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Assignment

Q1.Growth-minded companies are racing to stake out positions in the markets of more and more countries. Do you think Strategic Alliances play a crucial role in this? Justify your answer. Ans. Strategic alliance is an agreement between two or more organizations to cooperate in a specific business activity, so that each benefits from the strengths of the other, and gains competitive advantage. The formation of strategic alliances has been seen as a response to globalization and increasing uncertainty and complexity in the business environment. Strategic alliances involve the sharing of knowledge and expertise between partners as well as the reduction of risk and costs in areas such as relationships with suppliers and the development of new products and technologies. A strategic alliance is sometimes equated with a joint venture, but an alliance may involve competitors, and generally has a shorter life span. Strategic partnership is a closely related concept. This article analyzes definition of strategic alliance, its benefits, types, process of formation, and provides a few cases studies of strategic alliances. This paper tries to synthesize the scope and role of marketing functions in the determination of effectiveness of strategic alliances. Several propositions from a marketing viewpoint concerning the analysis of alliance process are formulated. On the basis of the propositions, a framework is developed for future research. Strategic alliances developed and propagated as formalized interorganizational relationships, particularly among companies in international business systems. These cooperative arrangements seek to achieve organizational objectives better through collaboration than through competition, but alliances also generate problems at several levels of analysis. Strategic alliances are critical to organizations for a number of key reasons: 1. Organic growth alone is insufficient for meeting most organizations required rate of growth. 2. Speed to market is essential, and partnerships greatly improve it. 3. Complexity is increasing, and no single organization has the required total expertise to best serve the customer. 4. Partnerships can defray rising research and development costs. 5. Alliances facilitate access to global markets. Strategic alliances are becoming an important form of business activity in many industries, particularly in view of the realization that companies are competing on a global field. Strategic alliances are not a panacea for every company and every situation. However, through strategic alliances, companies can improve their competitive positioning, gain entry to new markets, supplement critical skills, and share the risk and cost of major development projects.

Q2. Developing a global strategic plan is critical for developing international opportunities, which can be leveraged only by using the alliance process and learning the skills of managing cross-cultural alliances. Discuss taking the case of DaimlerChrysler alliance.
Ans. The DaimlerChryslerMitsubishi alliance refers to the 69-month period during which

U.S.-German automaker DaimlerChrysler AG (DCX) held a controlling stake in Mitsubishi Motors Corporation (MMC). First established on March 27, 2000 with the signing of a letter of intent,[1] it was initiated by Jrgen E. Schrempp, the chairman of DCX, who was attempting to build what he called a "Welt AG" (global corporation) which would have as widespread a presence across worldwide automotive markets as its rivals.[2][3] The merger with the Chrysler Corporation had increased Daimler-Benz's share of the North American market, and Mitsubishi Motors offered a gateway to Asia.[1]

The deal was to prove costly for both DaimlerChrysler shareholders and for Schrempp personally, whose part in the deal contributed to his eventual replacement at the helm of DCX in 2006.[4] Jrgen Schrempp was one of the primary architects of the "Welt AG" plan, developed by Daimler-Benz to increase its presence in the American and Asian markets, and to improve its profitability. Schrempp believed that a modern automaker needed a full range of products beyond the luxury vehicle market in which Mercedes-Benz competed, and began looking for a partner as soon as he became chairman in 1994.[5] The Chrysler Corporation was targeted in 1995,[6] and on January 12, 1998 he met with Chrysler chairman Bob Eaton with the intent of negotiating a merger/takeover.[7] Following its completion in May that year, Schrempp then turned to Asia.

However, DaimlerChrysler's first steps came to nothing. It considered but ultimately declined to invest in Nissan prior to the Japanese company's alliance with Renault,[8] and it was rumoured that they also courted Honda that same year.[5][8] Schrempp, who had given a speech in Tokyo in early 1999 where he predicted DCX's market share in Asia would increase from 1.3 to over 10 percent, began to come under pressure to deliver on his promises.[8]

Mitsubishi Motors was DaimlerChrysler's third choice partner, but in 1999 MMC chairman Katsuhiko Kawasoe rebuffed their initial approach.[8] However, in the aftermath of the 1997 East Asian financial crisis MMC was saddled with 1.7 trillion of debt,[9][10] and some outside analysts were suggesting that the company should give priority to becoming a takeover or merger target.[11] Kawasoe rejected this, preferring to present Mitsubishi as an equal partner to potential suitors, adding that Mitsubishi would continue to follow their longstanding approach of establishing ventures without capital tie-ups.[11] But eventually a deal was struck: DCX would purchase a controlling 34 percent stake in the company for 450 billion (2.1 billion).[12][13] This would ostensibly preserve Mitsubishi's "independence", as only three out of the company's ten board members would be elected by the new largest shareholder, although DaimlerChrysler did now possess a veto power over boardroom

