Marketing economic theory holds that a completely liberalized global market is the most efficient way to potential economi growth, because each country specializes in producing the goods and services as a result, it has a comparative advantage in the global business. Throughout history of business development adventurers, merchants, and financiers have constructed an ever-more-global economy. It means thatmarkets of today are becoming more and more integrated through globalization. Multinational corporations manufacture products in material countries and sell to consumers I a worldwide. Money, technology and raw materials move ever more swiftly across national borders. Along with products and finances, ideas and cultures circulate more freely. Thus, it is during the past decades companies and their managers have started to face the increasing emphasis on globalization strategies since it has affected and occurred at all levels in organizations relations (Hubbard, 2004). Hence, more organizations are becoming international and are therefore forced to handle complex issues on international or global basis rather than on a domestic one (Hill, 2006). They should therefore be aware of various aspects that could potentially affect them before deciding to conduct business in a foreign market or with another international organization.
Along with business communitiesthe globalization of economical and social activity has been a focal point in research in all over the world for some decades. The globalization research organizations have studied the increasing phonomena of competitive strategic alliances in today`s international business, in addition to a lot of companies and organizations, many universities also afford funds and specialist to investegate the international business that manage a success strategic alliance.
It is Dunning (1995) and others economic experts noted the emergence and growth of international strategic alliances (ISAs) as an important development in the organization of international economic activity many years ago. Now, a substantial literature has, unsurprisingly, evolved focusing on different aspects of the ISA process.Thus the strategic alliances today perhaps become the fastest growing trends for the global international business. According to Booz-Allen and Hamilton(Booz Allen Hamilton, 2006), strategic alliances are sweeping through nearly every business and are becoming an essential driver of economic growth in every country.
An alliance is understood simply a business-to-business collaboration. Another term that is frequently used in conjunction with alliances is establishing a business network. Nowadays, alliances range in scope from an informal business relationship based on a simple contract to a joint venture agreement in which for legal and tax purposes either a corporation or partnership is set up to manage the alliance. Thus the mission of strategic alliances are for joint marketing, joint sales or distribution, joint production, design collaboration, technology licensing, and research and development.
Moreover, a strategic alliance may turn actual or potential competitors into partners working toward a common goal. For many global and international companies and firms, Use of strategic alliances is become a more and more common useful tool for expanding the reach of goals and purposes without committing yourself to expensive internal expansions beyond your core business. Usually, the businesses use strategic alliances in order to achieve the value and growth that will bring some profits from the global market. There is a list goals for international business that have investigated and concluded including achieve advantages of scale, scope and speed increase market penetration enhance competitiveness in domestic and global markets, enhance product development, develop new business opportunities through new products and services, expand market development, increase exports, diversify, create new businesses and reduce costs(Varadarajan, 1995). Because of these tempt benefits brought by the strategic alliance, it has expanded dramatically over decades among diverse business or industry, and their use will continue to increase as we enter the 21st century.
Therefore, in this paper, we take two common examples about the activities of the international strategic alliance to understand how to manage this practice in today`s global market. Then, some suggestions discribed and analysied that should be helpful to set up a competitive international strategic alliance.
2 Two examples for International Strategies Alliances
2.1 Renault Group in India
The Renault reputation in the carmakers was began with very early. In 1899, Renault launched the first production sedan car as well as patenting the first turbocharger. Today, Renault turns into the number one private manufacturer in France and becomes the world's top 100 automobile manufacturer with the Nissan, Ford and Benzi. In 2005, the firm announced the decision of entrying into the indian market, and design a brand of Logan. Including India, the Logan will be produced in six countries: Romania since 2004, Russia, Morocco and Colombia in 2005, and Iran from 2006., India, with a population of more than 1 billion, has experienced strong economic growth, exceeding 8% in 2004. The automobile market progressed by 68% between 1998 and 2003, reaching 1,040,000 vehicles in 2004 with a marked preference for small and medium segment cars.
Recently, Renault has decided to increase its presence in Indian car market by building together with Nissan a shared plant in Chennai (former Madras). This new vehicle production site could become one of India’s biggest, with installed capacity set at 400,000 units/year. Renault will provide its engineering skills and industrial expertise and Nissan its technological expertise. The new products built by Renault at the Chennai plant will be sold under the Mahindra-Renault brand through the Mahindra & Mahindra distribution network.
Over the years, theRenault-M&M Jonit Venture is proved to be an powerful economy group, common sedan in Indian automobile market. The strategic alliance is also considered to be a successful example to the international alliance management. The new joint venture plant, an extension of the existing partnership between both the partners, is a win-win for both M&M and Renault. With a flexible assembly line that is shared, for Mahindra, the alliance plant will provide additional production capacity for manufacturing some of its new vehicles. Moreover, the added advantage for M&M is that these critical components will also be available for use in its vehicles. The alliance with Renault will be an added advantage for M&M since the French carmaker's strengths in both the petrol and diesel engines are well known and could prove to be crucial for fitting Mahindra vehicles with more refined engines and gearboxes, including the possibility of using these components for its proposed MPV, currently called the Ingenio, which is scheduled to be launched in 2008. Meanwhile, the India also could tap on the technological leadership that Renault has in design, prototyping and manufacturing processes. For Renault, the alliance with M&M offers its French partner the ability to keep procurement and manufacturing costs low, foreign market expanding, more value gained from global market and compettive advantages in international business.
