Strategic Alliances
C o m p e titive A d va n ta g e in th e G lo b a l E co n o m y
M o d u le 10 : S tra te g ic A llia n c e s: P a rt I
M o d u le I n tr o d u c tio n
R e a d in g s
R eq u ired
C hapter 7 in G lobal Strategy
G upta, A . (2013). S trategic allian ce: In tern atio n al b u sin ess strategy
(h ttp s://csu glo b al.id m .o clc.o rg/lo gin ?u rl= h ttp s://search eb sco h o st
co m .csu glo b al.id m .o clc.o rg/lo gin .asp x?
d irect= tru e& d b = b u h & A N = 9 2 74 18 6 0 & site= eh o stlive). A sia Pacific Journal of R esearch in
B usiness M anagem ent, 4(7), 1.
R eco m m en d ed
G am m elgaard, J., K um ar, R ., & W orm , V . (2013). C u ltu reled d iscrep an cies an d n ego tiatin g
co n flicts in strategic o u tso u rcin g allian ces (h ttp s://csu glo b al.id m .o clc.o rg/lo gin ?
u rl= h ttp s://search eb sco h o stco m .csu glo b al.id m .o clc.o rg/lo gin .asp x?
d irect= tru e& d b = b th & A N = 8 9 8 0 6 134 & site= eh o stlive). Thunderbird International B usiness
R eview , 55(5), 563578. doi:10.1002/tie.21570
F o r Y o u r S u cce ss
Strategic alliances are a foolproof m ethod for entering the global m arket… or, are they? W hile
strategic alliances and partnerships low er risks and help com panies w ork in unfam iliar cultures and
locations, they dem and that the partners fully resource the endeavor and create a plan for m oving
forw ard together.
For this w eek, you w ill review a case involving the R ussian oil industry and exam ine the reasons w hy
a com pany m ay choose a strategic alliance to enter this specific m arket. Think about the various
political and econom ic factors at play and how they affect the risk calculations on the part of the oil
com panies. There w ill also be a Live Session this w eek. Your faculty w ill provide further details.
L earn in g O u tco m es L earn in g O u tco m es
1. E xplain w hy a firm m ay w ant to enter an alliance w ith a foreign firm .
2. D ifferentiate cooperation from com petition and explain the benefits of each.
3. D escribe the strategic rationale of cooperating at different points in the business process.
1 . D e fin in g a S tr a te g ic A llia n c e
G lobal business today is expanding, as w e have been extensively discussing over the last several
w eeks. A nd as you have read before, a new business that ignores the global m arket does so at its
peril. A nd, w e need to dig deeper to understand exactly how a new business, or an existing business,
can take its operations overseas. Last w eek w e began to look at som e m odels for expansion,
including exporting, franchising, and opening foreign distribution netw orks. This w eek w e need to
consider another key factor in the expansion process – partnerships and strategic alliances.
A strategic alliance is a partnership betw een tw o or m ore firm s to w ork together to confront the
com petition and expand each other’s m arket share, w ithout actually entering into a form al
partnership or joint venture agreem ent. This could be som ething sim ple, like a firm subcontracting
part of its product developm ent or distribution to another firm , or it could be som ething m ore
substantial w hereby each com pany invests substantially in the other, m aking their success
dependent upon w hat the other does.
R eview the m any benefits as w ell as potential problem s related to strategic alliances.
Benefits
First, the alliances’ partners share costs and hence, the upfront investm ents needed are reduced.
Strategic alliances also w ill reduce and share risks. M oreover, by partnering w ith a local firm ,
your custom ers are m ore likely to view you as a local entity. Potential Problem s
There also are potential problem s w ith strategic alliances. The costs associated w ith this m odel
tend to be higher exporting, licensing, or franchising options. A dditionally, there m ay be
integration problem s betw een tw o corporate cultures.
Take a look at this video of an interview w ith M ichael Porter, the creator of the five com petitive
forces m odel:
Porter takes an interesting view of strategic alliances and partnerships. H e points out that rivalry
w ith your com petitors can be turned into som ething positive. M any business people view
com petition as a zerosum gam e that is, there w ill be a w inner and m any losers. The only w inner
in a zerosum gam e is the consum er, as the com petitors end up in a price w ar. Porter, how ever,
discusses the concept of positive sum com petition. In this m odel, com panies com pete on different
attributes and characteristics of the products and services and target different custom er segm ents.
So, instead of aggressively com peting for a share of the pie, the idea is to grow the pie so that
(Source: https://www.youtube.com/watch?v=mYF2_FBCvXw)
A n Interview w ith M . E . Porter, Professor, H arvard U niversity. Porter's five com petitive forces is
the basis for m uch of m odern business strategy. U nderstand the fram ew ork and how to put it
into practice.
T h e F ive C o m p etitive F o rces T h at S h ap e S trategy So, instead of aggressively com peting for a share of the pie, the idea is to grow the pie so that
com petitors can each carve out a piece. In a positive sum environm ent, strategic alliances w ill help
com panies expand globally and team w ith com panies that m ay be com petitors, but w ho act m ore
like allies because all partners w ill benefit from the arrangem ent.
A ccording to C zaja (2014), there are m any successful partnerships across the globe. Take, for
exam ple, E li Lily:
E li Lily dem onstrates how one com pany can create m any partnerships on different continents w ith
different purposes.
