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The Global Logic Of Strategic Aliiances Essay, Research Paper
The topic under review is strategic alliances. This particular form of non-equity alliance between firms in the same industry (competitors) is becoming an increasingly popular way of conducting business in the global environment. Many different reasons of why such alliances are occurring have been recognised. These include: the increasing globalisation of the world’s economy resulting in intensified global competition, the proliferation and dispersment of technology, and the shortening of product life-cycles. This critique will use Kenichi Ohmae’s viewpoint on strategic alliances as a benchmark for comparison. Firstly, a summary of Ohmae’s article will be provided. Secondly, in order to critique Ohmae’s opinion, it will be necessary to review other literature on the topic. Thirdly, a discussion of the various viewpoints and studies, that have hence arisen, will be discussed in detail. Finally, conclusions will be drawn with implications for companies operating in today’s global environment, together with suggestions for future research on strategic alliances.
THE GLOBAL LOGIC OF STRATEGIC ALLIANCES
The underlying argument or reasoning behind Ohmae’s opinion that strategic alliances, or entente, are the only way forward for all companies competing globally. “Globalisation mandates alliances, makes them absolutely necessary.” (Ohmae, 1989). The author has supported this viewpoint, that globalisation makes strategic alliances necessary as vehicles for customer-orientated value, with four issues facing today’s companies: 1. The Californization of Need; 2. The Dispersion of Technology; 3. The Importance of Fixed Costs, 4. Dangers of Equity.
The first issue, described by Ohmae as the Californization of Need, refers to the convergence of customer needs and preferences and the fact that the national identity of many high-quality products has virtually disappeared. Secondly, companies can no longer maintain a leadership position based solely on superior, advanced technology. This results because of the increasing number of critical technologies embedded in the majority of products, therefore, no one can keep the technology out of the hands of competitors around the globe. Thirdly, Ohmae emphasises the importance of fixed costs. He believes that companies can no longer compete by keeping their variable costs lower than their competitors. The majority of costs incurred by companies these days are fixed costs, therefore, what matters is maximising marginal contribution from fixed costs and a logical way to do this through forming strategic alliances. The final issue Ohmae identifies is dangers of equity. Today’s business environment is full of imperfect options and control of a company does not necessarily translate into success. This points to strategic alliances as being a fast, less risky and profitable way to enter the global arena.
Ohmae finishes his article with the “logic of entente”. In this section there are two main points: the shift from return on investment to return on sales and likening strategic alliances to a marriage. The author believes that the shift in thinking to focus on return on sales is a must in order for strategic alliances to be successful and their benefits realised. A strategic alliance, just like a marriage, often has no formal contract, only guidelines and expectations. However, if partners do not have mutual guidelines and expectations, nor work on an evolving relationship, then the alliance will end in divorce.
The author highlights the fact that not one scholar focuses on the study of inter-company relationships. Ohmae believes that, given the importance of joint ventures and strategic alliances in today’s competitive global environment, this is an area where future research is required about what makes successful corporate relationships.
During the 1980s and 1990s, there has been numerous writing on the topic of strategic alliances, strategic technology partnering and corporate co-operation. The subjects range from why strategic alliances occur (Johansson (1995) Murray and Mahon (1993) Hagedoorn (1993)) to determinants of successful/effective strategic alliances (Shamdasani and Sheth (1994) Bucklin and Sengupta (1993) McArthur and Schill (1995)). From organisational learning and strategic alliances (Osland and Yaprak (1994) Crossan and Inkpen (1995)), to the impact that strategic groups have on the partnering of a company (Duysters and Hagedoorn (1995) Hagedoorn (1995)). Literature discussing issues related to strategic alliances can be grouped into ‘theoretical’ articles and empirical studies.
Johansson (1995) and Murray and Mahon (1993) discuss issues as to why strategic alliances occur. Johansson (1995) describes international strategic alliances and the reason why three types of international strategic alliances occur: distribution alliances, manufacturing alliances, and R&D tie-ups. Johansson posits that if international strategic alliances are so beneficial, why did they not emerge earlier? In answering this, he offers two propositions: firstly that international strategic alliances in R&D occur because protect technological know-how is a thing of the past. Secondly, strategic alliances occur to leverage scarce resources when firms need to be in multiple markets to compete effectively.
