Paradigm Shift of International Strategic Alliances in International Business

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(1) Over the past decade, the landscape of the international business environment has undergone substantial change. International strategic alliances (ISAs) and other inter-firm collaborative strategies have permeated global trade. With increasing frequency, international strategic alliances are being forged between firms. Instead of competing in an adversarial manner, firms are now focusing on “collaborating with their competitors.”

(a) Describe why are ISAs being formed and why is this major paradigm shift occurring from competing against to cooperating with competitors?

The International Strategic Alliances are formed from the simple concept that is more difficult for a firm to excel independently versus collaborating and achieving mutually beneficial goals.Strategic alliances are developed due to multiple reasons some being market entry, business expansion, shared costs of research and development, a production partnership or a combination of the aforementioned reasons. Most cooperative alliances formed during the ’90s were formed for the purposes of joint sales and marketing activities (Kang and Sakai, 2000). As industries become more hypercompetitive and reach a crescendo in terms of their export strategy and market share. It becomes increasingly advantageous to partner with companies who have similar aims. Technology has been the impetus for many different initiatives and the development and prevalence of International Strategic Alliances is no different.

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Ballooning costs in research and development and fragmented efforts across the globe allow for companies to bolster and leverage their R&D efforts to create new products, engage new markets, and capture new customers. Moreover, the Technology, Media, and Telecommunications industries have exhibited growth throughout the 90s into today and have the greatest incentive to utilize ISA’s as a means to expand and develop new products and initiatives on a global scale. As lucrative as an International Strategic Alliance may seem they are not all created equal and must be looked at with a great deal of prudence to assess the usefulness and the ramifications of participation.

An international strategic alliance is commonly utilized by corporations who desire to creep into a similar business or international market, specifically one in which the regulating authority inhibits imports in order to defend it’s national businesses. Alliances can be routinely made within two or more businesses each with base operations at their headquarters which may be in a different country, for a specific amount of time. Additionally, the paradigm shift in competing to collaborating with companies is largely due to the increasing desire to internationalize companies and expand beyond the cultural territories and barriers that exist. Countries such as Japan have typically had exclusionism embedded into the culture of their businesses which is great in terms of developing a strong economy within their borders but not so much in terms of developing strong relationships outside the border. With hyper-competitive markets and limited customer base, one can see why Japanese customers would be receptive to the paradigm shift as a means to internationalize and generate more revenue, increase market share, and get more customers. ISA’s allow companies to shift from putting their crosshairs on their competitors and their products to putting them on the objectives of creating a larger customer base and harvesting international synergy into profits.

(b) IDENTIFY, DESCRIBE and EXPLAIN in SUBSTANTIVE DETAIL the concept/theory, precepts, and building blocks of ISAs and reasons for building ISAs.

Concepts / Theory / Precepts & Building blocks

An international strategic alliance (ISA) is defined as a business collaborative, distinct from a merger or acquisition, that is created and sustained by multiple businesses to collaborate out of a common desire to share risk in attaining a mutual objective. Firms within the collabroative elect to persist as legally independent after the creation of the collaborative. In addition,the collaborative relationship endures for a period of time as decided by the companies. International strategic alliances can be classified in multiple categories. ISA’s can be categorized into licensing, franchising, management service, supply, research and development, manufacturing, marketing, and others (Li, 2015). The alliances are designed to be win-win and value is reciprocated between all parties invlovled.

Based on the amount of collaborators engagd, an ISA can be bilateral or multilateral. Whereas a bilateral strategic alliance describes a relationship with two corporations and a multilateral alliance represents a relationship between various corporations. Examples of bilateral relationships include the strategic alliance between Royal Bank of Scotland and Tesco in which the British supermarket chain utilized the Scottish banking services in all of its stores. An example of a multilateral relationship would be the collective known as Airbus and Visa’s card system (“Strategic alliance”, 2019).

Another facet of ISA’s are the temperaments and properties of the nationalities involved. As each alliance member is based in their respective headquarters which are located in a different country. Alliance locations can be categorized as home-home, home-host, or home-third country alliance.

Reasoning

There are three distinct product life cycles that indicate the reasoning for the utilization of ISA’s. Namely slow product cycles, standard product cycles, and fast product cycles. The product life cycle is influenced by the compulsion to innovate and perpetually concoct new products for any given market. For example, the companies within the pharmaceutical industry maneuver with slow product cycles in which products take a long time to develop and reach the market. Conversely, companies within the software industry maneuver with fast product cycles in which products are developed rapidly and are constantly being introduced to the market. Fast product cycles are usually required in order to ensure tech companies survival amongst competitors. In addition, standard product cycles represent companies who develop new products on a yearly or bi-yearly basis but struggle to maintain a leading position in their industry.