decisions.[14] For DCX, the benefit would come from increased market share without MMC's debts appearing on their balance sheet. Shortly after the deal was finalised, Mitsubishi became embroiled in accusations that it had covered up complaints from customers about defects in their vehicles. A police raid on its headquarters in July 2000 uncovered hidden documents stashed in a locker, and soon after over 500,000 vehicles were recalled for repairs. Mitsubishi's shares fell by 13 percent as these revelations became public, and over the summer, further investigations took a similar toll on the company's stock. By the end of August, following a second police raid, the total number of vehicles recalled had reached one million, while the share price had fallen by almost 30 percent. As a result of the collapse in the value of Mitsubishi, DaimlerChrysler renegotiated a 200 million reduction price of its stock purchase, while Kawasoe was forced to step down as chairman. Unlike in DaimlerChrysler example previously, the main difference here lay not in the corporate or organisational culture but more in the national culture, i.e. Japanese culture vs. German culture. In this case Daimler failed to acknowledge any local practices and principles of Japan business culture.

In Japanese culture, trust and attention to others feelings are essential. This means that Japanese business people value personal relationships more than dry facts. What is important is how you value your client and how you treat him. This differs greatly with a strictly factbased and pragmatic approach of the German counterpart.

Not paying any attention to the concept of "localization", Daimler appointed German managers who immediately started giving orders as if they were in Germany. As a result, Japanese subordinates felt extremely reluctant to take orders from them (Froese and Goeritz, 2007: 98), which in turn had a negative impact on overall efficiency. Moreover, most Germans were seen as guests which exacerbated the situation since guests usually dont have authority in Japan and on top of that it's hard to be "rude" to a guest.

Cross-department communication was very weak as well. Apart from the R&D department, communication mechanisms werent installed properly and a chain of command was not clearly defined (Froese and Goeritz, 2007: 101).

An example to illustrate the above mentioned is in order. A special task-group was established in order to find a way towards effective and smooth integration. The group was working hard for quite some time. They even produced a report with recommendations on how to achieve the given goal. However, nobody ordered or took any steps to implement those changes (Froese and Goeritz, 2007: 102). All of this questions the very purpose of establishing new departments if all their work isnt used.

The last cultural difference which will be mentioned here is the conflict between cultures that value long-term orientation over short-term orientation and vice-versa. One of the founders of the intercultural theoretical framework, Professor Hofstede, used this difference as one of the key dimensions of culture. Generally speaking, countries in the West tend to be more shortterm goal oriented while the countries of the East strive for more long-term goal orientation.

In practice it means that the financial difficulties which Mitsubishi Motors experienced were perceived quite differently by the by two parties involved in the alliance.

DaimlerChrysler after some time started feeling reluctant to make any further investments into Mitsubishi. They didnt see any short-time profits which eventually led to pulling the plug on their Japanese partner. Mitsubishi on the other hand, wasnt really concerned with the losses. They were more long-term oriented. They perceived the difficulties to be an obstacle to overcome, but not as a reason to dismantle the alliance. That is why, when DaimlerChrysler announced, that it refused to make any further investments, that the little shreds of trust dissapeared.

The joint venture didnt work as intended because of the lack of consideration given to cultural factors. The inability to establish proper communication, build trust and recognise the goals of ones counterpart played a significant role in the outcome of the cooperation.

Moreover, just as in the DaimlerChrysler merger, a German company was imposing its own terms on their partners. Once again this bargaining in and do-it-our-way attitude proved incapable of delivering results

Q3. Creating a global strategic plan involves analyzing inputs from strategic regions and combining that with a competitive analysis. Discuss the steps involved in preparing for the Strategic Alliance. Ans. Strategic alliances come complete with their own special set of advantages and challenges. Certainly the benefits of gaining access to knowledge, skills, and systems your organization doesnt have without an equity investment makes these relationships compelling especially given the rapidly changing business environment. Yet numerous studies indicate that less than 50% of all strategic alliances live up to original expectations. The good news is that there are enormous opportunities for improved outcomes. Recognizing and adapting to the unique characteristics of each alliance can dramatically increase the likelihood of powerful results for everyone involved. Even well conceived alliances can run into unanticipated challenges. Consider the following case:

A high-tech company (HTC) created a strategic alliance with a manufacturing company (MC) to develop a new product. Both partners considered the potential for success extremely high, as each was considered a market leader in its respective industry. The management teams of both organizations conducted the necessary due diligence and secured contracts from each other. Everything seemed in placeuntil the kickoff meeting.

While the alliance objectives were clear, the participants soon discovered that they couldnt agree on how they were going to work together. Representatives of the MC, used to working under highly structured project management guidelines, immediately put together detailed steps, a timeline, and measurements for success. On the other hand, the HTC representatives, accustomed to freewheeling interaction and frequently changing directions, resisted this approach to managing workflow and insisted on using their more fluid scheduling system.

The MC approach won; however, the established steps, timeframes, and measurements soon became irrelevant as mile-stones were repeatedly missed and goals were dropped. Within six months, changing priorities at both the HTC and the MC made it difficult for alliance team representatives to devote the necessary time and resources to product development efforts. The alliance ended, with each company blaming the other for the poor fit.

