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Competitive Strategic International
Competitive improvement and Strategic Alliances for International firms
1.1 Chapter Introduction
Today, the world and the business environment become more and more global than last several decades. The Products and services in the world provide by firms on the basis of globalization. Globalization makes the world smaller and smaller. The human society evolved rapidly according to the established progresses over the last years. Many unprecedented changes in the industry of communication, logistic system, computer technologies and information accession have posed the business environment a new strong impetus.
For example, the transportation facilitated us to go to wherever in the world scales within just one day time. The computer technologies and internet prevalence give the new access to everyday information from the every world corner and increase the information sharing range. As well as the internet allows us to communicate with each other despite of the geographical distances. The transparent capital markets also are increasingly spreading with the globalization process. This market makes the fundamental capital shift more easer than ever before.
Today’s capital market becomes more integrated and interdependent with the driven of technologies advancement and the declining of trade and investment barriers (Meredith & Shafer, 2001). Especially in the last decade, it is noted that the changes accelerated the globalization pace dramatically and increased the resource, money, culture, and business interaction. As for all the results of changes, the global or world business environment changed the business way of the international firms dramatically.
Therefore, in the era of rapid changing international business, rapid evolving technologies, increasing competitive market and the competition of globalization, more and more multi-national firms are busy to looking for future international strategic alliances or cooperation with other local or international counterparts in order to improve their global market competitive ability.
Thus, the strategic alliances have become an important management part for all multi-national companies while doing business in the global market. It is said that the strategic alliance or cooperation is a by-products of the economic globalization in today’s business environment. Given the rapid changes happened in the global business cycle, the way of doing business should show the respondent modifications. As a result, the strategic alliance is employed widely by most of international firms
In this chapter, it introduced the background of international business environment today, and demonstrated that the strategic alliances are popular with the international market and the global firms while doing business in order to achieve the firm’s goals and values. Otherwise, the introduction chapter also contained the simple descriptions about the aims or objectives of this dissertation and the layout of this paper.
1.2 Research Background
Marketing economic theory holds that a completely liberalized global market is the most efficient way to potential economic growth, because each country is special with the production of goods and services. Meanwhile, the country is also lack of other advantages as regard for the competitive items.
To balance this dilemma for one international firm, the strategic alliances were developed by these international firms and practice in the way of doing business. In this way, it provides these international firms a comparative advantage in the competitive business environment while the time of competing with other counterpart companies.
Firstly, it is necessary to understand today’s business environment for these firms, to understanding the facts of globalization. Throughout history experience of doing business, these adventurers, merchants, and financiers have improved the formation of ever more global business economy. It means that the world markets in today are integrating more and more closely due to the influence of economic globalization.
Generally, these multi-national firms manufacture products or services in material countries and sell them to customers in other country’s market or even worldwide market. This business process makes the capital, technologies and raw materials move more quickly across national borders than ever before. As well as the products and finances, ideas and cultures circulate more freely in the global market. For the long run, it is exactly during the past decades, companies and their managers have started to face the increasing emphasis on globalization strategies since it has affected and occurred at all levels in organizations relations (Hubbard, 2004).
In this period, more organizations are becoming international either willingly or unwillingly. They are compelled to handle complex issues on international or on the global basis rather than on a ever domestic business environment (Hill, 2006). For them, the only suggestion is that be aware of various aspects, which could potentially affect them before deciding to conduct business in a foreign market or with another international organization. It is said that the issues of globalization for international firms are complex and should pay careful attentions.
On the other hand, the problem of globalization can not be avoided for these international firms; it is certainly a future business trend. Therefore, there is a strong need to manage the globalization strategies and locate them in the global business market. Although there are many difficulty for the partner companies in the way of achieving successful alliance, the rationales and experience of the strategic alliance is important for the international business development.
The strategic alliance is helpful to improve the firms’ competitive advantages and gain the rapid improvements through the cooperation learning including the financial management, production management, distribution management and other management levels.
1.2.1 A compulsion to be global
Globalization is considered as the major driver to go to global which pose its impacts on almost every business. The companies want to survive in the today’s competitive business environment; they must put their products in the global market and win more customers. It means that the companies face the compulsion to be global if they want to gain the global market and more values. For example, in a few industries, firms have to be global if they want to achieve the powerful leadership in their industries.