For companies whose product falls in a different product lifecycle, the motivations and reasoning for ISA’s are distinct: Firstly, Companies utilizing slow product cycles reasoning for entering ISA’s is to gain access to a restricted market, maintain market stability (setting product standards), and establishing a franchise in a new market. Secondly, Companies utilizing standard product cycles reasoning for entering ISA’s is to gain market share, try to push out other companies, pool resources for large capital projects, establish economies of scale, and gain access to complementary resources. Lastly, Companies utilizing standard product cycles reasoning for entering ISA’s is to speed up the development of new goods or services, share R&D expenses, streamline market penetration, and overcome uncertainty.

(c) IDENTIFY the TYPES and CHARACTERISTICS of ISAs in SUBSTANTIVE DETAIL.

Characteristics

There are three main characteristics of ISAs. The first being the most prevalent which is the independence of partners. The firms cooperate and collaborate together internationally and work with synergy to achieve their mutually beneficial goals however the firms operate independent of each other. Secondly there is an inherent trust between the partner organizations. This is the only environment in which ISAs can survive. By firms agreeing to work together under an alliance their exists a de facto understanding of the mutual need for one another and the general agreement to operate earnestly in joint endeavors.

Commitment is also a characteristic in an ISA. Partners must demonstrate commitment to achieving alliance goals and to maintain the alliance relationship. If partners neglect their duty to commit then conflict will arise within the relationship inhibiting the achievement of goals and damaging the need for continued partnership. Lastly, communication is another important ISA characteristic. In order for ISAs to be fruitful for both parties there must be adequate levels of communication especially when there are cultures which are incongruent and both parties need to be able to understand and translate in a way that is digestible to them. Quality of communication along with partner participation all are vital to the success of the corporate marriage.

TYPES of ISAs

CHARACTERISTICS

Equity Exchange ISAs

Equity ISAs consist of joint ventures, equity swaps, and minority equity investments. Each are in order of partner engagement.

An equity strategic alliance is created when 2 or more firms agree to combine resources. Often characterized as a joint venture, equity swap, or minority equity investment.

This structure of an ISA makes the company stakeholders and shareholders of each other. This phenomena is called cross-shareholding and results to complicated networks. This also complicated when there are multiple companies involved in the network. Competition is reduced within the network.

Non-equity exchange ISAs

A non-equity strategic alliance consists of two or more companies enter a contractual agreement to combine their assets and resources together.

Examples include Research and development collaboration, co-production contracts, the sharing of new technology, supply arrangements, marketing agreements, etc.

Non-equity ISAs characterized by increased coordination, communication, and cooperation.

(d) Identify in SUBSTANTIVE DETAIL the ADVANTAGES and DISADVANTAGES of forming international strategic alliances?

ADVANTAGES OF ISAs	DISADVANTAGES OF ISAs
ISAs often share high product R&D costs. The expensive nature of conducting research and development of a company’s goods or services are shared. This is especially true for industrial, healthcare, pharma and tech corporations. In addition to shared costs they also share the result of research and development and reduce the cost.	Risk giving a competitor advantage if partner becomes competitor Once the ISA ends. The sharing of information can be used against the company who has the most to lose.
ISAs can expand customer base. Partners can gain access to markets that they regularly do not have access to. Further strengthening their market share and brand recognition if ISA is successful.	You may lose employees. Crossover of employees can occur which result in the stealing of talent across corporate boundaries. possible outcomes of ISAs. Companies might lose great performers people because their partners are able to hire them at a higher salary to do similar work.
Spur more Innovation. ISAs allow for resources to be able to go further than any one single company. Which results in products or services that are innovative and more appealing to customers.	Culture Clash can occur. cultures vary widely across the globe. When companies align those differences manifest and become evident. In addition, thy might difficult to overcome.These clashes are apparent in Western and Asia-Pacific alliances. This can result in a tense relationship.
A global strategic alliance may include financial assistance for all parties involved –ne.	Partnerships can experience issues with implementation if they do not have the ability to coordinate their operations efficiently. Open communication is necessary within an ISA to make sure this issue will not happen
ISAs allow companies to expand their network base of contacts globally. The additional contacts via the alliance is extremely valuable

(e) “All joint ventures are strategic alliances, but not all strategic alliances are joint ventures.” Do you agree or disagree with this statement? Either way, provide a DETAILED explanation in defense of your position.

