Chapter 7 Implementing Strategy Strategic Alliances Small Businesses

Chapter Learning Goals Realize that much of international business is conducted through strategic alliances. 2. Understand the reasons that firms seek international business allies and the benefits they bring. 3. Become familiar with the ways that SMEs can expand through alliances with MNCs 4. Recognize the changing factors, opportunities, and threats involved in joint ventures in the Russian Federation. 1. 7 -2 Copyright © 2014 Pearson Education, Inc.

Chapter Learning Goals Focus on how emerging economy firms can implement expansion strategies 6. Understand the complexities involved in managing international joint ventures. 7. Appreciate the governmental and cultural factors that influence strategic implementation; as well as the impact of e-commerce. 5. 7 -3 Copyright © 2014 Pearson Education, Inc.

Opening Profile: From BP and Exxon: Beware the Alliance with the Bear Exxon-Mobil and OAO Rosneft: partnership of $500 billion in investments BP-Rosneft deal: BP’s shareholders blocked the deal; BP’s Moscow offices raided BP’s executive visas revoked; Deutsche Bank’s Moscow office raided investors are reluctant to invest in Russia 7 -5 Copyright © 2014 Pearson Education, Inc.

Chapter Learning Goals Understand the reasons that firms seek international business allies and the

Strategic Alliances (Cooperative Strategies) Strategi c Alliance s 7 -7 Copyright © 2014 Pearson Education, Inc. • Partnerships between two or more firms that combine financial, managerial, and technological resources and their distinctive competitive advantages to pursue mutual goals

Chapter Learning Goals Become familiar with the ways that SMEs can expand through alliances

Categories of Strategic Alliances Joint Ventures: Starbucks and Tata Global beverages Equity Strategic Alliances: Daiichi-Sankyo 51% in Ranbaxy Non-Equity Strategic Alliances: UPS and Nike Global Strategic Alliances 7 -9 Copyright © 2014 Pearson Education, Inc.

Global and Cross-Border Alliances: Motivations and Benefits To avoid import barriers, licensing requirements, and protectionist legislation To share the costs of research and development of new products and processes To reduce political risk while making inroads into a new market 7 -10 Copyright © 2014 Pearson Education, Inc.

Global and Cross-Border Alliances: Motivations and Benefits To gain access to specific markets where regulations favor domestic companies; China, Russia To gain rapid entry into a new or consolidating industry and to take advantage of synergies 7 -11 Copyright © 2014 Pearson Education, Inc.

Challenges in Implementing Global Alliances: faster and less risky route to globalization Problems with Shared ownership Differences in national cultures Integration of vastly different Conflicts in decision making and control 7 -12 Copyright © 2014 Pearson Education, Inc.

Exhibit 7 -2 7 -14 Copyright © 2014 Pearson Education, Inc.

Challenges in Implementing Global Alliances Many alliances fail or end up in takeover Choosing the right form of governance The benefits of cooperation versus the dangers of new competition 7 -14 Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

Guidelines for Successful Alliances Choose a partner with compatible strategic goals and objectives. 7 -15 Seek comple -mentary skills, products, and markets Copyright © 2014 Pearson Education, Inc. Work out how each partner will deal with proprietary knowledge or competitively sensitive information Recognize that most alliances only last a few years

Chapter Learning Goals Recognize the changing factors, opportunities, and threats involved in joint ventures

Comparative Management in Focus: JVs in Russian Federation 7 -17 Copyright © 2014 Pearson

Comparative Management in Focus: Guidelines for Establishing JVs in Russian Federation Investigate whether a joint venture is the best strategy —acquiring a Russian business may be better. Set up meeting with appropriate authorities well in advance. Be above board in paying taxes. Set up stricter controls and accountability systems. 7 -18 Copyright © 2014 Pearson Education, Inc.

Comparative Management in Focus: Guidelines for Establishing JVs in Russian Federation Make it clear your firm does not pay bribes Assign the firm’s best managers and given them enough authority Take advantage of local knowledge by hiring Russian managers Designate considerable funds for promotion and advertising to establish an image 7 -19 Copyright © 2014 Pearson Education, Inc.

Chapter Learning Goals Focus on how emerging economy firms can implement expansion strategies. 7

Strategic Implementation • Involves putting decisions about global alliances and entry strategies into action • Successful implementation requires creating a “system of fits” • Resources must be allocated • Leadership is the key 7 -21 Copyright © 2014 Pearson Education, Inc.

Strategic Implementation Mc. Donald’s Style Form paradigmbusting arrangements with suppliers. Hire locals whenever possible. 7 -22 Know a country’s Keep pricing low to build market share. culture before Profits will follow you hit the beach. when economies of scale kick in. Tweak the standard menu only slightly from place to place. Copyright © 2014 Pearson Education, Inc. Maximize autonomy.