Mr Ghosn, President and CEO of Renault, said that one of the performance targets for Renault, in addition to its much talked about 6 percent operating profit margin, is the need to sell an additional 800,000 cars in 2009 as compared to 2005. He expects a big part of that to come from India. Mr Anand Mahindra, Vice-Chairman and Managing Director of M&M, said that there is no irrational romance in the relationship between the two partners and that they are "not under the impression that they will go walking hand in hand into the horizon". "We have come together with the agenda of leveraging each other's strengths for gaining purchasing and joint manufacturing synergies," he said.
So in a word, the alliance have the pracitcal influence to the each other within the alliance. From the example of Renault, it is clear that this joint venture is rooted in reality and bring the real value to both partner.
2.2 Toyota alliance with PSA Peugeot Citro?n
Toyota Motor Corp. the main japanese automobile manufacturer even the world in automobile industry, said it signed a $1.28 billion joint-venture agreement with French carmaker PSA Peugeot Citro?n to jointly develop and produce small cars for the European market. This new plant set up under the 50-50 joint venture should have a capacity of 300,000 one year(Kakuro, 2007). Toyota President Fujio Cho and Peugeot CEO Jean-Martin Folz signed the agreement in Brussels. Folz said "This kind of partnership between independent carmakers is the right way to meet the challenges of global markets and customers' changing demand, cooperating on the venture will bring savings in the hundreds of millions of dollars to the two companies”.
According to their agreement, PSA Peugeot Citro?n and Toyota joined forces to design, develop and produce the attractive compact cars, which are equipped with the most advanced technologies, to complement the growing demand in Europe car market. Put on display in Geneva on the eve of the Geneva Motor Show, the Peugeot 107, Toyota Aygoand Citro?n C1are modern, four-passenger compact cars that are stylish and especially maneuverable in cities(Tommaso, 2005). They design styles that reflect each a personality, however, they share a large number of structural components and parts. Outfitted with the latest-generation engines and transmissions, they also deliver outstanding handling and responsiveness.
Toyota's action in this agreement is a step of growing value among Japanese automakers to expand their products in the European market by localizing production and putting the focus on small cars. As a result, the subcompact cars will be cheaper than the current smallest models(Tommaso, 2005). Through the development of these years, Folz expressed recently that he is confident about that this venture would secure clearance from European competition regulators, and our different approaches have benefited our joint venture enormously”
Over the years of cooperation between these two large carmakers, it is proved that this win-win alliance is a successful showcase of industrial cooperation in the global market.”
2.3 Compare between above examples
Compared with the above examples of competitive strategic alliance, there are some lessens learned from these two automobile manufacturers.
First, same goals and value. These alliance companies have the belief that some competitive alliance actitivies in global market could gain more value and benefit for both partners. Thus, many companies now are busy to find the cooperation parnters in the global market, and sign the possible alliance contract. The most important motivation is partly for temptation of global market brought by the international alliances.
Secondly, maintain stability and durability. According to the development of the two alliance since the signature, these companies have gained a common stability and durability at present whatever in local and global market. For example, the Toyota and PSA Peugeot Citro?n industry are very confident of the future Europe automobile market because of the new design car fitting to demands of the Europe customers. It is could be considered that the new special design and market analysis and position are very important for the alliance company to maintain their durable and long coopration.
Thirdly, The role of cultural differences is also believed to be a sigificant influence factor while setting up the alliance management strategy. From the example of Renault, it is obvious that the culture have play a important role in their design styles, prototyping, manufacturing processes and management strategies. Analysing the features of Indian car market and labor market, Renault have developed a new car model named Logan, this car also sale in other six countries.
Finally, performance would be a very diverse topic in the strategy of alliance development. Different cooperation could employ different method according to the real fact about the both parnters. Therefore, there is not a common advice to how to manage or develop the alliances. But there are hence some same purposes and goals that all the alliance companies must be conscious before signing the alliance agreement.
3 How to set up a Competitive International Strategic Alliance
Strategic alliance partly could be considered an alternative to exporting, a company can go to a oversea market through forging them with some foreign counterpart. The alliance reduce transportation costs and duplications in product distribution networks. At the same time, strategic alliance decreases competition between the firms so that it devotes the production a smaller outputs and higher prices. Generally speaking, the degrees of lessening on the competition lean upon the firms' ability to output levels(Ring, 1994). In the case where the firms can credibly commit to output levels, the alliance effectively becomes a cartel, restoring prices to the monopoly level. On the other hand, if such commitment is not credible or not possible, prices will be lower than the monopoly level but will still be higher than that if firms had exported to each other's market directly. The welfare effects of the strategic alliance are in general ambiguous. Therefore, some advice must to be rethink about before starting a new strategic alliance.
