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CHAPTER 13
International Strategic Alliances
Chapter Objectives
After studying this chapter, students should be able to:
1. Compare joint ventures and other forms of strategic alliances.
2. Characterize the benefits of strategic alliances.
4. Discuss the forms of management used for strategic alliances.
5. Identify the limitations of strategic alliances.
LECTURE OUTLINE
OPENING CASE: Slimline: Marching to a Different Drummer
The opening case describes how General Mills established a strategic alliance with
Nestle’s, in an attempt to enter into the European Cereal market, that was dominated by
Kellogg’s.
Key Points
• Kellogg’s created the market for breakfast cereals in Europe, by slowly convincing
the Europeans to accept cereals as a viable breakfast alternative to bread, fruit, eggs
and meat.
• General Mills, marketers of Cheerios and Golden Grahams was Kellogg’s major
competition in the United States.
• In 1989, General Mills made a decision to enter in to the European market.
• Because of Kellogg’s market dominance, General Mills decided that in order to
compete effectively they would have to identify a strategic partner, and Nestles was
chosen.
• Nestle’s was an accepted brand name in Europe, with a established distribution
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CHAPTER SUMMARY
Chapter 13 explores international strategic alliances in detail. The chapter begins with a
discussion of the various types of strategic alliances and then goes on to explore the
benefits of alliances. The scope of strategic alliances is the subject of the next section,
followed by a discussion of how strategic alliances should be managed. Finally, the
pitfalls of strategic alliances are considered.
INTERNATIONAL CORPORATE COOPERATION
• Strategic alliances, business arrangements whereby two or more firms cooperate
for their mutual benefit, can take many forms, including cross-licensing of proprietary
information, production sharing, joint research and development, and marketing of
• Strategic alliances are one means of expanding internationally. Other modes of
expansion include exporting, licensing, franchising, and FDI (see Chapter 12).
However, a strategic alliance differs from these other modes in that it involves
cooperation among firms.
• A joint venture can be managed in any of three ways: parent companies can jointly
manage the venture, one parent can manage the venture alone, or an independent
team of managers can be hired to run it. Other types of strategic alliances may
involve a more informal management arrangement such as a coordinating
committee.
• Joint ventures are typically broader in scope and have a longer duration than other
types of strategic alliances. In fact, nonjoint venture alliances are frequently formed
Teaching Note:
Instructors may wish to emphasize how important strategic alliances
have become to companies by developing a record of the strategic
alliances that have been formed over a period of one year. Students can be divided
into 12 small groups, each of which is then assigned to examine the Wall Street
Journal (or another business publication) for announcements of strategic alliances in
a particular month. Students can classify the alliances according to why they
formed, who was involved, etc. This information can then be compiled into a “master
list” that demonstrates the growth of strategic alliances.
BENEFITS OF STRATEGIC ALLIANCES
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Ease of Market Entry
• Strategic alliances may represent a means of overcoming the obstacles to entry that
can hinder a firm’s international expansion. (See Chapter 11 for a discussion of the
basic factors to consider when assessing a foreign market.)
• Strategic alliances may be a way to achieve the benefits of rapid entry while keeping
costs down, or to overcome regulations imposed by the host government regarding
Shared Risk
• Strategic alliances can help a firm minimize or control risk because, by definition,
strategic alliances imply that two or more firms work together, and therefore risk is
shared. The text provides several examples of firms that have controlled risk via
strategic alliances.
EMERGING OPPORTUNITIES
The Ups and Downs of Market Entry
This box examines the entry strategy used by Otis Elevator in emerging markets.
Otis attempts to capitalize on first mover advantages by quickly linking up with local
partners and moving into emerging markets as they open up.
Shared Knowledge and Expertise
• A firm may be able to gain knowledge and expertise that it lacks via a strategic
alliance. For example, the text points out that one of the main objectives behind the
collaboration of Toyota and GM was cross-learning.
Synergy and Competitive Advantage
• Synergy and competitive advantage are benefits of strategic alliances that are results
VENTURING ABROAD
Learning by Doing
This box describes a joint venture between Toyota and General Motors, which was
called the New United Motor Manufacturing Inc. (NUMMI). Toyota used the venture
to learn how to deal with labor and parts suppliers in the United States, while
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SCOPE OF STRATEGIC ALLIANCES
The scope of cooperation among firms can vary significantly depending on the basic
objectives of each partner. Figure 13.2 should be used here.