I agree that “All joint ventures are strategic alliances, but not all strategic alliances are joint ventures.”

First of all, we have to know the joint ventures and strategic alliances.

Joint ventures are joint business ventures that result in the materialization of a newly created firm with multiple ownership by two or more corporations to achieve a common goal. They are memorialized by legal contracts and are more formal in nature. In addition, the participating corporations share capital, equity, and labor, which is essentially a jointly owned and operated company. This is especially advantageous for ISA’s in countries where it is hard for a foreign company to get licenses to operate or sell. The partners in a Joint Venture get paid out in profits commensurate with how much they put in to the venture. Joint Ventures are characterized as equity exchange international strategic alliances. In a joint venture partners have access to capital, product, and operational knowledge without altering the partnering parent companies.

Strategic alliances describe when two or more corporations agree to stipulations and can come to a general consensus and solidify it with no more than a bonafide handshake agreement. Some strategic alliances opt to draft a letter of understanding to further delineate the agreement and establish rules. However, they starkly contrast joint ventures in that they are less formal. Conversely, A joint venture is created by a binding contract and results in a new company.

In a strategic alliance, the corporations remain separate. In contrast, a joint venture, a new company is created. A strategic alliance is also not a distinct legal entity. It is much more of a loose agreement and is subject to different tax implications as far as the U.S. is concerned however, a joint venture would be classified as a distinct legal entity.

A strategic alliance is usually managed by existing representatives of both companies. While New management is routinely employed for a joint venture. A strategic alliance is usually created in order to optimize the advantages and opportunities that both corporations provide in the partnership. In a joint venture, there is underlying importance in limiting risk. Even though strategic alliances are not dictated by contracts they do have an end. That end is usually when the goals of both parties are achieved. In addition more formal strategic alliances could have sunset dates or be subject to performance reviews to determine if the alliance is still needed or more importantly still profitable. In actuality, most strategic alliances end or die out. Disagreements and falling out do not necessarily terminate the future possibility for strategic alliances many alliances partners who remain cordial as a result of their partnerships as they go back to their prospective businesses.

All in all, joint ventures have all the characteristics of strategic alliances however strategic alliances are more informal and thusly do not encapsulate all that occurs in joint ventures.

(IMPORTANT NOTE FOR Q1a-e: IN ANSWERING THESE QUESTIONS, DO NOT ONLY MERELY RESTATE POINTS DISCUSSED IN THE LECTURE ON THESE TOPICS. PLEASE CONDUCT RESEARCH AND USE EXTERNAL SOURCES OF INFORMATION TO ADDITIONAL EXPLANATIONS FOR YOUR ANSWER, BUT BE SURE TO CITE ALL YOUR SOURCES OF INFORMATION AFTER EACH ANSWER.)

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(2) The following questions are based on the HBS XEROX FUJI/XEROX (X-FX) Case.

(a) Based on your assessment, IDENTIFY AND EXPLAIN IN DETAIL THE CENTRAL PROBLEM facing X-FX?

Xerox technology was coveted in Japan however local laws required the America Xerographic technology to apply for a local license or partner to operate and sell in which was expensive and time consuming. Hence the formation of the Fuji Xerox Partnership. Fuji Xerox was a 50/50 joint venture created in 1962 to expand the ability to market Xerox products in Japan and other eastern countries. Fuji being one of the biggest leaders in the photographic film manufacturing industry under Kodak wanted to create diversity within their portfolio and expand. The ever increasing prevalence of competition in both countries in the East and West led to the mutual desire to expand and capture more of the market share. Fuji Xerox was up against fierce competition in Japan.

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The case details how successful a ISAs can be they are managed prudently. In printing and copying industry, the competitiveness between Xerox and its rival, Canon Ltd., was the classic tale of one versus one. Instead, a collective of Xerox subsidiaries and partners competed against Canon, which was one company. The Xerox group is complicated web of allied companies namely Xerox and Fuji Xerox. Jointly, this duo creates new products, enter new markets, creates hardware, all of which Canon accomplishes on its own. Fuji Xerox is evidently more than a small interest on the outside of the Xerox org chart but rather allies are compatriots willing to tackle tough issues and fierce competition. As a result of their structure, the Xerox collaborative possessed some synergistic advantages but that was not without facing disadvantages as well.