Murray and Mahon (1993) attempt to fill a gap in strategic alliance literature in the context of the changes and uncertainties that companies’ face with a united Europe. The authors developed a working definition and a life cycle of strategic alliances, identified three major motives and origins for strategic alliances, together with strategic alliance dos and don’ts.
Osland & Yaprak’s (1994) article expands the view of marketing to incorporate understanding and development of strategic alliances and issues in managing strategic alliances over time. The authors posit that organisational learning has become imperative for global strategic effectiveness in the 1990s because it has been increasingly difficult for firms to individually develop the sufficient levels of knowledge to successfully compete. Strategic alliances provide the means of learning through inter-firm relationships.
Hagedoorn, both individually and with partners, has undertaken several empirical studies throughout the 1980s and 1990s on strategic alliances, or strategic technology partnering. In 1993 Hagedoorn attempted to understand the rationale of, or motives for, strategic technology partnering through empirical analysis of over 4000 strategic technology alliances, formed in the 1980s, in a number of industries. Although a large number of motives were identified, the results showed that there were two basic categories: market related and technology related. Eighty per cent of the strategic technology alliances that were studied can verify the author’s hypothesis of a positive relationship between research orientation of the alliances and the research intensity of the sectors.
The study conducted by Duysters and Hagedoorn (1995) attempted to explain whether strategic partnering density (in international high-tech industries) within strategic groups is lower than external strategic group partnering density. Their results were inconclusive, showing that both types of strategic partnering occurred. Another study by Hagedoorn (1995) explored the extent to which strategic technology alliances establish stable networks of co-operative firms and whether market share leading firms also participate disproportionately in strategic technology alliances. One of the main findings of the study was that large international companies do play a leading role in strategic technology collaboration. Hagedoorn also found a general pattern of flexibility and gradual changes with in the moderately stable structures of networks of strategic technology co-operation. Hagedoorn and Shakenraad (1994) when they attempted to show the effect of strategic technology alliances on company performance also produced inconclusive results.
Many other empirical studies on different aspects of strategic alliances have been conducted. Shamdasani and Sheth (1994) conducted an experimental role-playing study to examine strategic and behavioural issues in satisfaction and continuity of marketing alliances. The findings of their study confirmed the importance of commitment, compatibility and competence in measuring satisfaction of strategic alliances and that satisfaction is positively related to continuity.
Bucklin and Sengupta (1993) collected data from 98 alliances to show that gains in effectiveness of strategic alliances can be obtained by decreasing power and managerial imbalances, careful project selection and matching of partners. Their study also found that strategic alliances tend to be more successful in turbulent, often global, environments or high-tech industries.
McArthur and Schill (1995) undertook a study on how international co-operative technology arrangements had a two-fold perspective: technology is a strategic resource to be managed and alliances used to improve the strategic impact of technology on a firm’s competitive position. From their research, the authors developed several dimensions that are necessary for strategic success; strategic objectives and purpose, strategic process, structure and content of scope of co-operation, mode of linkages, strategically successful international technology.
Like Osland and Yaprak’s (1994) article, Crossan and Inkpen (1995) also wrote on the effects of organisational learning on strategic alliances. The authors conducted more than 70 interviews with managers in 40 collaborations between Japanese and North American firms to show that learning through strategic alliances is a must for firms because of the difficulty to remain independent in the international business environment. The results of the research suggested that there are three impediments to alliance survival: situations where partner skills are too similar or too different; the mindset of North Americans to favour the ‘home-run’ over incremental learning projects; and the desire to equate learning with performance.
Finally, Frear and Metcalf (1995) conducted an in-depth study on a single supplier within two technology driven networks. However, the authors produce general implications from the research: if presently in an established alliance, protect that position; look outside of existing networks for new-forming alliances; seek partners with complementary technology skills or marketing capabilities; invest in enhancing beyond state-of-the-art; and take a risk averse position.
The literature review has highlighted several issues for discussion: agreement between the literature, criticisms of Ohmae, lack of a theoretical framework. Firstly, in accordance with Ohmae’s opinion, all of the articles reviewed recognise that it is better not to go it alone in today’s dynamic, competitive global environment. Some of the authors have referenced Ohmae: Johanssson (1995), Shamdasani and Sheth (1994), Frear and Metcalf (1995) and Osland and Yaprak (1994). Many reasons for the desirability of strategic alliances have been noted throughout the literature. However, the one reason that was the most widely used throughout, and included in all of the literature reviewed, was the dispersion of technology and that strategic alliances had most success, or were most frequent in high-tech industries.
