Alliance-Based Global Strategy

When creating new operations overseas, companies must fulfill various requirements, such as providing benefits for local employees, finding sources for materials and parts, creating logistics infrastructure including new distribution channels, and gaining regulatory approval for the operations. Instead of doing these tasks independently, it is more practical for companies to cooperate with local businesses. In addition, companies can reduce their overseas investment risk through joint ventures (i.e., joint investment companies) with local entities instead of creating wholly owned local subsidiaries. Without cooperation with a local company, it becomes difficult to smoothly launch new business operations in emerging nations such as China and India, which have business environments that are very different from those of advanced countries. As stated in Chap. 4 , these emerging countries do not possess adequate market mechanisms or economic legislations such as corporate law, making business transactions unpredictable. Alliances with local companies are effective in filling such institutional voids (Khanna and Palpu 2010). However, expanding operations via joint ventures with local companies does have the disadvantage of diminished autonomy because of the intervention of local firm’s management. Even when companies decide that increasing headquarters’ control in a company-wide global strategy is an appropriate course of action, it is possible that the strategy might not come to fruition because of opposition by joint venture partners. In this chapter, we first analyze the option of a joint venture with a local partner when expanding globally, and then present a formal discussion on strategic alliances. A joint venture is a form of alliance; however, companies can also form contractual alliances, such as licensing agreements and joint operating agreements. In addition, many relationships with strategic alliance partners extend to the long term, and alliance management skills after establishing a joint venture or entering into an agreement have a tremendous impact on performance. In this chapter, we discuss the following three necessary management phases: (1) the alliance project development phase, (2) the alliance structure design phase, and (3) the alliance execution phase.