Computer manufacturers like Dell or Hewlett-Packard have cost money and energies before ten years ago, which could keep improving the increasing influence of going global. Pharmaceutical companies like Pfizer, and software companies like Oracle sell their products in the global market in order to amortize their high product development costs.
The private investment banks are driven to expand the scales of business globally since more and more their customers are starting to operate capital shifts in global financial markets across the world.
Correspondingly, the benefits from the process of globalization for one company are obvious and huge. The benefits usually include global experience and the economic profits. It is believed that the customers would show the enough global value and proposition for the services and production management.
The business operations give the company the experience and the world scale facilities for doing business in globalization. In addition, the global market means more potential customers which could help the firms to achieve the value and goals. Generally, it improves the economic profits and improves the circulation speed of the costs and incomes.
To summary, the companies are force to the global market and competition. On the one hand, the global market means more customers. The structure of customers are changing, the location of service must correspondingly change. As long as the successful global, the companies could survive forever in today’s competitive market. On the other hand, the global market presents more economic profits, competition, management experience, and marketing strategies planning.
During to these diverse significant impacts of globalization on company, Larry Downes mentioned that the globalization is one of three new drivers in modern business environment in his much-discussed article Beyond Porter. Downes says that technological progress in logistics and distribution enables nearly every business to operate on a global wide scale.
As a result, Globalization is a certain trend and have to be faced by every international firm. Even smaller and locally orientated businesses have to plan the global business strategies to future survival in today’ business environment.
1.2.2 The way to global
However, the question is how to achieve the globalization for a firm? The answer of this question is very simple. “Think globally, Act globally!” Unfortunately, the application or management of thinking and acting globally factly is not quite simple. There are hence many benefits from economic and experience brought by distributing the products or services overseas, but it suggests that the decisions to go to global must be made carefully.
Because there are many risks and potential barriers to the international business. Cultural and language differences are perhaps the most obvious needed considerations. Language difference may present an obstacle for expressing and gaining the benefits and advantages for companies in the international market. Also the religious beliefs, societal habits, and business negotiation styles all have an enormous changing element on the way of doing business especially while conducting to deal with the foreign partners.
Other difficulties inherent in the global markets include economic and political risks. Shifting borders and the instability of some foreign governments usually pose a threat to the security of a business partnership. Foreign exchange and the issue of intellectual property protection need to be considered as well. In international business arenas, because legal and economic systems are not as developed as in some developed countries such as the United States and the UK, so there is a risk of failing to promise the business profits.
Therefore, it is said that the global process for one companies is not usually smooth with full of risks and difficulties. Even with all of the risks carefully considered, the benefits of going to global often remain an enormous advantage. An organization which wants to expand business to the global market can firstly evaluate a balance between risks and opportunities in the stage of preparation.
One would think that the marketing strategy in home country is also adapted to other countries oversea. It is very wrong according to the experience of many international corporations when they came into the global market primarily.
There are two necessary steps can help to prepare an organization for the global business expanding. First, a global market planning must be developed, and second, the company must determine the way to enter the absolutely new market. A global market planning outlines and defines the special product or service provision goals and the main market position.
It is essential to evaluate whether a product that works well in the United States market will also work in other foreign markets. For example, electrical outlets in Europe and Asia operate at 220 volts, while those in the United States operate at 120 volts. So according to the market needs, products designed for the American electrical system would need to be modified for overseas markets.
The second, it is time to find out the most effective ways to enter the global or target markets successfully. The second stage is the key business cycle for the well performance in the global market. In order to go to global and satisfying performance, the companies may need define new strategies and find the international cooperation with local companies. The market positioning and situation must be assessed for winning the target customers. Tariffs, duties and compliance with certain export regulations are other important consideration to assess as well.
Sometimes, the companies consult to the expertises who are sophisticated in the global financial and legal aspects of international business. Sometimes, the companies create separate exporting department to dealing with the business problems in global market. For example in many companies, there are special international sale managers and assistants who are responsible for setting a business budget, delivery goods and managing international business growth. However, all these measures cost much and obtain less increase.
