1. What are the characteristics of a good partner in a strategic alliances?

Why do these
partner traits help make a strategic alliances successful?

The characteristics of a good partner in the strategic alliances are:

 Strategic complementarity
Before forming the strategic alliance, prospective partners must have a good
understanding of each other’s strategic objectives for the venture. Each should
know what the other hopes to achieve, both in the short term and in the long
term.
 Complementary skills
Each partner must contribute some skills or resources that complement those of
the other partner. Besides, it also can find the partners with similar but not
identical products or markets, thus avoiding the difficulties of working with
direct competitors.
 Compatible management styles
 Right level of mutual dependency
With a good match, partners feel mutual need to supply their unique resources
or capabilities to the alliances. The best level of mutual dependency is balanced,
wherein both companies feel equally dependent on the outcome of the venture.
 Adequate funding
A contract should specify that the division of the alliance’s profits.
 Fairly equal size
This is because to avoid such problems like the larger firm may dominate the
smaller one and the corporate cultures probably differ significantly.
 Compatible operating polices
Accounting policies, hrm policies, reporting policies and the like may all differ
because of organizational or cultural differences. For the strategic alliance to
function smoothly and before the strategic alliance comes into operation,
partners should agree on mutually satisfactory operational policies.
 Excellent communication skills
Even if partners speak each other’s language, cross-cultural communication is
never as easy as it is within one’s own culture or organizations. So, Managers
must expect slower communication and more errors of understanding.

2. What are some of the common value chain links companies use to gain strategic
benefits from alliances? Pick two of these links and describe some of the benefits
partners gain from pursuing these links.
Alliances that combine the same value chain activities often do so to gain efficient scales
of operations, to merge compatible talents, or to share risks.

In R&D alliances, high-tech multinational companies often use joint research and
development to merge different technical skills or to share the risks of developing new
or costly technologies.

In operations alliances, multinational companies often combine manufacturing or

assembly activities to achieve a profitable volume of activity.

Marketing and sales alliances allow multinational companies to increase the scope and
number of products sold and to share distribution systems. Sometimes partners share
logos.

Output alliances deliver a service. Most popular in the airline industry.

Supply operations alliances, one partner provides low-cost sources of supply or

components, and the other partner does the manufacturing.

3, Under what conditions should a firm choose one of the various management
structures available for a strategic alliance? Pg 249

A parent firm that has a dominant equity position or contributes the most important
resources to the alliance usually favors a dominant management structure, at least for
strategic decision making. Alliance partners with equal ownership shares (for IJVs) or
equal resource contributions (for ICAs) tend to avoid the dominant management
structure. Management structures can change as companies’ needs or contributions to
the alliance change. Additional considerations in the choice of a management structure
relate to the strategic and organizational characteristics of the parent companies and
the nature of their industry.

4. What are the different kinds of commitment needed in a strategic alliance? Explain.

Commitment in a strategic alliance means taking care of each other and putting forth
extra effort to make the venture work.

Attitudinal commitment means that partners are committed and willing to dedicate
resources and effort and to face risks to make the venture work.

Calculative commitment comes from the evaluations, expectations, and concerns about
the future potential for gaining rewards in a relationship.
Credibility trust is the confidence that the partner has the intent and ability to meet its
obligations and make its promised contributions.

Benevolent trust is the confidence that the partner will behave with goodwill and with
fair exchange.

5. What are some of the difficulties of assessing IJV or ICA performance? How do these
differ for companies with different strategic goals?

ICA is nonequity alliance with formal contracts specifying what each company must
contribute to the relationship. The difficulties of accessing ICA are deeper involvement
requiring exchange of proprietary company knowledge and resources. Both companies
must give away something valuable to the partner to get something in return.

IJV is a self-standing legal entity owned by parent companies from different countries;
the participating companies have an equity or ownership position in an independent
company. IJV require formal agreements. One difficulty in determining the initial
ownership of a joint venture arises from equity contributions other than cash.
Companies may contribute equal monetary shares to a venture to have equal position,
but they may also bring nonfinancial resources.

6. What are the different management structures possible for strategic alliances? Pick
two of these management structures and discuss when they are most appropriate.