For an international firm, once it makes decision to forge a strategic alliance, it is suggested that you need firstly to establish what the elements are that you are finding for in this alliance. Drawing a business plan of what you want to achieve will go a long way to forming a relationship that works. If you don't have some potential partners identified, this basic business plan will tell you exactly what you need. Develop partners choosing criteria. These criteria should clearly defined business objectives and personal factors that are important to your firms and interests. Typical business objectives could be anything from production capacity to technological details. However, the personal factors are more intangible and hard to measure, it is maybe about what really makes or breaks the alliance. Some detail criteria you should consider are corporate culture, personal, hidden agendas, and internal commitment. Using these criteria, business organizations, professional service providers and other parallel businesses find appropriate candidates. Don't limit yourself initially unless you already are in an informal relationship with a reliable potential partner that you are seeking to solidify. Even then, alternative choices give you comparative information that may be important to consider. Gather as much information about each potential partner as is possible. From this, you can narrow the field to those that seem to be possible fits. Rank the candidates informally based on how well they meet your search criteria.
Next it is the time to start actively exploring a potential alliance with your top choosed candidates. With the established criteria and business plan before, you have a strong basis for initiating the negotiation of strategic alliance. However, as in any partnership, compromises are going to be necessary. Make certain you have realized what the critical factors are and which choosed pernters would be nice. Because of the complexity of the relationship this may be a point at which you want to get a third party involved. No matter how informal the agreement, however, a written contract is critical. In the contract, you could describe related details of alliance directly with the other company, but do have an attorney review the agreement before signing the document. For businesses seeking more complex agreement there are numerous firms that specialize in arranging strategic alliances. The Association of Strategic Alliance Professionals is a non-profit organization dedicated to providing management resources, sharing best practices, and supporting the professional development of those involved in strategic alliances. They provide information about strategic alliances and links to members who are professionals in arranging alliances. Usually these agency could offer a understanding and operational competitive strategic alliance advice.
Although strategic alliances could provide business and both partners with various benefits, there are also some risks to be considered and cautions to be exercised as a firm enters a strategic alliance. Usually, some special concerns must be faced by firms entering international strategic alliances, especially if a joint venture is involved. The following are some practical advice and consideration that should be focused.
Intellectual property rights (IPR). IPR includes technology transfer as well as patent, trademark, and copyright protection. IPR rights are often transferred or shared in the context of an international joint venture. Yet, this can be a particularly risky area for a U.S. partner, because U.S. IPR laws are far more protective than is the case with respect to IPR laws in other countries. Host-country laws may allow IPR rights to lapse more quickly than is true under U.S. law(Das, 2005). Also, lax enforcement of IPR laws in host countries may lead to problems. This is an area in which the advice of legal counsel and careful drafting of documents are crucial.
Finance analysis. There are at least three concerns should be discussed with respect to currency and exchange rates. First, exchange rates may fluctuate dramatically. It is mean that the currency used in payments between companies from two countries must be addressed. Second, the potential for inflation must be considered. The inflation usually influence every business in the world. So it is suggested that a reliable or trusty economical trends analysis on the target martket must be collected. Third, interest rates could be affected by financial instability. the potential for varying rates of inflation in the two (or more) countries involved, and sources of loans are important considerations when an international strategic alliance is created.
Political instability. For example, Instability in Yugoslavia in 1999 means that the companies of in Yugoslavia are not likely to be selected as potential partners for strategic alliances(Bennett, 2000). Similarly, concerns about the need for democratic reform causes businesses to proceed carefully when investing in the People's Republic of China(Ohmae,1998). That is one of the reasons why U.S. businesses are encouraging the Clinton administration to support the admission of China to the World Trade Organization.
In today`s more and more global international market, strategic alliances have become increasingly popular in every international business. Many firms all compose the determination that strategic alliances provide both companies with a lot of benefits including access to markets, sharing of risks and expenses, synergistic effects of shared knowledge and expertise, and competitive advantages in the marketplace, in despite of some risks which would involve in the development of strategic alliance. The firms that choose alliance with partners in other country usually compose the common purposes and logical operation. Form the two example about the alliance case in the world car business, it is proved that these companies in the examples have the purpose of manketing expanding and entring into the global market through the action of alliance. Given there are some performance is different between the two examples, but whatever, if the company could achieve their primary goals and value, it could be considered as a successful caseshow of strategic alliance.
Finally, the overall suggestion is that “look before you make the decision to start a strategic alliance.” Hopefully, the advice in this paper mentioned above would offer you some useful and operational ideas.
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