This expensive alternative is usually based on the overhead and liability costs. Companies which “go it alone” may need from two to four years to develop a sizeable global market interest. Nowadays, it is believed that the managers or consultancies if from the target market could dramatically reduce the business time and cost. Therefore, more and more international companies give up the way of expensive business way and search helps from the international business cooperation. The strategic alliances are maybe till now the most feasible international business way to gain the win-win interest.
1.2.3 Strategic alliances
Along with the business communities, the economic and social global activities have gained enough attention for some decades in both practical and research field across the world. The globalization research organizationshave studied the increasing phenomena of competitive strategic alliances in today’s international business, in addition to a lot of companies and organizations, many universities also afford funds and specialist to investigate the international business that manage a success strategic alliance.
It is Dunning (1995) and others economic experts noted the emergence and growth of international strategic alliances (ISAs) as an important economic global business phenomenon among the activities of international business organizations many years ago. Nowadays, a substantial literature has, unsurprisingly, focused on various aspects of the strategic alliance operating process.
It is proved that the strategic alliances in today perhaps become the fastest growing strategic trends for the global international business. According to Booz-Allen and Hamilton (Booz Allen Hamilton, 2006), strategic alliances are sweeping among almost every business and are becoming an essential driver for economic growth and development.
An alliance is understood simply a business-to-business collaboration. Another term that is frequently used in conjunction with alliances is establishing a business network. Nowadays, alliances range in scope from an informal business relationship based on a simple contract to a joint venture agreement in which for legal and tax purposes either a corporation or partnership is set up to manage the alliance. Thus the mission of strategic alliances includes joint marketing, joint sales or distribution, joint production, design collaboration, technology licensing, and research and development.
Moreover, a strategic alliance may turn actual or potential competitors into partners working toward a common goal. For many global and international companies and firms, Use of strategic alliances is become a more and more common useful tool for expanding the reach of goals and purposes without committing yourself to expensive internal expansions beyond your core business. Usually, the businesses use strategic alliances in order to achieve the value and growth that will bring profits from the global market.
There is a list goals for international business that have investigated and concluded including achieve advantages of scale, scope and speed increase market penetration enhance competitiveness in domestic and global markets, enhance product development, develop new business opportunities through new products and services, expand market development, increase exports, diversify, create new businesses and reduce costs(Varadarajan, 1995). Because of these tempt benefits brought by the strategic alliance, it has expanded dramatically over decades among diverse business or industry, and their use will continue to increase as entering the 21st century.
Therefore, this paper is designed to find out the details about the international strategic alliance among the global firms. It choose the method of multi-cases which based on the analysis of strategic alliance examples including two common cases about the activities of the international strategic alliances to understand how to do the management and effects of strategic alliance regards for the related companies in the global market environment.
There are mainly three sub-opinions to illuminate the concepts and cooperation of strategic alliance for multi-national firms according to previous literature reviews. Firstly, the most challenges come from today’s strategic alliances in global business environment. Secondly, the effects for individual company as in a same strategic alliance.
Thirdly, potential unfair elements existed in the strategic alliance; especially for the alliance companies hold a unbalance competitive strength. Moreover, to clearly understand these three ideas about international strategic alliance, this paper choose Renault Group in India and Toyota alliance with PSA Peugeot Citroën as the case to analyze.
1.3 The Aims of the Dissertation
This paper mainly divided into five parts to illuminate the importance of strategic alliance in today’s international business environment to improve the competitive ability. Through the case analysis, the dissertation is aim to find out the answers of these three questions about strategic alliances among the international firms.
(1) What is the most challenges of the strategic alliances for international firms
(2) What is the different impacts which brought by the strategic alliances to the international firms in both side of alliances.
(3) If there are some potential unfair elements for individual company among the same strategic alliances as regards for the interest gained according to the scale or strength of alliance firms.
1.4 Significance of the Present Study
Along with the popularity of globalization, the business environment is changed rapidly in today’s competitive business industry. More and more international firms are busy to find out the effectively strategies to improve the global competitive ability. Thus, the strategic alliance is paid enough attentions by the managers or leaders who are charge for planning the competitive strategies in firms.
This paper is aim to analysis the importance and find out the challenges and impacts for the international firms while doing business in global market through strategic alliance case analysis. It is said that this paper will be very necessary for these international firms which want to plan to strategic alliance actions. As well as this paper could provide enough positive references and effective suggestions to these firms to prepare their strategic alliance activities.
