CHAPTER 6
Engaging in Cross-
Border Collaboration:
Managing across Corporate
Boundaries
and Reading 6-1:
The Design and Management of
International Joint Ventures
What is a Strategic
Alliance?
A formal and mutually agreed commercial
collaboration between companies
The partners pool, exchange or integrate
specific business resources
Yet they remain separate businesses, making
alliances distinct from mergers and
acquisitions
6-2
Strategic Alliances
One of innumerable forms of
commercial interaction
One of four forms/modes of investment
Partially Wholly
Owned Owned
Existing Capital Acquisition
Participation
New Joint Greenfield
Venture
6-3
Range of Strategic Alliances
Joint Venture
High (Equity Participation)
Co-production/
Buyback
R&D
Level of Interaction
Consortia
Cross
Licensing
Franchising
Strategic
Alliances
Patent
Licensing
Cooperation
Low Agreement
Competition Type of Arrangement Cooperation
6-4
1960s and 1970s: Alliances Primarily used in
Peripheral Markets and Technologies
Critical Markets Peripheral
Critical
Alliance
Technologies
Alliance Frontier
Alliance
Alliance
Peripheral
6-5
1980s: Alliance Frontier Encompasses More
Important Markets and Technologies
Critical Markets Peripheral
Critical
Alliance
Technologies
Alliance Frontier
Examples
Alliance
• Ford - Mazda
Peripheral • Philips - Siemens
Alliance
• Rolls Royce +
Japanese
6-6
1990s: New Alliance Frontiers were
Crossed
Duration of Agreement
Short Long or Unspecified
Non
Equity Alliance
Ownership
Alliance Frontier
Alliance
Equity Alliance
6-7
Today: The Age of International +
Alliance Capitalism…
Equity JV
Strategic
Alliance
Emphasis
Non-Equity
ME
TI
Do It
Yourself
Domestic Regional International
Geographic Scope
6-8
…Where Alliances are Occurring Between
Entrepreneurial Start-ups and Large Firms, and the
Speed of Establishment is Increasing
Months Time-Frame Years
Large
Firms
Linkages Between
Alliance Frontier
Entrepreneurial
Firms
6-9
The Popular View Says JVs are:
A transitional organization form.
Less profitable.
Impossible to manage.
A sure way to lose one’s technology.
Only undertaken as a last resort.
6-10
Objective Reality
Average age of international JVs nearly
10 years (similar to greenfield startups;
longer than acquisitions).
Profitability identical with other
organizational alternatives.
Managing has become easier, so usage
up. 40% of all investments in Asia
Pacific are JVs.
6-11
Objective Reality (cont’d)
Some companies which possess strong technology often prefer
to use JVs.
(i.e., Japanese firms with a Kyousei - group coordination -
philosophy)
The days of government regulation forcing the use of JVs in all
sectors are behind us.
Even the very largest MNCs have recognized the investment
and growth benefits associated with partnering, rather than
“going it alone” (i.e., Dow Chemical’s “asset-light strategy”).
6-12
Effect of Foreign Equity Holding on
Subsidiary Mortality Risk?
Stability Similar to Wholly-owned Subsidiaries
Except with Small Equity Holdings
4:1
3:1
Mortality Risk
1:1 = equivalent to wholly
owned subsidiary 2:1
1:1
0
0 20 40 60 80 100
Foreign equity in the subsidiary (%)
Source: Dhanaraj, C. and P.W. Beamish (2004). Effect of equity ownership on the survival of international joint ventures. Strategic
Management Journal, 25(3): 295-305.
6-13
Joint Venture Checklist
1. Test the strategic logic.
Do you really need a partner? For how long? Does your
partner?
How big is the payoff for both parties? How
likely is success?
Is a joint venture the best option?
Ensure congruent performance measures exist.
6-14
Joint Venture Checklist
(cont’d)
2. Partnership and fit.
Does the partner share your objectives for the
venture?
Does the partner have the necessary skills and
resources? Will you get access to them?
Will you be compatible?
Can you arrange an “engagement period”?
Is there a comfort versus competence trade-off?
6-15
What Do You Want From Your
Partner?
Parent A
WANTS WANTS
ACCESS ACQUISITION OF
TO PARTNER’S PARTNER’S
KNOWLEDGE KNOWLEDGE
WANTS
The Classic “Joint” Venture Mixed Motive
ACCESS
A cooperative alliance A pseudo alliance
TO PARTNER’S
Parent B
(very stable) (eventually unstable)
KNOWLEDGE
WANTS “Race to Learn”
Mixed Motive
ACQUISITION A competitive
A pseudo alliance
OF PARTNER’S alliance
(eventually unstable)
KNOWLEDGE (very unstable)
6-16
Partner Selection: Comfort vs.