Breaking Down Barriers for Small Business Exports National Export Initiative – January 2010 created by President Obama The number of American SMEs exporting to China; increased 776% between 1992 and 2009, but still room for growth US Export Assistance Centers Export loans for small businesses 7 -23 Copyright © 2014 Pearson Education, Inc.

Implementing a Global Outsourcing Strategy Examine your reasons for outsourcing. 7 -24 Evaluate the best outsourcin g model. Copyright © 2014 Pearson Education, Inc. Gain the cooperation of manage -ment and staff. Consult your alliance partners. Invest in the alliance.

Global Supply Chain Risks: The Japanese Disaster Supply chains have become larger and far more complex to manage After the March 2011 earthquake and tsunami in Japan disrupted supply chains Auto industry particularly hard hit Control/risk became issues 7 -26 Copyright © 2014 Pearson Education, Inc.

Exhibit 7 -3 7 -26 Copyright © 2014 Pearson Education, Inc.

Challenges in Implementing Strategies in Emerging Markets “Foreign” firms are often surprised they have trouble competing successfully with local firms Challenges: Poor infrastructure Supply chains/distribution networks Personal challenges 7 -27 Copyright © 2014 Pearson Education, Inc.

Chapter Learning Goals Understand the complexities involved in managing international joint ventures. 7 -28

Managing Performance in International Joint Ventures IJV Control Choice of Partner • Ensures that the way a joint venture is managed conforms to the parent company’s interests • Suzuki and TVS Motor in India • The strategic freedom in choosing suppliers, product lines, customers, and Orgznal. so on Design 7 -29 Copyright © 2014 Pearson Education, Inc.

Three Complementary Dimensions of IJV Control IJV General Manager Contractual links with parents Autonom

Knowledge Management in IJVs • Transfer: managing the flow of existing knowledge between parents and from the parents to the IJV. • Transformation: managing the transformation and creation of knowledge within the IJV through its independent activities • Harvest: managing the flow of transformed and newly created knowledge from the IJV back to the parents 7 -31 Copyright © 2014 Pearson Education, Inc.

Chapter Learning Goals Appreciate the governmental and cultural factors that influence strategic implementation; as

Government Influences on Strategic Implementation Profitability impacted by taxation and restrictions on repatriation Unpredictable changes in governmental regulations China’s new restrictions on foreign investors $2. 5 billion tax bill for Vodaphone in India 7 -33 Copyright © 2014 Pearson Education, Inc.

Cultural Influence on Strategic Implementation: Western ex-pats vs. Hungarian managers 7 -34 Western Hungarian Team Orientation Individual Orientation Consensual Management Style Autocratic Style Future planning mentality Survival Mentality Copyright © 2014 Pearson Education, Inc.

Dimensions of National and Corporate Culture Affecting Alliances: U. K. vs. Europe 1. Organizational 4. Systemization of 2. Participation in 5. Managerial self- 3. Attitudes toward 6. Attitudes toward formality decision making risk 7 -35 Copyright © 2014 Pearson Education, Inc. decision making reliance funding and gearing

French Managers Comment on the U. S. Americans have difficulty accepting foreign managers Americans have difficulty developing a world perspective Americans are very U. S. -oriented; the least international of all people 7 -36 Copyright © 2014 Pearson Education, Inc.

Management in Focus: Mittal’s Marriage to Arcelor Breaks the Marwari Rules In June 2006 Mittal Steel of India merged with Arcelor of Luxembourg to create the world’s largest steel company. Resistance in Europe and by Arcelor: Arcelor had outdated views of Mittal Concerns about losing control of a European multinational 7 -37 Copyright © 2014 Pearson Education, Inc.

Management in Focus: Mittal’s Marriage to Arcelor Breaks the Marwari Rules Resistance in India: Concerns about breaking Marwari rules Mittal put family interests behind industry and shareholder interests. Lakshmi Mittal gave up half of his 90 percent share in Mittal, will share chairmanship. 7 -38 Copyright © 2014 Pearson Education, Inc.

E-Commerce on Strategy Implementation Outsourcing necessary tasks to e-commerce Help companies sort through the maze of difficult taxes, duties, language translations, etc. Next-Linx: applies technology for strategic implementation 7 -40 Copyright © 2014 Pearson Education, Inc.

Conclusion Cross-border strategic alliances are formed for many reasons: market expansion, cost/technology-sharing, avoiding protectionism, synergies SMEs can leverage network relationships to accelerate the internationalization process Alliances take many forms, but can fail in the strategic implementation phase Emerging economy firms have to move quickly Successful alliances require compatible partners and the creation of a system of fits Differences in national culture and changes in the political arena can affect implementation 7 -40 Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall

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