Essay Preview: Mr
Report this essay
A collaboration alliances, involves two or more parties, domestic or international alliances, working together to achieve mutual strategic advantage but fall short of a merger or acquisition. Firms are forced to collaborate, due to environmental uncertainty, intense global competition, rapid technological advancement and ever demanding customer (Horton, 1998). Further argument is that, strategic alliances are used mainly to share costs and risks and to penetrate new market (Peng and Wong, 1994). According to Porter, the most common reasons for firms to collaborate are to acquire new technology, to overcome technical and manufacturing know-how deficiency, to obtain new competencies, to gain overall economies of scale and to increase market share and penetration (Porter, 1990). Collaboration or alliances involves many types of arrangements like joint ventures, consortia, network, opportunistic alliances, franchising, licensing, subcontract, co-production and so on (Johnson and Scholes, 2002). Recent study in United States America shows, average large corporation is involved in around 30 alliances today, compared to less than three, 10 years ago (Thompson and Strickland, 2003). “Our analysis of nearly 2,000 alliances formed over a four-year period shows that alliances impact share price; the 15 most active value-creators in our study increased shareholder value by $72 billion, but the 15 most active value-destroyers decreased the market capitalization by $43 billion”. (Kalmbach and Roussel, 2005. [Online]). Again, it has been argued, two-third of all alliances with competitor will face managerial or financial trouble within the first 2 years due to inherent tension among firms (Bleeke and Ernst, 1991). So it is noted, success and failure is decided by time factor and should not be viewed through snap short approach.
Successfully or failure in collaborating with competitor usually determined by reasons and critical factors behind the alliances (Vyas, Shelburn and Rogers, 1995). Further evolvement will decide on the possibility of achieving mutual strategic advantage or common objectives. Continuous learning in adapting each others strength and weaknesses ultimately decide prognosis of alliances.
A detail studies by Bleeke and Ernst over around 49 international alliances in 1990, found due to emerging of new markets, intense rivalry and the need to increase sale and market share pushed many chief operating officers to form international or cross-border alliances. They argue, even though cross-border collaboration face many challenges, it is still the most effective global strategy. Further analysis reveals, even though two-thirds of these alliances encounter management and financial difficulties at initial stage, many of these firms managed to pull through the rough tide, with success rate of 51 % for collaborators. It is further argued, collaboration are more effectives when venturing out of core business or in a different geographic area. As an example, in 1977 Corning Glass enters into collaboration with Siemens, 50-50 joint ventures, which was called Siecor. Corning Glass, USA based company, specializing in glass ceramic based products, perfected first practical optical fiber but lacked the cabling technology and marketing expertise. Thus, Corning glass made the right decision by forming alliances with Siemens, which is one of the worlds largest electrical engineering and electronics; to produce and market optical fibers (Bleeke and Ernst, 1991). Only through strategic collaboration, company like Corning, which has no experience in optical networking, able to emerge as one of the largest optical cable suppliers in the world, through the venture, Siecor (Srinivasa, 2005. [Online]). This alliance between Corning and Siemens is a good example, how firms can successfully collaborate with their direct or indirect competitors to obtain mutual strategic advantage, even if it needs to make 180 % turn for the company.
Ohmae, a Japanese researcher argues that any firm can successfully collaborate and attain mutual advantage, as long as the firms, which entering collaboration, avoid focus on control through equity. He further argued the collaboration between Hewlett-Packard and Yokogawa Electric in 1963, become significant to Hewlett-Packard, only after enduring for 20 years. Hewlett Packard was able to penetrate tough Japanese market only through strategic collaboration, which leads to owning 75% of a $750 million company in Japan that earns 6.6%, after tax net profit, in 1983 ( Ohmae, 1989). Hewlett Packard initially owns only 49% in this new joint venture, Yokogawa-Hewlett-Packard Company. But later in 1983, the stake increased to 75% and subsequently to 100% in 1999. Here, it is understood, the collaboration ended with one of the collaborator fully controls the collaborated entity. Anyhow for 36 years, Hewlett Packard and Yokogawa have enjoyed successful alliances and attained a lot of mutual strategic advantages (Press Release, 1999 [Online]). In this context, snap short view is taken to analyze the success of collaboration that is within certain time frame because over the time many successful alliances end with one of the collaborator fully acquire the created venture.
Hamel, Doz and Prahalad in their research of 15 alliances, focuses on evaluating the exchange of competitive strength between collaborating parties and not by span of time, any alliances can endure. According to them, top managers at NEC (Japanese firm), decided to form more than 100 alliances as at 1987, aiming to build technology and product competencies rapidly at low cost. Some of the senior executives at NEC, point out, the fastest and cheapest way to develop new idea is to collaborate with competitor and this context, with western firms. It was estimated, total sales of NEC grows from $3.8 billion in 1980 to $21.89 in 1988, largely due to successful collaboration with other player in the industry. It is further noticed, NEC is the only company in the world, despite allocating small budget out of total revenue for research and development, compared to its rival, like Texas instrument, Northern Telecom and L.M.Ericson, still able to retain top 5 positions in revenue in telecommunication, semi conductors and main frames (Hamel, Doz and Prahalad, 1989). It is understood, even though firms successfully collaborate, most of the time only unilateral strategic advantage can be gained by the any of the firms in collaboration and that too favors Japanese companies.
Elmuti and Kathawala commented, all the top level management from firms engaged in alliances should be fully committed to strategic plan formulation, implementation, managing and monitoring in ensuring the success of collaboration. Other than ensuring alliances receiving adequate resources, senior management need