Transcript JOINT VENTURE MANAGEMENT AND DESIGN
STRATEGIC ALLIANCES ISSUES
Stability and risk
Failure rate of 30 to 60 percent
Even profitable alliances can be torn by conflict
SUCCESSFUL ALLIANCES MUST: NOT ONLY MAKE STRATEGIC SENSE BUT ALSO REQUIRE GOOD IMPLEMENTATION (SEE EXHIBIT 10.1 FOR STEPS IN IMPLEMENTATION OF STRATEGIC ALLIANCES)
Begin Over Decide Link in Value Chain Select a Potential Partner Choose an Alliance Type No Acceptable?
Negotiate an Agreement Yes Build the Organization Build Trust and Commitment Assess Performance Terminate or Revise Implementation No Meets Strategic Objectives?
Yes Continue or Increase Involvement
WHERE TO LINK IN THE VALUE CHAIN?
Depends on the objectives that the firm seeks to achieve
Exhibit 10.2 gives some examples of common links in the value chain
Company A
R&D R&D
Company B
R&D Input Logistics Operations Marketing and Sales Input Logistics Supply/ Production Operations Production/ Marketing Marketing Operations Marketing and Sales Output Logistics Delivery Output Logistics Service Service
EX 10.3 VALUE CHAIN LINKS IN U.S. ALLIANCES 6 0 5 0 4 0 % 3 0 2 0 1 0 0 C anada or M exico W .
E urope or Japan Others
SELECTING A PARTNER: THE MOST IMPORTANT CHOICE?
Seek
–
Strategic complementarity
–
Skill complementarity
–
Compatible management styles
ISSUES TO CONSIDER IN CHOOSING A PARTNER
The level of mutual dependency
The "anchor" partner
The "elephant and the ant" complex
Operating policy differences
Difficulties of cross-cultural communication
TYPES OF STRATEGIC ALLIANCES
Informal international cooperative alliances
Formal international cooperative alliances
International joint ventures
INFORMAL COOPERATIVE ALLIANCES (ICAs)
Nonlegally binding agreements between companies from two or more countries
Limited involvement between companies
FORMAL COPPERATIVE ALLIANCES
Higher degree of involvement than informal ICAs
Formal contract
Popular in high tech industries because of high costs and risks
INTERNATIONAL JOINT VENTURES
Separate legal entity owned by two or more parent companies from different countries
No need for equal ownership
Equity based on cash or other contributions
EX 10.5 TYPES OF ALLIANCES: SUMMARY
Alliance Type Informal ICA Degree of Involvement
Usually limited in scope
Formal lCA
Deeper involvement
IJV
Deep involvement
Ease of Dissolution
Easy, at the convenience of either side
Visibility to Competitors
Often unknown to competitors
Contract Legal
No More difficult to dissolve prior to end of contract Often visible to competitors Yes Most difficult to dissolve High visibility Yes
Entity
None None Yes,
NEGOTIATING THE AGREEMENT
Joint venture contracts: legal documents that bind partners together
The formal agreement is not as important as the ability of managers to get along
EXHIBIT 10.6 ISSURES IN ALLIANCE AGREEMENTS
For both ICAs and IJVs
–
Under which country’s law does the agreement operate?
–
How will profits be divided?
–
Do you need a prenuptial agreement?
Primarily for IJVs
–
What are the equity contributions of each partner?
ORGANIZATION DESIGN IN STRATEGIC ALLIANCES
DECISION MAKING CONTROL
Majority ownership does not necessarily = control
Operational decisions
Strategic decisions
MANAGEMENT STRUCTURES
DOMINANT PARENT
One parent controls strategic and operational decision making
Dominant parent often has majority ownership
Dominant parent treats the IJV as wholly owned subsidiary
SHARED MANAGEMENT
Both parents contribute approximately the same number of managers to the board of directors, the top management team, and functional area management
SPLIT CONTROL
Partners usually share strategic decision making
Partners split functional decision making
INDEPENDENT MANAGEMENT
IJV managers act like managers from a separate company
IJVs often recruit managers from outside the parent companies
ROTATING MANAGEMENT
Key positions rotate among partners
Popular in developing countries
Trains management talent and transfers expertise
CHOOSING AN ALLIANCE MANAGEMENT STRUCTURE
If one parent has dominant equity position
–
Dominant management structure more likely
Equal ownership
–
Shared, split, or rotating management structure preferred
Similar technologies or know how
–
Shared management structure preferred
If different technologies or know-how
–
Split management structure preferred
If the venture has more strategic importance to one partner
–
Dominant management structure preferred
HUMAN RESOURCE MANAGEMENT IN STRATEGIC ALLIANCES
The HRM functions of an IJV are more complex because managers (and sometimes workers) come from two or more firms or from two or more cultures
HRM ISSUES
HRM planning
Parent involvement
Staffing the alliance management and technical personnel
Staffing the alliance workforce
Assigning managers strategic or operations tasks
HRM ISSUES (CONTINUED)
Performance assessment
Loyalty
Career development
Cultural differences
Training
COMMITMENT AND TRUST: THE SOFT SIDE OF ALLIANCE MANAGEMENT
Without trust and commitment the JV will fail entirely or never reach its potential
TRUST
The confidence that the partner will deliver on their expected contributions to the joint venture
“Trust cycles”
WHY IS TRUST IMPORTANT?
Required for IJV participants to contribute tacit knowledge and quality inputs
Weakness of formal contracts can never identify all the issues
KEY FACTORS FOR COMMITMENT
Pick your partner carefully
Know your strategic goals and your partner's
Seek win-win situations
Go slowly
Invest in cross-cultural training
Invest in direct communication
ASSESSING ALLIANCE PERFORMANCE
Match strategic objectives with performance measures
EXHIBIT 10.8 SELECTED PERFORMANCE CRITERIA FOR STRATEGIC ALLIANCES
Management Processes
Organizational Learning
Competitive
Marketing
Financial
IF THE ALLIANCE DOES NOT WORK
Negotiate an end or improve implementation
Know when to quit/invest more
Avoid “escalation of commitment”
Plan end - “prenuptial agreements”
Death not always failure
CONCLUSIONS
The importance of international strategic alliances
Most important decision: picking the right partner
No set structure in ownership, decision making control, or management control