Entry Strategies: Joint Ventures and Strategic Alliances

1
Entry StrategiesJoint Ventures and Strategic
Alliances

• Timothy Devinney

2
Entry Modes
3
Entry Strategy and Organization Structure
4
Trade-offs in Market Entry Choices
5
The Dimensionality of Strategic Alliances
6
Rationales for the Formation of Strategic
Alliances

• To achieve, with one's partner, EOS and EOSc
• To achieve efficiencies in learning
• Access the partners competitive and
  non-separable assets
• Reduce risk in the usage of assets
• To achieve or counteract power in the marketplace
  
• Accelerate industry standards
• Encircle/absorb new competitors
• To "test ride" a new organisational form
• Experiment with alternative industry
  evolutionsVenture capital
• To circumvent trade barriers
• To preclude competition

A JV is used for the transfer of organizationally
embedded knowledge that cannot be easily
blueprinted or packaged through licensing or
market transactions
Kogut (1988)
7
The Potential Concerns in Forming Strategic
Alliances

• Opportunism
• Knowledge Expropriation
• Preclusion of the Strategic Imperative
• Obsolescence

8
Limits to Strategic Alliance Networks

• Organisational Constraints
• Management numbers and time
• Limits of rationalisation of operations
• Strategic Constraints
• Limited availability of partners
• Competition/conflict amongst network alliances
• Dependency
• Loss of control over company strategy
• Loss of control of economic rents

9
Factors Affecting the Successful Management of
Strategic Alliances (in order of importance)

• TMT Commitment
• Mutual Trust
• Sensitivity to Company Culture
• Lower Level Management Commitment
• Sensitivity to National Culture
• Wide Dissemination of Information
• Good Dispute Resolution Mechanisms
• Congruent Goals

Source Faulkner (1995)
10
Factors Affecting the Failure of Strategic
Alliances

• Too Many Organisations Involved in Decision
  Making
• Conflicting Cultures
• Conflicting Strategic Intent
• Incompatible Personalities (TMTs and Alliance
  Teams)
• Disengagement of the Original Alliance
  Negotiators
• Lack of Performance on the Part of the Alliance
• Lack of Trust
• Changing Environmental Circumstances Lead to New
  Goals
• Inability to Master the Transfer of
  Skills/Knowledge
• Benefits/Costs of the Alliance Skew Towards One
  Partner

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Factors Affecting the Successful Evolution of
Strategic Alliances

• Bonding of the External Challenge
• Ability to Disseminate Learning
• Balanced Benefits to the Partners
• Reviewed Learning
• The Balanced Development of Each Partner's
  Competitive Advantages
• Flexibility in the Original Alliance and in the
  Attitude of the Partners

Source Faulkner (1995)
12
Levels of Trust
Individual Trust
Individual
Individual
Individual
Individual
Inter-Organisational Trust
Individual
Individual
Individual
Individual
Trust
Individual
Trust
Individual
Intra-Organisational
Trust
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Trust and the Strategic Alliance Relationship
Trustworthness exists when one partner will not
exploit the exchange vulnerabilities of another
partner
Barney (1996)
TYPE
DEFINITION
ENFORCEMENT
Trust emerges because of the limited
opportunities for exploitation
Weak Form Trust
None
Penalities Internal Incentives
Semi-Strong Form Trust
Trust through governance
Reputation Contingent Claims Contracts Equity JVs
Moral Development Socialisation
Trust through values, norms and standards of
behaviour
Strong Form Trust
Corporate Culture
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The Strategic Alliance Determination Process

• Don't Enter
• Export
• Licensing
• Wholely-Owned Subsidiary
• Strategic Alliance

Consideration of Alternative Entry Modalities
Strategic Intent

• Strategic Fit
• Cultural Fit
• Return/Risk

Determination of Partner Selection Criteria
Research Potential Partners
Determine the Organisational Nature of the
Alliance
Determine the Operational Criteria

• Joint Venture
• Collaborative Venture
• Consortia

• Investment Management Sharing
• Outcomes, Benchmarks and Time Frame
• Evolution Dispute Resolution

15
Doing a Self Evaluation

• Does the alliance fit into your strategy
  (conceptually)?
• What do you wish to achieve from the strategy
  with respect to
• Your strategic goals?
• Your learning goals?
• Are the resources available? Are you ready to
  commit them? Are you willing to commit more when
  necessary?
• Are the systems in place to achieve your goals
  from the alliance?
• Are the relevant stakeholders on board?
• Are you prepared to evolve with your partner?
  Are you willing to remain flexible?

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The Nature of Learning in Strategic Alliances
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The Dimensions of Partner Selection Criteria

• Knowledge of local market (not technology)market
  access and identity
• Similar firm with local government influence
• Compatible partnersimilar culture, structure,
  size and commitment to alliance
• Low cost production
• Shared developmentaccess to financing and
  resources
• Sales and service expertise
• Strategically critical manufacturing
  capabilityexperienced management and workers,
  RD facilities
• Similar respected firm controlling
  inputspossession of trademarks, patents and
  brands or distinctive identity
• Opportunistic neighborlocation near partner

Source Geringer (1988)
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Researching Potential Partners

• Corporate/TMT History
• Prior Alliances
• Prior Experience in Similar Endeavours
• Strategic Intent
• Strategic Disposition
• Complementary Resources and Assets
• Competing/Conflicting Alliances and Structure
• Corporate Reputation
• TMT
• Cultural Characteristics
• Corporate
• National

Trust not him that hath once broken faith
Henry VI, Part III
One must not enter into an alliance with other
state sovereigns before he is well acquainted
with their designs
Sun Tzu (500 BC)
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The Importance of Cultural and Strategic Fit
High
Strategic Fit
Low
Low
High
Cultural Fit
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Cultural Fit
Too Much Emphasis is Place on the Paradigm and
not the Components of Culture
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To What Must You and Your Partner Agree?

• The Purpose of the Alliance (Strategic Intent)
• Resource CommitmentsMoney, Technology, People
  and Know-How
• Amounts and form (direct or in-kind)
• Timing of commitments now and in the future
• Governance Processes
• Ownership shares
• Management shares and responsibilities
• Conflict Resolution
• Flagging possible areas of contention
• Defining arbitration procedures
• Performance Criteria
• Benchmarks for operations and profitability
• Timing and magnitudes of profit payouts
• Termination Procedures

22
Liquidation of Sustained Alliances
Source Bleeke Ernst (1993)