Initially, Xerox did not address the impending rise of rivals in the lower volume segment of the market in Japan. Xerox was more concerned with I.B.M. and the Eastman Kodak Company entering the copy industry, because they were targeting the more lucrative markets. But the crisis was the impetus for Xerox managers to change their way of thinking. In terms of their relationship, Xerox did not dominate Fuji Xerox, they were entitled to a share of the profits created via the joint partnership. As a result, Fuji Xerox benefited from the sharing of resources and technology from Xerox and enjoyed a great degree of autonomy. The autonomy of Fuji Xerox also stemmed from sheer neglect. To many managers at Xerox, Fuji Xerox had few technological capabilities that Xerox was aware of, especially when contrasted with companies like Kodak and the International Business Machines Corporation. When Fuji Xerox engineers proposed new tailored developments for copiers in the Japanese market Xerox execs attempted to persuade them to not however the execs eventually gave up paying attention to the situation and the engineers went ahead with their ideas anyway.

In copiers, Canon was strong in the low end of the market (holding 50 percent of the market at the time), and the company had recently developed a growing business in color copiers. Xerox, however, was determined to be aggressive in its response. The company’s strategists now saw the relationship between Xerox and Fuji Xerox as a critical element in competing worldwide against Canon. Canon had a strong presence in all major world markets, as did the Xerox companies. In addition to this potential scale advantage in manufacturing, Canon appeared to gain from its centralized research. Joint ventures require companies to traverse a thin line between competition and cooperation. More prevalent than single companies, joint ventures have internal areas of conflicts that can dismantle the collaborative. Internal friction reduces a joint venture’s ability to harvest advantages and benefits from the collaboration. Additionally, the absence of these benefits means the group has little ability to be successful in this competitive landscape.

(b) ENNUMERATE and EXPLAIN IN SUBSTANTIVE DETAIL EACH OF the 4 KEY ACTION ISSUES for which different strategies/solutions need to be articulated?

Competition Issues

Xerox and Fuji Xerox faced competition from multiple angles in both low, middle, and high-end markets. While the competition in the earlier stages posed less of a problem as time progressed there was a growing list of competitors entering the market globally. A majority of the pressure stemmed from Canon. As competition mushroomed Fuji Xerox invented and brought to market the smallest copier to Japan, the FX2200 to face off against new competition. Canon also introduced a copier using liquid toner to combat the dry copiers. Furthermore, Canon licensed the tech and made it more affordable than dry-toner copiers. Xerox’s monopoly was eclipsed by IBM in 1970. Canon exhibited dominance in the low-end copier market. Additionally, Canon held 50% of the market by 1989. Canon was launching two times as many products as Xerox and spent less than $600 million on research and development annually in contrast with $800 million and $300 million from Xerox and Fuji Xerox respectively. A significant portion of Canon’s goal of becoming a $70 billion company was predicted to come from Xerox’s heartland of high- and mid-volume copiers and printers. Xerox Group’s joint venture was viewed as a quintessential combat tool against Canon. In addition, they collaboration to meet rising challenges.

Management Issues

Management issues arose as a result of the joint venture. Thee Codestiny 3 Task Force was commissioned to aim at developing a rubric for cooperation of the Xerox collaborative. When FX grew and matured in ‘80’s, its revenues grew at a faster rate than Xerox’s, and became a huge source of capital. FX made significant contributions to the profits for the group and it maintained this trend to increase, from 5 to 22 percent over the course of 7 years. Fuji Xerox transformed into an important source of low-end copiers for Xerox from 1980 to 1988. The management conflict issues become more and more pronounced with the development of Fuji Xerox The group must figure out and efficient and effective way to conduct their relationship.

Fuji Xerox

Fuji Xerox expressed interest in taking over the sales and operations in Asia South Pacific instead of having Rank Xerox lead. Their reasoning stems from being in close proximity to the Asia South Pacific area and having similar marketing and sales methods. Fuji Xerox believed that they were the more appropriate fit from a cultural and business standpoint. Rank Xerox had spoiled opportunities to expand and Fuji Xerox felt that they could fill the chasm left by the company.

Adaptation Issues

In the beginning of the venture, the two entities needed to figure out a way to optimize management of the joint venture . After, they encountered competition from other copier companies from both locally and internationally. Xerox’s heaviness and inability to migrate to new industry standards are ultimately an issue that must be mitigated. Canon is much more lean and has the ability to enter and exit markets as it sees fit. Fuji Xerox is equipped with new technology and information to create products that are relevant to their markets. Moreover, adaptation in joint ventures has to be tandem to be effective. The hyper competitive market is filled with proverbial big fish and little fish however, market leaders need to be poised to pivot in the event of disruption.