Comprehensive Alliances
• Comprehensive alliances involve an agreement by participants to perform multiple
stages of the process by which goods and services are brought to market. Because
this type of alliance requires that firms mesh functional areas such as finance,
production, and marketing, most comprehensive alliances are structured as joint
ventures.
• Comprehensive alliances may be the most rapidly growing form of strategic alliances
between MNCs. However, they can be complex to arrange. The text provides an
example of how General Mills and Nestle were able to gain synergy by combining
resources.
Functional Alliances
Strategic alliances that have a narrow scope involving only a single functional area of the
business are less complex than comprehensive alliances and therefore may not take the
form of joint venture. Typical functional strategic alliances include production alliances,
marketing alliances, financial alliances, and R&D alliances.
VENTURING ABROAD
Alliances in the Sky
This box takes a closer look at marketing alliances in the international airline
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• A financial alliance is a functional alliance of firms that want to reduce the financial
risks associated with a project. Financial risk may be reduced when financial
contributions toward the project are shared or when one partner provides the bulk of
the financing while the other partner provides special expertise or makes other kinds
of contributions. The text provides several examples of financial alliances.
• An R&D alliance involves an agreement whereby the partner agrees to undertake
IMPLEMENTATION OF STRATEGIC ALLIANCES
Firms, after concluding a SWOT analysis (see Chapter 11) may conclude that strategic
alliances are the best means of expanding internationally. Several issues that then must
be considered include selecting a partner, deciding on ownership form, and evaluating
joint management concerns.
Selection of Partners
• At least four factors (compatibility, nature of the potential partner’s products or
services, the relative safeness of the alliance, and the learning potential of the
alliance) should be considered when selecting a partner for collaboration.
• The nature of a potential partner’s products or services may impact the success
of a proposed strategic alliance. Most experts recommend that because it is difficult
to cooperate with a firm in one market but battle it in a second market, a firm should
align itself with a partner whose products and services are complementary to, rather
than directly competitive with, its own. The text provides an example of a strategic
alliance in which the partners’ products are complementary and an example of a
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Forms of Ownership
• Firms considering forming strategic alliances must determine what form of ownership
will be involved. The most common form of strategic alliance is the joint venture;
however, in some cases joint ventures may not be possible or desirable and limited
partnerships may be employed instead.
Joint Management Considerations
• There are three obvious means that may be used to jointly manage a strategic
alliance: a shared management agreement, an assigned arrangement, or a
delegated arrangement. Discuss Figure 13.3 here.
• Under a shared management agreement, each partner fully and actively
participates in managing the alliance. This type of arrangement is difficult to
implement because it requires a high level of coordination and near-perfect
PITFALLS OF STRATEGIC ALLIANCES
The five fundamental sources of problems that threaten the viability of strategic alliances
are conflict among partners, access to information, distribution of earnings, potential loss
of autonomy, and changing circumstances. These problems are summarized in Figure
13.4.
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Teaching Note:
The text provides several examples of strategic alliances that have faced
problems. Instructors may wish to raise the issue of just when these
alliances should be considered failures – how should failure be defined. Instructors may
wish to supplement the examples in the text by asking students to find an announcement
in the Wall Street Journal (or other business publication) of a strategic alliance that has
failed.
Incompatibility of Partners
• A primary cause of failure in strategic alliances is incompatibility among partners.
Access to Information
• Collaboration implies that one firm (or both) may have to share proprietary
Conflicts over Distributing Earnings
• Firms involved in strategic alliances not only share costs and risks, they also share
profits. The basic distribution of earnings between partners is usually negotiated as
Loss of Autonomy
• A strategic alliance implies shared risks and profits and also shared control. This
shared control may limit the strategy of each participant. In some cases, a strategic
alliance may be the initial step in a takeover. The text provides an example of this
type of situation that involved Fujitsu and International Computers, Ltd.
Changing Circumstances
• Changing circumstances may affect the viability of a strategic alliance. For example,
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venture. It also mentions the end of the Corning and Asahi joint venture alluded to
earlier in the chapter.
