Strategic Alliances

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From the course by University of Illinois at Urbana-Champaign

Global Strategy II: Doing Business in The Global Economy

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University of Illinois at Urbana-Champaign

Global Strategy II: Doing Business in The Global Economy

43 ratings

Course 4 of 7 in the Specialization Global Challenges in Business

This course explores the ways firms overcome challenges when operating globally. The global economy is characterized for its high complexity and uncertainty. Corporations trying to succeed in the global economy need to develop different types of strategies depending on where they are conducting business or what type business they are in. Students taking this course will learn how to determine the best strategy to follow when expanding globally, the advantages and disadvantages of those strategies, and the appropriate responses to external pressures. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

From the lesson

Module 3: Entry Strategies of Multinational Corporations

When entering foreign markets, multinational corporations have different options from which to choose. They are determined by the factors studied in the OLI and CAGE frameworks as well as the strategies chosen based on the cost reduction and differentiation pressures. This section studies how to evaluate which way to enter a foreign market, and the associated advantages and disadvantages.

Strategic Alliances7:25

Meet the Instructors

Marcelo Bucheli
Associate Professor
Department of Business Administration, College of Business

[SOUND] The final

entry strategy that we're going to explore here are strategic alliances.

These are basically collaboration between firms to develop a particular business.

Each firm remains independent, no joint ownership, but

basically, share information and corporate with each other.

Strategic alliances of course many times involve forms that are not operating

exactly in the same business, but that would benefit from this collaboration.

Let's look at the American pharmaceutical firm Eli Lilly,

that created a strategic alliance with the Belgian firm,

Galapagos to develop remedies for osteoporosis.

Both of them have developing similar research, but they could

benefit from joined the results of their research to develop this kind of product.

And let's look at something even more simple, the American firm, Starbucks, with

another US firm, but that both are paired globally, United Airlines.

Starbucks agreed with United Airlines to provide the coffee for their planes,

so in this way Starbucks coffee is being distributed among people not only in

the United States, but around the world, through the flights of United Airlines.

And this is certainly not competition,

because both firms benefit from their collaboration.

A first advantage of strategical alliance is flexibility.

Again, in terms of entering, or quitting a particular market,

now, they also share fixed costs.

Again, we talked about first Starbucks on United Airlines.

Each of them, I mean, Starbucks.

Does not need to create its own airline, or

United Airlines does not need to create a brand like Starbucks.

So, in this way both of them had made the effort and, now,

the benefits are going to be good for the two of them.

As we explore joint ventures, so even merges and acquisitions.

In strategic alliances, depending on the business you are into,

there's a potential problem of sharing too much.

Sharing too many secrets, sharing a copyright.

And who's in control?

Who defines how something is going to be offered.

And you don't want to lose your quality, because

the partner in the strategic alliance has another business model around.

I mean, if you have gained a reputation and a competitive advantage on quality,

you don't want the partner to destroy, or decrease this quality.

So, even though each member is separate,

there's still the risk of potential culture clashes of potential

stealing of secrets, or the potential of lack of control over quality.

Let's take an example of a strategic alliance that,

in spite of its promises, things didn't go that well.

The one that took place in the year 2009, between the German car manufacturing,

Volkswagen, and the Japanese manufacturer, Suzuki.

The point was the following.

Volkswagen was going to provide Suzuki with technology,

and Suzuki was going to open the market for Volkswagen in Asia.

Therefore, it sounded like a very good deal for both firms.

Now, this arrangement collapsed in the year of 2011.

And the reasons were the following ones.

Suzuki said, that Volkswagen was not really sharing as much technology

as it had promised, or else it could share.

And, well, why?

Because Volkswagen, at the same time,

did not want to share technology with a potential competitor.

Strategic alliance between Suzuki and Volkswagen collapsed in the year of 2011.

The reason was that Suzuki said, Volkswagen wasn't really sharing

the technology on particularly on hybrid cars that Suzuki needed.

And, again, this goes back to the point that we were mentioning before,

how much do you trust your partner, and how much are you willing to share secrets.

Probably some people at Volkswagen was scared about creating a competitor.

At the same time Volkswagen complained about Suzuki in terms of

the entry of the Asian market, because Volkswagen said,

Suzuki was actually helping Fiat the other car manufacturer originating in Italy

as the one actually benefiting from Suzuki in the Asian markets and not Volkswagen.

So, Volkswagen felt left behind, and basically not

benefiting from this alliance and in the end, both went apart,

but, again, since cities have strategic alliance it's easier just say,

this is not working, I'm going my way than would be in adventure,

or a major acquisition as we explore it earlier.

What we did in this module was to explore the different entry strategies

a multinational corporation can follow in order to enter foreign markets.

We started with the most indirect one like exports.

Then we went to licensing and franchising,

which still do not necessarily involve going into the other country.

Then we talked about joint ventures,

in which you go into the other country with a local partner.

And then the wholly owned subsidiary that you can

set up from scratch through Greenfield Investment.

Or you can conduct by acquiring somebody else through mergers and acquisitions.

Or we can have strategic alliances with other firms to operate globally.

As we see,

there are no clear formulas about which one is better than the other one.

It depends on the industry, it depends on whether you're manufacturing something, or

offering a particular service, like coffee houses, or restaurants, or

whether your competitive advantage relies a lot on research and development,

and therefore on patents, and copyrights that you don't want to share.

The point here was that these are the potential ways to enter different markets.

And all of theses are framed by the larger development of the world economy.

And word politics, and we need to connect these entry strategies with the previous

analyses that a firm should conduct around the ownership location, and

internalization advantages, or a previously conducted cage analysis.

[MUSIC]

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