(c) Based on your analysis, first describe in DETAIL the meaning of EACH OF THE OPTIONS BEING CONSIDERED FOR: (1) MARKETING, (2) RESEARCH, and (3) DEVELOPMENT&MANUFACTURING.

1. MARKETING CONFIGURATION

Independent and overlapping: this relationship is characterized by the two companies of the joint venture working together to conduct business on the world market. In addition, the companies are located in two different places so geography is not an issue.

Independent and Separate: The two companies operated in their distinct regions with multinational business being conducted as required. This configuration highlights autonomy of each company as a separate and distinct entity.

Separate with Exceptions: The relationship is similar to independent and separate, however, the two partners mostly do business as needed depending on the issue.

Coordinated Global Product Mandates: This kind of relationship is characterized by tandem efforts to cooperate worldwide. Taking the responsibility for products or products ranges manufactory.

2. RESEARCH CONFIGURATION

Independent: Based on the independent research method, each entity would conduct research based on their own interests. The purpose is to be self-sufficient.

Coordinated: Under this configuration, the two partners in the joint venture would collaborate in conducting research. The activities can also be independent and self sufficient simultaneously.

Joint: This configuration is characterized by a single research effort with overlap and no independence. This a complete pooling of research resources to develop new products and learn from one another.

Complementary: This form of research configuration employs the “two kill birds with one stone methodology”. Both participants conduct research that complements or enhances the other however the companies work separately from one another.

3. DEVELOPMENT &MANUFACTURING CONFIGURATION

Independent: Under this function, each of the companies conducts development and manufacturing by themselves and develop their own marketing organizations separate from one another. The development and manufacturing is completely segregated from one another.

Complementary without Overlap Configuration This method is designed to optimize and eliminate overlap. Each company assigns its own development roles with no overlap in development..

Complementary with Overlap Configuration The principles are mostly the same as without overlap however, the difference is that the partners are allowed to conduct overlap work.

Joint Configuration This configuration is characterized by one single development and manufacturing process poised to target the needs of the different marketing organizations in their crosshairs.

(d) Then identify and weigh in DETAIL the numerous PROSand CONS of EACH OF THE OPTIONS BEING CONSIDERED FOR: (1) MARKETING, (2) RESEARCH, and (3) DEVELOPMENT &MANUFACTURING.

1. MARKETING CONFIGURATION

MARKETING CONFIGURATION
MARKETING CONFIGURATION OPTIONS	PROS	CONS
Independent and overlapping:	the companies could collaborate with each other when needed, so that to share some of the costs and risks of marketing. They do not have to be colocated. The be located anywhere globally.	Most of the costs are not shared and this can seem which will allow for marketing budgets to continue to erode at profits. Not fully optimizing the marketing potential of both orgs.
Independent and Separate:	The advantage is both companies have the autonomy to make and follow through with their own decisions. They are distinct without any overlap, so they can tailor their respective market strategies in response to the needs from their respective localities.	The partners might consider their own interests above the needs of the collective hurting profitability.
Separate with Exceptions:	Partners have the ability to utilize help from other partners in terms of marketing strategies on a case by case basis. Happy medium between autonomy and collaboration.	The partners run the risk of not being on the same page in their efforts. In addition the marketing efforts are not optimized.
Coordinated Global Product Mandates:	Partners would reap the added benefit of working together and optimizing their marketing outreach effort on a global scale	Depending on the decision making ability of the group this could prove to be complicated and take longer than if done individually. Anti Trust laws must be navigated

2. RESEARCH CONFIGURATION

RESEARCH CONFIGURATION
RESEARCH CONFIGURATION OPTIONS	PROS	CONS
Independent	The partners get to keep their information proprietary and safeguard from all competition. Research will also occur in the areas that it deems important.	Partners are effectively conducting double the research effort but not necessarily double the results. In addition, capital could be wasted because of this.
Coordinated	A coordinated effort could would call for some overlap which would materialize as small joint research efforts while still being able to perform research on the products that the company deems relevant	Does not fully harness the ability of both companies to do research together.
Joint	This method would allow for a complete pooling of resources ultimately sharing all information and inspiring innovation across borders.	Information that is proprietary will be shared and company secrets may be shared and utilized by partners who decide to be competitors later on.
Complementary	Companies get to work together separately on exclusive projects. Combines synergy with privacy and autonomy.	The research is not optimized and does not allow for innovation to truly take place because resources are not shared as porous as joint ventures.