STRATEGIC ALLIANCES

The Benefits and Risks for an Organization of Employing Strategic Alliances to Expand Into New Markets



Table of Contents

Introduction3

Driving Forces behind Strategic Alliances3

Strategic Alliances in the Automotive Industry5

Case 1: Ford and Mazda7

Ford's Metamorphosis8

Case 2: General Motors and Toyota10

Case 3: General Motors and Daewoo12

Implications of the Case Studies13

Conclusion14

References15

The Benefits and Risks for an Organization of Employing Strategic Alliances to Expand Into New Markets

Introduction

Global presence has become increasingly important to the survival of US firms (Bremner et al.? 1991). Recent statistics show that annual sales growth of multinational firms was 8.8 per cent compared with 5.5 per cent for domestic firms; multinational firms not only grew faster but were also 50 per cent more likely to survive than domestic firms (Taylor? 1991). The past decade has been an era of global evolution. Concurrent to the increase in global competition was the increase in the number of strategic alliances formed among rival firms in the same industry. The form of strategic alliances ranges from mergers? acquisitions and joint ventures to non-equity co-operative strategies like technological licensing or marketing agreements.

Driving Forces behind Strategic Alliances

Many structural changes in manufacturing industries have become the driving forces for strategic alliances; for as growth slows? as markets shrink or become crowded? and as technological change accelerates to speeds where individual firms cannot recover initial investments? strategic alliances are used to share costs and risks? and to penetrate new markets? e.g. Japanese pharmaceutical companies want to expand overseas since the Japanese market is not large enough to recover the heavy expenditures in research and development. American companies want to penetrate into Japan because it is the second largest pharmaceutical market in the world? accounting for $13 billion of business. Thus? joint ventures like that of Takeda and Abbott were formed (Wimpfheimer? 1986).

Other approaches to coping with this change have included pre-empting rivals from entering a market? e.g. Boeing collaborated with a Japanese consortium because the aircraft industry is a low-volume industry with only 280 units in annual production? and it was necessary to establish itself in the Japanese market before its competitors could do so (Bacher? 1986). Further? firms have tried to gain strategic access to distribution channels or resources? e.g. Merck acquired Banyu to gain access to a complicated distribution network in Japan's pharmaceutical market (Bremner et al.? 1991).

Global competition requires a simultaneous need for global-scale efficiencies? worldwide learning and local responsiveness. A single firm is unlikely to possess all the resources and strategic capabilities to achieve global competitiveness. Thus? strategic alliances are formed to acquire the desired strategic capabilities more rapidly (Nohria and Garcia-Pont? 1991). However? weakness in corporate culture cannot be compensated for by strategic alliances. This is because corporate culture is a heritage from one generation of managers to the next? as people are promoted they tend to use the same strategies used by their mentors. Corporate culture is the outcome of lengthy organizational learning and is extremely difficult to change. In short? strategic alliances should not be used to compensate for cultural weaknesses? ...