1.5 The Outline of the Dissertation
This dissertation included following five chapters in order to illuminate the importance of strategic alliance for international firms:
Chapter 1 Introduction
This part mainly introduces the international business environment today, as well as the popular of strategic alliance to do business. More and more companies attempt to find the powerful alliance partners in the international market to improve themselves competitive ability. Therefore, the strategic alliance is widely considered by every multinational firms to find the improvement for competitive strategies. Besides, in this part, a layout of this dissertation is also present to illuminate the whole structure of the paper.
Chapter 2 Literature review
This part is mainly related with the previous researches and reviews within the last ten decades which reported the strategic alliance as a improvement to increase the firm’s competitive ability. It includes three concerns in this part. First is the challenges faced by the strategic alliance. Second is the effect for the both strategic alliance companies. Third is potential unfair distribution of interest for individuals involving in the strategic alliance, especially there are unbalance as regards for the scales and strength of companies.
Chapter 3 Research method
This part is designed to help choosing the precise method to analysis the strategic alliance in this paper. Generally, there are three main ways to investigate the research goals in the qualitative method including questionnaire, interview, and case analysis. Through the comparison of these three methods, this paper adopted the multi-cases method to research the strategic alliance in today’s international business environment.
Chapter 4 Analysis
Analysis is the most important for this paper maybe. Because the important findings and discussion is present in this parts for the evidences of competitive improvement through strategic alliance. Of course, the basic ground for analysis is the multi-cases choosed in the paragraph of research method. It means that the analysis is closely related with the strategic alliance cases. As a result, the analysis is very practical and confident to prove the relationship between the competitive improvement and the strategic alliances.
Chapter 5 Conclusion
Some suggestions described and present based on the previous research in order to conclude that this paper could be helpful to set up a competitive international strategic alliance for multinational firms.
Chaper 2 Literature review
This chapter is design to review the literature about the strategic alliances and illuminate the practices of strategic alliances in the international business environment. This chapter divided six main issues to explain the concept of strategic alliances. Firstly, the background is not only the above mentioned globalization economy. There are also other elements which improve the formation and development of strategic alliance in today’s international business environment.
Secondly, it introduced the definition, types and characteristics of strategic alliance, which would help to understanding the concept of strategic alliances. Thirdly, this chapter analysis situation of international strategic alliances and showed the current advantages and challenges for the partners related with this kind of partnerships.
Finally, some necessary stages among the process of developing strategic alliances are introduced as well. In a word, the chapter is mainly aim to present the full understanding and related common knowledge about the strategic alliance based on the current business development.
2.1 Background overview for strategic alliance
Every new strategy or new concept is developed under some certain developing environment. The strategic alliance is popular in the international business operation process due to the rapid changes happen to the world economy. Maybe the globalization is the main diver which improves the formation of strategic alliance as reviewed in the previous paragraphs. The companies in today’s global economy have to face the competitions with other competitive competitors.
All local and international companies are facing to the compulsion to go to global if they want to survive continually among the competitive competitors. Besides, the rapid development of modern technologies offered the opportunities to improve the qualities and service delivery speed of products.
It is said that the single one company could not afford to the rapid technique changes alone and is busy to find the cooperation with other partners. As a result, the strategic alliance is mature in the process of rapid changes. The appearance of strategic alliances is not incidental, it is the outcome of this times.
Generally, there are five common elements which favor the emergence of strategic alliance and will continually service as the fundamental base in future.
(1) Integrative world economy is also the alternative concept of globalization. The globalization not only provides these international companies with enough economic and interest opportunities, but also brings many difficulties to these firms along with the international furious competitions.
It requires these international firms modify their strategy and find out more effective competitive weapons to win the global market. Despite there were many differences with the target focus in the process of strategic modifications as regards for the different international firms, most of them always considered the strategic alliance as the method of tactic modification in the competitive global market.
(2) Rapid advancements of science technologies exceed any period of last decades, and moreover it provides unprecedented challenges and impacts to the process of production. Advanced technologies improved dramatically the products into the ranges of high technologies and complication in order to gain the competitive advantages.
