សាកលវិទ្យាល័យភូមិន្ទភ្នំេពញ

International Business Management

Subject: Multinational Corporation Management

Chapter 9:
International Strategic
Alliances:
Design and Management
Group A:
Pheap Sipha
Phen Sreypheak
● Lecturer: SAM Chamreun
Veng Neary
● IBM: M4 Mao Yayi
● YEAR 4 (Semester 2) Em Sreynuth
● Know the steps for implementing successful international strategic
alliances.
● Describe how multinational companies link value chains in
international strategic alliances.
● Understand the importance of choosing the right partners for
alliances.
● Know the important characteristics to look for in potential alliance
partners.
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● Distinguish between equity-based international joint ventures and
other types of international cooperative alliances.
● Know the basic components of an international strategic alliance
contract.
● Understand the control systems and management structures used
in alliance organizations.
● Appreciate the unique problems in human resource management
faced by managers in alliance organization
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● Realize the importance of interfirm commitment and trust for building
successful international strategic alliances.
● Understand how multinational companies assess the performance
of their international strategic alliances.
● Know when companies should dissolve or continue their alliances.

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 What is International Strategic Alliance?

International Strategic Alliance is typically defined as

a collaborative arrangement between firms
headquartered in different countries. Partnering firms
remain legally independent after the formation of
alliance and the alliance relationship is relatively
enduring.
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Where to Link in the Value Chain?
Many benefits of a strategic alliance include:
● Gaining access to a local partner’s knowledge of the market
● Meeting government requirements
● Sharing risks, sharing technology
● Gaining economies of scale
● Accessing lower-cost raw materials or labor.

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Choosing a Partner:
The Most Important Choice?
The next Case in Point shows some of the difficulties that can occur when a
company makes mistakes in partner selection. Experts identify several key
criteria for picking an appropriate alliance partner:
1. Seek strategic complementarity:
2. Pick a partner with complementary skills:
3. Seek out companies with compatible management styles:
4. Seek a partner that will provide the right level of mutual dependency:
5. Avoid the so-called anchor partner: Anchor partners
6. Be cautious of the elephant-and-ant complex:
7. Assess operating policy differences with potential partners:
8. Assess the difficulty of cross-cultural communication with a likely partner:
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Choosing an Alliance Type

There are three main types of strategic alliances informal

international cooperative alliances, formal international cooperative
alliances (ICAs), and international joint ventures (IJVs).

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Informal and Formal International Cooperative Alliances

● Informal international cooperative alliance An agreement between

companies to cooperate on any value chain activity that is not legally
binding.
● The formal international cooperative alliance (ICA) calls for a high
degree of involvement among partners.

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● To achieve a strategic gain that a single company cannot attain by
itself, companies must usually share some knowledge, skill, or
specialized resources through a formal ICA.
● In addition, in combination with the obligations specified in the
contract, the sharing of proprietary knowledge makes backing out of
a formal alliance more difficult than it is for alliances with informal
agreements.

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● International Joint Ventures (IJV) 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:

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Negotiating the Agreement

● For an IJV or a formal ICA, contractual agreements have to be negotiated

and signed.
● In general, experts recommend that negotiation teams with technical and
negotiation experience handle an alliance agreement.
● Once a firm has a partner and an agreement, it must build the organization
to run the alliance, a process that includes organizational design and human
resource management issues.
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 Building the Organization:
Organizational Design in Strategic Alliances
In this section, we consider two key issues in managing an alliance organization:
Decision-Making Control and Management Structure.

Decision-Making Control:
● Operational Decision Making: Operational decisions include management
decisions associated with the day-to m- day running of the organizations, such as
the size of production runs and the hiring of assembly line workers.
● Strategic Decision Making: Strategic decisions focus on issues that are important
to the long-term survival of the alliance organization, such as opening a new plant
and introducing a new product.
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 Building the Organization:
Organizational Design in Strategic Alliances

Management Structure
Multinational companies typically use Five management
a control structures
for their ICAs or IJVs.
.
● Dominant Parent
● Shared Management
● Split Control
● Independent Management
● Rotating Management

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Commitment and Trust:
The Soft Side of Alliance Management

The importance of commitment and Trust:

● Commitment in a strategic alliance: means taking care of each

other and putting forth extra effort to make the venture work.

● Attitudinal commitment: means that partners are committed and

willing to dedicate resources and effort and to face risks to make

the venture work.

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Commitment and Trust:
The Soft Side of Alliance Management

Building and Sustaining Trust and Commitment:

● Pick your partner carefully
● Know your strategic goals and those of your partners
● Seek win-win situations
● Go slowly
● Invest in cross-cultural training
● Invest in direct communication
● Find the right level of trust and commitment

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 Assessing the Performance of an
International Strategic Alliance
● If strategic intent is to produce immediate results, standard

financial and efficiency measures can be used.

● Other strategic alliance provide indirect strategic benefits.

● IJV and ICA performance criteria: often must include criteria

other than financial, such as organizational learning.

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Exhibit 9.9 shows a list of
potential performance
measures that parent
companies use to evaluate
their strategic alliances.

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 If the Alliance Does Not Work

● Negotiate an end or improve implementation

● Know when to quit/invest more
● Avoid “escalation of commitment”
○ Companies continue in an alliance longer than necessary
because of financial and emotional investments.
● Plan end—“prenuptial agreements”
● Death not always failure
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Learning to Partner:
Building a Dedicated Strategic Alliance Unit
and Key Lessons from Cross-Border Alliances

● Alliances are so common in today’s global business

environment—the Global 500 companies average 60
each—that companies are developing specialized units
to manage their design.
● Experienced multinational companies that have had
many alliances are taking the experience of what has
worked and what has failed and developing
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templates of successful practices.
 Dedicated Strategic Alliance Unit

● Provide processes and procedures that help managers

identify the need for an alliance
● Evaluate partners
● Negotiate agreements
● Structure the alliance organizations
● Develop specific performance indicators

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 Key Lessons from Cross-Border
Alliances
● Understand and appreciate business and cultural
differences
● Keep strong executive support
● Communicate
● Negotiate logic before control
● Commitment, trust and dedication
● Have “checkpoint” as the alliance is being implemented
● Review alliance’s viability
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