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A Theory of Inernational Strategic Alliance

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Abstract

As an alternative to exporting, a firm can enter a foreign market by forging a strategic alliance with its foreign counterparts. The alliance, in the form of a bilateral supply and distribution agreement, eliminates trasportation costs and duplications in product distribution networks. Furthermore, even though it does not involve equity sharing and firms continue to compete against each other, strategic alliance tends to lessen competition in the sens that it leads to smaller outputs and higher prices. The effects on welfare, measured by total surplus, is in general ambiguous. But strategic alliance improves welfare if demand function is linear. Other sufficient conditions for welfare improvement are also derived.

Suggested Citation

  • Z. Chen, 1999. "A Theory of Inernational Strategic Alliance," Carleton Economic Papers 99-08, Carleton University, Department of Economics, revised Nov 2003.
    • Handle: RePEc:car:carecp:99-08
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    Cited by:

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    2. Kalu Ojah, 2007. "Costs, valuation, and long‐term operating effects of global strategic alliances," Review of Financial Economics, John Wiley & Sons, vol. 16(1), pages 69-90.
    3. Pinuccia Calia & Maria Ferrante, 2013. "How do firms combine different internationalisation modes? A multivariate probit approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(4), pages 663-696, December.
    4. Brooke, Jesse & Oliver, Barry, 2005. "The source of abnormal returns from strategic alliance announcements," Pacific-Basin Finance Journal, Elsevier, vol. 13(2), pages 145-161, March.
    5. Kazutaka TAKECHI, 2008. "International Strategic Alliances for Local Market Entry: Direct Launches versus Marketing Alliances in Pharmaceuticals," Discussion papers 08022, Research Institute of Economy, Trade and Industry (RIETI).
    6. Colin Butler, 2006. "UK-Asian strategic alliances in the defence manufacturing industry," Asia Europe Journal, Springer, vol. 4(1), pages 43-52, April.
    7. Qiu, Larry D., 2010. "Cross-border mergers and strategic alliances," European Economic Review, Elsevier, vol. 54(6), pages 818-831, August.

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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other

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