Competence
Higher
Unstable Target
Partner
Comfort
Non-Starter Unstable
Lower
Lower Higher
Partner Competence
6-17
Joint Venture Checklist
(cont’d)
3. Shape and design.
Define the venture’s scope of activity and its strategic
freedom vis-à-vis its parents.
Lay out each parent’s duties and payoffs to create a win-win
situation. Ensure that there are comparable contributions
over time.
Establish the managerial role of each partner.
Ultimately, an alliance’s governance structure must include
clear rules pertaining to decision-making among the entity’s
partners and its general manager.
6-18
Scope of Activity
Narrow vs. Wide
Single, Geographic Market vs. Multi-Country
Single Function vs. Complete Value Chain
Single Industry/Customer Group vs. Multi Industry
Modest Investment vs. Large Scale
Existing Business vs. New Business
Limited Term vs. Forever
6-19
Control in Joint Ventures
Two types:
1. One parent dominates the venture’s decision
making (…but is this a “joint” venture?)
2. Parents are both involved in decision making
shared
split
6-20
Shared Control
Parent A Parent B
JV Board
of Directors
A B
R&D OPS FIN MKT
6-21
Split Control
Parent A Parent B
JV Board
of Directors
A B
R&D OPS FIN MKT
6-22
Joint Venture Checklist
(cont’d)
4. Doing the deal.
How much paperwork is enough?
Trust versus legal considerations?
Agree on an endgame.
6-23
Joint Venture Checklist
(cont’d)
5. Making the venture work.
Give the venture continuing top
management attention.
Manage cultural differences.
Watch out for inequities.
Be flexible.
6-24
In Summary, a True Alliance Differs
from a Pseudo Alliance
The True Alliance The Pseudo
Alliance
Planned level of Continuing One-time
parent input and
involvement
Distribution of Roughly even Uneven
risks/rewards
Parent attitude A unique One more
toward the JV organization subsidiary
with unique needs
The formal Flexible Frequently
agreement guideline referenced rulebook
Performance Clearly specified Partially overlapping/
objectives and congruent ambiguous
6-25
How can value be created simultaneously
within an individual alliance and an
alliance portfolio?*
Many multinational corporations maintain a portfolio of alliances
with multiple partners.
Research has revealed that when companies add a new alliance
to their portfolios, they tend to evaluate the potential value that
the new alliance will create on a standalone basis.
Firms routinely fail to evaluate whether the new alliance creates
value from a portfolio perspective or, whether the new alliance
poses the risk of destroying value at the portfolio level (i.e., due
to conflict resulting from market overlap between individual
alliances in a portfolio).
* Source: Wassmer, U., Dussauge, P., and Planellas, M. (2010). How to manage alliances better than one at a time. Sloan Management
Review, 51 (3): 77-84.
6-26
How can value be created simultaneously
within an individual alliance and an
alliance portfolio?*
1. Engage in cost-benefit analyses at two levels:
a) Alliance level: Does the new alliance…
i. …achieve economies of scale by pooling similar assets, knowledge or skills?
ii. …secure access to a partner’s complementary assets, knowledge and
skills?.....provide access to new skills?
iii. …reduce competition in the market and increase market power?
b) Portfolio-level: Does the new alliance….
i. …create an opportunity to share or recombine know-how in the portfolio?
ii. …reinforce existing coalitions?
* Source: Wassmer, U., Dussauge, P., and Planellas, M. (2010). How to manage alliances better than one at a time. Sloan Management
Review, 51 (3): 77-84.
6-27
How can value be created simultaneously
within an individual alliance and an
alliance portfolio?*
2. Develop an integrated & codified decision process:
Managers should be involved from both the business unit
and the corporate level.
Adopt a dual phase approach towards decisions on
prospective new alliances:
i. Phase 1: Assess the alliance from a business-level
perspective.
ii. Phase 2: Assess the alliance from an alliance portfolio-
level perspective.
* Source: Wassmer, U., Dussauge, P., and Planellas, M. (2010). How to manage alliances better than one at a time. Sloan Management
Review, 51 (3): 77-84.
6-28
How can value be created simultaneously
within an individual alliance and an
alliance portfolio?*
3. Clearly define roles and responsibilities for all actors
involved in the decision-making:
Precise roles need to be formalized, codified and communicated throughout the
organization with respect to:
i. Identifying alliance-level benefits and costs.
ii. Conducting the alliance-level cost-benefit evaluation.
iii. Identifying alliance portfolio-level benefits and costs.
iv. Conducting the alliance portfolio-level cost-benefit evaluation.
v. Comparing alliance-level and alliance portfolio-level costs and benefits.
vi. Raising awareness of the benefits and conflict between alliances.
vii. Undertaking the final decision.
* Source: Wassmer, U., Dussauge, P., and Planellas, M. (2010). How to manage alliances better than one at a time. Sloan Management
Review, 51 (3): 77-84.
6-29