Dominant parent: In this structure, one parent controls or dominates strategic and
operational decision making. Its managers hold most of the important positions in the
IJV or ICA organization.

Shared management: Both parents contribute approximately the same number of

managers to positions such as the board of directors, the top management team and
the functional areas of management.

Split control: It is similar to the shared management in that partner usually share
strategic decision making however at the functional level, partners make decisions
independently.

Independent management: The alliance managers act more like managers from
separate companies. This structure is characteristic of mature IJVs- which must be
legally separate organizations-and seldom occurs in ICAs.

Rotating management: Managers from the various partners rotate through the key
positions in the management hierarchy.
7. Compare and contrast the three main types of strategic alliances.

Informal international cooperative alliances are agreement between companies from

two or more that are not legally binding. They can be agreements of any kind and can
provide links between companies anywhere on their value chains. Because the contract
offers no legal protection, managers usually limits the scope of their involvement with
the other company. MNC companies in informal alliances resist revealing a company’s
proprietary information.

ICA is nonequity alliance with formal contracts specifying what each company must
contribute to the relationship. The formal international cooperative alliance (ICA) calls
for a high degree of involvement among partners. This type of alliance usually requires a
formal contract specifying exactly what each company must contribute, which could be
managers, technical specialists, factories, information or knowledge, or money. This
sharing of proprietary information or knowledge raises the level of involvement of the
partners. The sharing of proprietary knowledge makes backing out of a formal alliance
more difficult than for alliances with informal agreements. Formal ICAs are very popular
in high tech industries because of high costs and risks.

An international joint venture (IJV) is a self-standing legal entity owned by parent

companies from different countries; the participating companies have an equity or
ownership position in an independent company. The simplest IJV occurs when two
parent companies have 50/50 ownership of the venture, although not all joint ventures
have only two partners.

8. Discuss some of the things multinational managers can do to build and sustain trust
and commitment.

Pick your partner carefully: Picking a partner must include consideration of more than
potential strategic complementarity and resource contributions. Alliances partners must
believe that they can trust each other, and they must believe that mutual commitment
is possible..

Know your strategic goals and those of your partner: Mutual revelations of strategic
goals build a crucial step in the trust cycle and allow partner to realize early in the
relationship whether they can commit to each other’s goal.

Seek win-win situation: To achieve and maintain mutual commitment in an alliance,

each side must gain something of importance from the relationship. Although the
outcomes from the alliance need not be the same, both sides must perceive them as a
fair exchange if commitment and trust are to evolve.

Go slowly: Participants in international strategic alliances must realize that problems

arise and take time to work out. Trust and commitment develop in cycles, not
necessarily all at once.

Invest in cross-cultural training: As in all international ventures, managers with cross-

cultural sensitivity and language competence will likely have more success in
understanding their partner’s need and interests.

9. If an alliance fails to meet strategic goals, what two options do top managers have to
choose from to resolve the situation? How can an alliance be improved?

Negotiate an end to the agreement: The art of managing strategic alliances is in

knowing when to quit and when to invest more time and resources in building the
relationship. A particular danger in all questionable alliance relationships is the
escalation of commitment, which means that managers continue in relationship longer
than necessary because of past financial and emotional investments.

Improving the implementation means going over each step in the implementation
process to determine what, if any, changes can be made. If one side decides that it just
has the wrong partner, it must dissolve the relationship and, if necessary, seek another.

Explain 2 areas of decision making.

Operational decisions include management decisions associated with the day-to-day

running of the organization such as the size of productions runs and the hiring of
assembly line workers.

Strategic decision focuses on issues that are important to the long-term survival of the
alliance organization, such as opening a new plant and introducing a new product.
Explain 5 key lessons from cross-border alliances.

Understand and appreciate business and cultural differences: successful cross-border

alliances can be possible only if the partner recognize cultural and business differences
and adapt to them.

Keep strong executive support: Successful cross-border alliances consistently retain

strong executive support.

Communicate: Communication is crucial to the cross-border alliance’s success.

Review the alliance’s viability: multinational companies need to review any alliance
frequently to determine whether the alliance is viable and beneficial.