putting decisions about global alliances and entry strategies into action

Successful implementation requires creating a “system of fits”

Resources must be allocated: Budget, Facilities, Equipment, People, Etc.

Leadership is the key

In equity alliances, roles of decision makers must be clearly understood.

Strategic Implementation

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Implementation McDonald’s Style

Form paradigm-busting arrangements with suppliers.

Hire locals whenever possible.

Know a country’s culture before you hit the beach.

Tweak the standard menu only slightly from place to place.

Keep pricing low to build market share. Profits will follow when economies of scale kick in.

Maximize autonomy .

Implementing a Global Outsourcing Strategy

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outsourcing 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.

Implementing a Global Outsourcing Strategy

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Examine your reasons for sourcing .

Evaluate the best outsourcing model.

Gain the co-operation of manage-ment and staff.

Consult your alliance partners.

In in the alliance.

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Global Supply Chain Risks: The Japanese Disaster

Supply chains have become larger and far more complex to manage

After the March 2011 earthquake and tsunami in Japan  disrupted supply chains

Auto industry particularly hard hit

Control/risk became issues

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Challenges in Implementing Strategies in Emerging Markets

“Foreign” firms are often surprised they have trouble competing successfully with local firms

Challenges:

Poor infrastructure

Supply chains/distribution networks

Personal challenges

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Chapter Learning Goals

Understand the complexities involved in managing international joint ventures.

Managing Performance in International Joint Ventures

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IJV Control

Ensures that the way a joint venture is managed conforms to the parent company’s interests

Choice of Partner

Choice of partner is the most important single factor determining IJV success or failure .

Orgznal. Design

The strategic freedom in choosing suppliers, product lines, customers, and so on

Even so, many firms rush the partner selection process because they are anxious to make inroads into an attractive market.

Three Complementary Dimensions of IJV Control

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Let’s Look

IJV Control

Contractual links with parents

IJV General Manager

Autonomy of IJV

Three Complementary Dimensions of IJV Control

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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.

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Knowledge Management in IJVs

Managing 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 .

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.

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Knowledge Management in IJVs

Transfer : managing the flow of existing knowledge between parents and from the parents to the IJV.

transformation : managing the Transformation and creation of knowledge within the IJV through its independent activities

Harvest : managing the flow of transformed and newly created knowledge from the IJV back to the parents

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Chapter Learning Goals

Appreciate the governmental and cultural factors that influence strategic implementation; as well as the impact of e-commerce.

Government Influences on Strategic Implementation

Profitability impacted by taxation and restrictions on repatriation

Unpredictable changes in governmental regulations

China’s new restrictions on foreign investors prolonging the time to decision approval .

$2.5 billion tax bill for Vodaphone in India

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Cultural Influence on Strategic Implementation: Western ex-pats vs. Hungarian managers

Western	Hungarian
Team Orientation	Individual Orientation
Consensual Management Style	Autocratic Style
Future planning mentality	Survival Mentality

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Dimensions of National and Corporate Culture Affecting Alliances: U.K. vs. Europe

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Organizational formality

Participation in decision making

Attitudes toward risk

systemization of decision making

Managerial self-reliance

Attitudes toward funding and gearing (financial leveraging)

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French Managers Comment on the U.S.

Americans have difficulty accepting foreign managers

Americans have difficulty developing a world perspective

Americans are very U.S.-oriented; the least international of all people

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E-Commerce on Strategy Implementation

Outsourcing necessary tasks to e-commerce

Help companies sort through the maze of difficult taxes, duties, language translations, etc.

Next-Linx: applies technology for strategic implementation

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Conclusion

Cross-border strategic alliances are formed for many reasons: market expansion, cost/technology-sharing, avoiding protectionism, synergies

SMEs can leverage network relationships to accelerate the internationalization process

Alliances take many forms, but can fail in the strategic implementation phase

Emerging economy firms have to move quickly

Successful alliances require compatible partners and the creation of a system of fits

Differences in national culture and changes in the political arena can affect implementation