Secondly, despite this agreement, several major criticisms of Ohmae’s (1989) article have emerged. These are the article is dated, a one-sided argument, lacking any academic references and empirical support. Ohmae wrote this article in 1989, ten years ago. Since then, several major events have occurred in the international environment that have affected the success of strategic alliances that were formed before these events. Firstly, the Soviet Bloc has completely broken up causing immense political instability in the area, Europe is a fully unified market about to introduce a single currency, and the future of the Asian ‘tigers’ is uncertain. Added to this, in many industries, such as the automobile industry, agreements that began as strategic alliances have now resulted in mergers.
Ohmae’s (1989) argument is very one-sided. He only talks of the reasons why globalisation is making strategic alliances a logical way of doing business in the international economy, in other words, motives for strategic alliances. Ohmae has written very persuasively how these motives mandate strategic alliances by using examples and a role-play. The author has emphasised his opinion of the necessity for strategic alliances by discussing no potential dangers or pitfalls of this form of alliance, together with the disadvantages of other techniques of alliance such as joint ventures, mergers and acquisitions. Ohmae does not balance his opinion in The Global Logic of Strategic Alliances.
Another criticism of Ohmae’s (1989) article is that he does not support his argument with any academic references or empirical data. As is true of any academic opinion, the credibility of Ohmae’s article would be greatly increased if evidence of other literature that generally agrees with some of the issues that he raised were included in his article. Given the amount of literature that has been written on the topic of strategic alliances, this would not have been a difficult task. Even if no other references were included, empirical data would have contributed toward increasing the credibility of Ohmae’s opinion. However, the author does mention that the next step for future research would be to support his opinion with empirical studies on inter-company relationships. Since Ohmae’s article was written there have been numerous empirical studies published, especially by Hagedoorn. Crossan and Inkpen (1995) and Shamdasini and Sheth (1994) conducted behavioural experiments/interviews on strategic alliances.
The final point for discussion is that despite the increasing popularity, wide range and huge amount of literature that has been written on the topic of strategic alliances, no theoretical framework has yet been developed. To date, there is not even a widely accepted definition of strategic alliances, whether forms such as joint ventures should be included or not. Johansson (1995) and Murray and Mahon (1993) both developed definitions for strategic alliances, Murray and Mahon providing a more detailed definition. It seems that the work of Murray and Mahon is the closest to a ‘framework’ on strategic alliances. The authors provide a workable definition, classify major types of strategic alliances, and determine the origins of strategic alliances (classified as either organisational objectives or environmental conditions). Also developed was a life cycle for strategic alliances and generalisations on dos and don’ts in strategic alliances.
Despite the criticisms of Ohmae’s (1989) article, from the literature reviewed, it is widely accepted that it is better to collaborate rather than compete in today’s dynamic, global business environment. However, strategic alliances are not all smooth sailing. They should be entered into when the expectations (and to an extent, the capabilities) of both partners is similar and the power and managerial skills are near equal. Added to this, each partner should receive some benefit from the strategic alliance.
On the topic of strategic alliances, there is still a lot of room for future research to develop a workable definition and theoretical framework that can be used widely across a number of different industries. This is because, although a lot of empirical studies have been conducted on strategic alliances, to date they have been on a particular subject and often focused in the high-tech sector. Murray and Mahon (1993) have provided a sound basis that could be developed into a recognised framework for strategic alliances, however the authors did not use any empirical analysis to support their framework, rather they developed it in the context of a unified Europe. It seems that in order for empirical research to be developed into a workable framework to fully understand “the logic of” strategic alliances, the underlying theories form a number of disciplines, including economics, behavioural sciences (inter-company relationships), marketing and research and development (the product development and innovation process).408
Bucklin, L. & Sengupta, S. (1993) Organising Successful Co-Marketing Alliances, Journal of Marketing 57, 32-46.
Crossan, M. & Inkpen, A. (1995) The Subtle Art of Learning through Alliances, Business Quarterly, Winter, 69-78.
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McArthur, D. & Schill, R. (1995) International Co-operative Technology Arrangements: Improving Their role in Competitive Strategy, Journal of Business research 32, 67-79.
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Shamdasani, P. & Sheth, J. (1994) An Experimental Approach to Investigating Satisfaction and Continuity in Marketing Alliances, European Journal of Marketing 29,4, 6-19.
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