CHAPTER REVIEW
1. What are the basic differences between joint ventures and other types of strategic alliances?
A strategic alliance is a business arrangement in which two or more firms agree to
2. Why have strategic alliances grown in popularity in recent years?
3. What are the basic benefits partners are likely to gain from their strategic alliance? Briefly
explain each.
The basic benefits partners are likely to gain from their strategic alliances are ease of market
EMERGING OPPORTUNITIES
4. What are the basic characteristics of a comprehensive alliance? What form is it likely to
take?
Comprehensive alliances involve collaboration at multiple stages of the process by which
goods and services are brought to the market. Most comprehensive alliances take the form
5. What are the four common types of functional alliances? Briefly explain each.
The four common types of functional alliances are production alliances, marketing alliances,
6. What is an R&D consortium?
7. What factors should be considered in selecting a strategic alliance partner?
8. What are the three basic ways of managing a strategic alliance?
9. Under what circumstances a strategic alliance might be undertaken by public and private
partners?
10. What are the potential pitfalls of strategic alliances?
QUESTIONS FOR DISCUSSION
1. What are the relative advantages and disadvantages of joint ventures compared to other
types of strategic alliances?
A joint venture is a special type of strategic alliance in that a new business entity is created
2. Assume you are a manager for a large international firm, which has decided to enlist a
foreign partner in a strategic alliance and has asked you to be involved in the collaboration.
What effects, if any, might the decision to structure the collaboration as a joint venture have
on you personally and on your career?
Students will probably approach this question in different ways. Some students will take the
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3. What factors could conceivably cause a sharp decline in the number of new strategic
alliances formed?
The number of strategic alliances being formed has been skyrocketing. Firms are turning to
4. Could a firm conceivably undertake too many strategic alliances at one time? Why or why
not?
5. Can you think of any foreign products you use that may have been marketed in this country
as a result of a strategic alliance? What are they?
6. What are some of the issues involved in a firm’s trying to learn from a strategic alliance
partner without giving out too much valuable information of its own?
One of the primary benefits of a strategic alliance is the opportunity it provides for cross-
7. Why would a firm decide to enter a new market on its own rather than using a strategic
alliance?
8. What are some of the similarities and differences between forming a strategic alliance with a
firm from the same country and forming one with a firm from a foreign country?
9. Otis Elevator has sought to obtain first-mover advantages by quickly entering emerging
markets with the help of local partners. This strategy has proved very successful for Otis.
Should all firms adopt this strategy? Under what conditions is this strategy likely to be
successful?
Most students will probably agree that there is no “one–size-fits-all” strategy, and that
BUILDING GLOBAL SKILLS
Essence of the exercise
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Answers to the follow-up questions:
1. How straightforward or ambiguous was the task of evaluating and ranking the three
alternatives?
2. Determine and discuss the degree of agreement or disagreement among the various groups
in the class.
Instructors may wish to create a “master list” of decision criteria on the board and then list
CLOSING CASE
Look Before You Leap
The closing case describes Group Danone SA’s joint venture arrangements with the Grameen
Group (Bangladesh), Hangshou Wahaha Group (China), and Britannia Industries Ltd. (India). It
discusses the reasons for, the objectives of the ventures and identifies many of the benefits and
problems that they have encountered.
Key Points:
• Group Danone is a Paris-based manufacturer and marketer of nutrition products in
three major segments: dairy products, water and infant food, and medical nutrition.
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Case Questions
1. Grameen Danone is a joint venture among two companies – the non-profit Grameen
Group and the for-profit Group Danone SA. What are the benefits to each of these
companies? Why did each choose to participate in the joint venture?
The Grameen Group is a lending system that enables the disadvantaged
Bangladeshis (particularly women) to increase their income and improve living
2. From the perspective of each of these companies, are there any potential pitfalls to
joining this venture?
3. Now consider Danone’s venture in China – what are the benefits of this joint venture
to each of these companies? Why did each choose to participate in the joint venture?
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The benefits to each of these companies were: ease of market entry, shared risk,
4. What could Danone have done to avoid the problems it is encountering in China and
India?
The problems that Danone had with both the projects in China and India had to deal
with incompatibility with their partners, conflicts over operations, loss of autonomy,