One new product usually includes various technologies of industry and process more complex cycles of production and business. Thus, either the technologically and the costly consideration, one single company could deal with the requirements of highly developed technologies. Due to the strategic alliances, the combinations between the research institutions and the organization has been formed based on the same business tactic objectives.
(3) Achieving the overall tactic objective: Strategic alliance is a totally new business concepts and thoughts. It provides one new pathway to help the international firms to achieve the global tactic ambitions. The cooperation of strategic alliances could effectively conserve the existing resource and also exchange and share the external resources which are required by the business environments. Thus, it is believed that the previous and traditional stock arrangement co operations are gradually replaced by the newly emerging strategic alliances.
(4) Sharing risk and winning the economic and business scale development: The tough business environment requires the firms or enterprise three basic improvements including reducing the period of research time, decreasing the research cost, and dispersing the risk of research and exploitation. Over the year, the strategic alliance is considered as the most effective way to achieve these three requirements, as well as expand the information delivery speed and density. It could dramatically avoid the blindness and risks in the new production researches which usually cause the unnecessary repeat wastes of workforce and nature resources.
(5) Improving the competitive ability: With the more special with the production technologies, there is no one company could alone undertake the most updating and newly techniques over the time. One alone enterprise hardly control the initiative power in the competitions. The strategic alliance is developed to help the competitive power in global market.
Also the strategic alliance radically changes the traditional issues to the competitors. The competitors are not always the enemy. If one company want to survive, it should negotiate with their competitors and cooperate with them. Through the strategic alliance, the firms could locate them in the advantages position and gain the most competitive abilities. The strategic alliance also is helpful to carry out some kind of competitive tactics and finally improve the competitive strength.
2.2 What is strategic alliance?
The strategic alliance is a kind of formal partnership or co operations with two or more companies which are aim to the common goals and some agreed critical business interactions. It has been defined by Judge and Ryman as “consisting of two or more organizations that contractually pool resources to achieve a long-term strategic objective that is not possible for a single organization” in 2001.
Before the emergence and popular of strategic alliance referring in recently research papers, there were many various word to depict this items for the strategic alliance, such as the international coalitions, strategic networks, and the business cooperation. The alliance is usually understood as a combined action with the interaction cooperation with sharing risks, interests, resources and forces, within a certain or indefinite period term, with the same goal of business objectives.
Some people always think that the partners in one strategic alliance should be some large international firms. The fact is that this kind of strategic alliance is just a business operating strategy which holds the common objective for each partner. The partner is not limited by the scale of business.
The smaller firms could be a wonderful partner as long as there are some common important issues which are helpful to the development of the business objectives such as the channels, manufacturing capability, project funding, and capital equipment, knowledge and expertise or intellectual property. It is said that the alliance provides the each partner with the complementary importance while doing business in global market.
Due to the characteristics of products and industry, the extent of competition, and the difference of competitive advantages, the enterprise attempt to find the best partners and make up their competitive disadvantages in the market. As well as the firms among the strategic alliance hope that the benefits will be greater in the business cooperation or collaboration than those from individual efforts. As a result, the firms are different with the advantages and disadvantages, there are usually various alliance styles according to the literatures.
2.3 Types of strategic alliance
Puicik believed that the strategic alliances should emphasize on the benefits brought by the technologies improvement or evolvement and the quick responses to the increasing global competitive market. The different companies hold different business needs in one certain strategic alliance. In order to fulfill their different aims and goals in the strategic alliance, there are five basic types according to the alliance styles.
(1) Joint venture: This type is consisting of two or more companies which based on the agreement of joint capital resources, sharing risks and sharing interest in order to a common objective. It is the general strategic alliance type among the developing countries especially the Afro-Asian areas. Each partner could enjoy and share the advantage resource in the alliances with other alliance partners. Usually this type of strategic alliance provides the full exertion for the advantage resource and expands the influence scales which could not be reached by the individual firm.
(2) Research alliances: This alliance is aim to reduce the research period of new products. In order to some kinds of new products or new technologies, one single firm usually could afford the highly cost expenditure, so it is best to join a research alliance agreement with other companies to develop the new products or new technologies. Their common attempts dramatically increase the possibilities of success, and speed the pace of research development. Moreover, the alliance reduce the cost requirement and the research risks.
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