Strategic Alliances
OVERVIEW ON STRATEGIC ALLIANCES – 1.16
Strategic alliances are voluntary agreements between firms involving exchange, sharing, or co-developing of products, technologies, or services and important sources of resource-sharing, learning and competitive advantage. In the past years, there has been a dramatic increase in domestic and cross-border alliances by multinational firms, not only to have access to new markets but also to to stay current on all technologies, resources and competencies needed to compete in certain markets. Furthemore, alliances have also other advantages, some of them quite obvious like economies of scales because of the production increase or the resource complementary, and others less obvious such as the risk sharing, though a joint financial effort. however, alliances have also many drawbacks, such as the lack of control or the benefit of a potential competitor though the sharing of valuable resources, or the clashes between compenies with different strategies, cultures or organizations. As we will soon explain, each drowback has a negative effect on alliance performance and future and could eventually lead to the alliance failure.
It is necessary however, to understand what is a failure. And this will be explained by Francesca.
RESOURCE BASED VIEW .16
The Resource-based View (RBW) is a well-known theory that provides a framework for explaining a firm’s competitive advantage and performance. It helps understand what kind of resources the company needs to compete in a certain business and which are critical for a sustainable competitive advantage. Wittman shows how the amount and the kind of resources shared by partners have a direct effect on alliance performance and success. In particular, if such resources are not useful, they will be still counted in the alliance reward’s distribution and it will end in fights among partners and ultimately in alliance failure. On the other hand, if such resources are considered useful (so, for example, they are complementary resources or idiosyncratic resources, which are build ad-hoc by all partners) they will have a positive effect on alliance performance and success, because they encourage partners to work together and produce a positive output.
The next theory we analysed is the transaction costs theory, which will be explained by Francesca.
RESEARCH & NEGOTIATION
The second phase is called research and negotiations and is divided into different stages, from deciding whether to grow through alliances or M&A, to the partner selection and agreement’s drafting. The most critical phase is considered the partner selection and at the same time one of the main cause of failure. Generally, partners should not be direct competitors, and have just compatible and not the same goals, otherwise they will compete rather than cooperate and opportunistic behaviour will arise. There are different ways to identify and select the partners, and each of them relies on the fits model, which we will soon explain in more detail.
During this stage, it is also necessary to decide how many partners should the alliance have. In particular, research shows that bigger alliances (for example networks) are more likely to fail, because the number of partners is positively correlated to to coordination and monitoring costs, as well as alliance’s complexity.
Following this, partners need to draft together the alliance agreement, which importance is crucial because it will guide the joint venture behaviour of both partners and alliance managers. Many failure causes have been identified, some of them refers to general and not-focused objectives, others to an performance measurement system, which should not be focus only on financial performance, but also alliance’s progress.
EXIT
Alliance by their nature, are temporary agreements with certain objectives. Once those goals have been reached, the arrangement may simply end. However, in this paper, as previously stated, we analyse those alliance which have been terminated before their objectives have been reached. Besides, the opportunistic behaviours previously mentioned, others could lead to alliance failure. For example, the adverse selection which is when a company promises resources or competences that are not own, or hold-up, when a company demands rewards that are higher than previously agreed and threats the partner to leave the alliance and finally the hiding of important information, in particular during the initial phase, which have a negative effect on alliance survival.
FITS
After that, we analysed the fits model which is a critical factor in the partner selection process. We dedicate a whole paragraph in our research paper to this model because it is our opinion that most of the alliance failure reasons could be lead to these 3 fits.
STRATEGIC FIT
The first fit is called strategic fit. “Strategic match exists when the partners’ interest in a specific area overlap, and when each controls part of the resources needed to pursue the shared goals”
The focus in this definition is put on shared resources and overlapping interests. As already stated, partners are interested in alliances to gain, to have access to new resources, which are different to theirs. The more complementary the partners and their resources are, the more successful is their alliance. At the same time, the partners objectives do not have to be same, move from being partners to competitors, causing alliance failure. There are others factors that refers to the strategic fit, for example the relevance of such objectives, or the numbers of alternative partners and as explained the paper, they all have an impact on alliance performance.