Can scenarios like this be avoided? The answer is a resounding yes. Here are four steps that can lead to high performance results in many types of alliances, whether they are structured loosely or are developed as highly committed joint ventures. #1: Define and communicate your alliance strategy

Many organizations create detailed process guidelines for how to design strategic alliances. However, weve found that with fast paced demands and proliferating opportunities, its easy for individuals and groups to lapse into an ad hoc approach if they arent kept aware of the companys strategic priorities. Thats why its more important than ever to develop and share a clear, real-time alliance strategy that describes the general types of alliances that your company is seeking, what is already in place, and criteria for selecting partners that best fit current needs. Communicating this information consistently across your organization also ensures that alliances are not inadvertently duplicated in different parts of the company.

Before making the decision to seek an alliance, its critical to understand how the relationship could impact employees, suppliers, and other external stakeholders. Issues to consider include: Could an alliance with our suppliers competitor alienate our key supplier? Do we have the resources and employees with the necessary competencies to properly manage an alliance?

Are we willing to be flexible to the regulations and cultures of different countries?

When considering prospective partners, determine the fit of an alliance with your companys vision, mission, and company strategy. This can provide you with a way to determine how likely it is that the needs of both parties will be in alignment when other priorities threaten to divert time and resources away from the relationship.

The clearer your alliance strategy, and the more that all who could be forming alliances understand current needs, risks and benefits, and the degree of fit between your organizations, the more likely it is that your company will choose appropriate partners and that each relationship will get the consistent attention and support it needs to thrive. #2: Develop a shared strategy

Unlike outsourcing arrangements, which are client-centered, or mergers, where one company tends to dominate, alliance partners are equal in power. Each company is an independent entity with its own objectives and guidelines. To be successful, the partners must consider, Whats in it for them? as well as, Whats in it for me?? This comes from understanding how the vision, mission, values and strategies of both companies fit together.

As executives of the HTCMC alliance learned, each company is ultimately governed by their own priorities, which can change quickly and dramatically. To prevent these situations from causing gridlock down the road of execution, its important for executives from both companies to insure that the relationship kicks off at the executive level to ensure that theres alignment about the specific high-level objectives and governance of the alliance. This includes expectations from the alliance partners, company roles, sharing intellectual capital, and measurements to determine success. The joint strategy session mirrors the same process as developing your own companys strategy, with additional questions such as: What are our goalsboth individually and jointly? How will we measure success? How will we make critical decisions?

The more that executives from both companies are involved and aligned on these issues, the more likely it is that proper physical and human resources will be allocated to the alliance on a consistent basis, and the faster the alliance can progress toward its objectives. # 3: Build a bridge to Our Way

As executives of the HTCMC alliance learned after they joined forces, managers and employees in alliance teams often have to develop new skills and work differently than they

do when focusing within their own organizations. Rather than managing projects my way or your way, alliances must build a bridge to our way.

Just because a set of alliance procedures worked well with one partner does not mean theyll work the same in another relationship. Executives who try to clone policies and practices and make them fit in every instance are setting themselves up for disaster.

Very often, the formal culture (values, beliefs, and practices) stated in a companys official documents and speeches are not reflected in their informal culture (what really happens). For instance, if a companys formal culture promotes empowering employees to make decisions, but the informal culture reinforces the need for multiple levels of management approval to change procedures, employees may have a difficult time getting things done in the alliance. Developing a sense of the dominant features of a partners informal culture can powerfully enhance your ability to adapt to values and influences that might otherwise undermine the alliances implementation.

Paving the way to high-performance alli-ances requires cultural acumen as well as flexible policies and systems that enable the alliance to stay nimble in response to constantly changing conditions. # 4: Evaluate and adjust

As alliances progress, they frequently run the risk of taking on lives of their own and evolving away from their original objectives. Thats why its essential to establish frequent checkpoints and milestones to evaluate your efforts and to rethink the alliances purpose. At these times, leaders from both companies need to review the results to date and compare them to the success criteria they established during the joint strategy session. Keep focused on the intent of the alliance, but be prepared to modify your agreement and processes if necessary.

The results from this evaluation also can impact each companys own strategy. For example, one consumer products company found that its plans to acquire a competitor con-flicted with an agreement they had in place with a key alliance partner who was marketing their products. The acquisition subsequently had to be called off. Some revealing questions to ask at alliance reviews include: Whats going well and why? What strategic and organizational changes have taken place in each company that could impact this alliance? What knowledge and skills do we need to develop to advance our objectives? How do we need to adapt policies and systems to accomplish our goals?

As the alliance agreement gets fine-tuned, continue to evaluate the results. The more checkpoints you allow for in the plan, the less likely it is that problems will spiral out of control.

Each of these four steps supports the critical essence of successful strategic alliances: recognizing and addressing both strategic and organizational issues that occur at each stage of the strategic alliance process. This happens individually and collectively with the partner youve selected.

By establishing your own alliance strategy and working with your partners to jointly develop and nurture the alliance strategy and operating plan, you lay the foundation for a mutually beneficial relationship. Partners can develop approaches for working together and codeveloping opportunities that extend their mutual reach while serving their individual interests. The result will be a flexible and collaborative relationship that accomplishes more than what any one company could achieve alone.

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