E li Lilly partners w ith the B elgium based com pany G alapagos to develop
treatm ents for osteoporosis. E li Lilly also partners w ith C anada's B ioM S
m edical group in a licensing and developm ent agreem ent for a novel
treatm ent for m ultiple sclerosis. In Japan, E li Lilly is partnering w ith
K yow a H akko K ogyo C o., Ltd., to bring a targeted cancer treatm ent to
m arket. E li Lilly w ill have the exclusive license to develop and sell the
product w orldw ide except in Japan, and the tw o com panies w ill share
rights in certain A sian countries.
2 . W h y E n te r a S tr a te g ic A llia n c e ?
M ost firm s, and especially sm all firm s, lack the expertise, resources, or m anpow er to do everything
that it takes to get their product or service to m arket. For instance, im agine you are setting up a
sm all business that is going to sell a new ebook reader that fits into your shirt pocket. You cam e up
w ith the idea and have som e resources to invest in designing the product for m arket. W hat else
m ight you need? You need a design com pany, perhaps a patent attorney to register the design, a
m anufacturer to build the product, parts from various places in the w orld, m arketing m aterials, and a distribution netw ork, just for starters.
R ather than trying to take on all of this by yourself, you w ould likely be m ore successful in
partnering w ith other com panies that specialize in each of these areas. B ut not only that— you m ay
find that som e of these com panies operate overseas w ith significantly low er labor and overhead
costs, m aking your ebook reader cheaper to design and sell. You m ay quickly end up w ith the
electronics portion of your product being developed in M alaysia, the softw are w ritten in South
K orea, the packaging designed and produced in D jibouti, and the m arketing strategy put together by
a com pany in the U nited A rab E m irates (U .A .E ).
A s your recom m ended reading this w eek stated, strategic partnerships like this benefit both parties,
offering each an opportunity not only to participate in the developm ent of a product, but also to
exchange technology and know ledge that can be used in the developm ent of other products. O f
course, this can create a risk that the technology w ill be used to develop products that w ill com pete
w ith yours. For this reason, it is w ise to try to keep the proprietary technology w ithin the
partnership and include contract language that w ould prevent it from being used to create
com peting products or sold to other m anufacturers.
W hitler (2014) points out that form ing the partnership actually is the easy part. The hardest part of
strategic alliances, according to W hitler, is m anaging them over tim e. She w rites:
O ften tim es strategic alliances fail because: they are not resourced properly and fully; the partners
do not spend enough tim e m aking sure that all partners are satisfied; and the partners never
form alize a joint, strategic plan. So w hile strategic alliances m ake a lot of sense for a com pany that is
new to the global m arket, there are m any aspects to consider w hen entering into one. W hitler (2014)
sum s it up w ell:
In a recent study conducted by The C M O C ouncil (for a com plim entary
report, click h ere (h ttp ://w w w .b p in etw o rk .o rg/th o u gh t
lead ersh ip /stu d ies/51)), 85% of respondents view ed partnerships and
alliances as essential or im portant to their businesses. In today’s m ore
com plex w orld, w here expertise is often gained through strategic
relationships, this isn’t surprising. H ow ever, w hat w as unexpected w as
that although strategic partnerships w ere rated as im portant, alm ost half
reported high failure rates (failure rate of 60% or m ore). (para. 2) Take, for exam ple, technology giant IB M . In 2012, this A m erican com pany entered into a strategic
alliance w ith Saudi telecom m unications com pany E tihad E tisalat, better know n as M obily.
A ccording to the IB M w ebsite (n.d.),
The IB M M obily A lliance is a joint collaboration aim ed at bringing proven IB M intellectual capital,
solutions, stringent processes and delivery capabilities to the K ingdom of Saudi A rabia. The
A lliance brings cloudbased solutions that have been built in the K ingdom and designed to address
the needs of clients in Saudi A rabia. To cover the need of larger enterprises, the A lliance w ill be able
to deliver tailorm ade solutions to cover specific client dem ands. (paras. 12)
M obily gains access to IB M ’s technology and best practices, and IB M expands its global reach and
strengthens its presence in the M iddle E ast in general, and Saudi A rabia in particular.
W hile all of this sounds sim ple, the likely issue is that em ployees and
leaders are overw helm ed. They know how to develop strategic plans and
m anage relationships. B ut is there enough tim e in the day to get it all
done? That’s w hy the first, m ost im portant question of leadership has to
be w hether the relationship is critical. If it is, it m ust be prioritized and
resourced accordingly. (para. 12)
Test yourself on the key concepts covered in M odule 10
in this brief quiz.
C lick H ere to B egin
C h eck Y o u r U n d erstan d in g
R e fe re n ce s
C zaja, J. (2014). E xam ples of successful strategic alliances. C hron. R etrieved from C zaja, J. (2014). E xam ples of successful strategic alliances. C hron. R etrieved from
http://sm allbusiness.chron.com /exam plessuccessfulstrategicalliances13859.htm l
IB M . (n.d.). IB M M obily A lliance. R etrieved from http://w w w 935.ibm .com /services/sa/en/it
services/m obilyalliance.htm l
W hitler, K . A . (2014). W hy strategic alliances fail: N ew C M O C ouncil report. Forbes. R etrieved
from http://w w w .forbes.com /sites/kim berlyw hitler/2014/10/24/w hystrategicalliances
failnew cm ocouncilreport/