International Business Management

Topics: Foreign direct investment, Joint venture, International trade Pages: 5 (1706 words) Published: April 15, 2013
International Business Management
What are the advantages and disadvantages of international strategic alliances? How to select partners for cooperation? An International strategic alliance is typically established when a company or establishment decides to edge into related business or new geographic market especially one where the government prohibits imports in order to protect domestic industries. There are a number of advantages and disadvantages pertaining to international strategic alliances. The advantages of international strategic alliance are as follows; it is much more flexible to than an acquisition with respect to the degree of control enjoyed by both party. International strategic alliance may facilitate entry into a foreign market, or at least speed up your entrance into new markets. When a company decides to enter a market, it is wise to get a partner who knows that market or is from that market. Understanding the market can promise success for the business in the future. An alliance may be necessary because cooperation with or participation in a local company is a condition of trading in a particular country, or because the cooperation of a local partner will help to overcome barriers such as local regulatory, cultural and language difficulties. Secondly, an alliance helps one to gain new skills and technology. An alliance is to bridge a competency gap by accessing the skills of a strategic partner, the other partner will be looking for something else in return that may take the form of further technology transfer. Thirdly, an alliance allows firms to share the fixed costs and resources of developing new products, processes or services. Fourthly, it exploits new opportunities to strengthen your position in the market where your partner already has a foothold. Other advantages include it helps one to broaden a company’s business and political contact base, increase sales, enlarge the distribution channels, enhancing your image in the international market and gaining greater knowledge of international customs and cultures. Just like the advantages, there are many disadvantages which include giving competitors a low cost route to technology and markets. In other words, the company that is not doing so well will feed off of the other, more successful business. Secondly, you can lose managerial control or equity stake of a company. If you enter an alliance with less equity stake, say 49% you can lose control. You may end up with the least equity percentage because it is what the government of the host country allows, because you could only negotiate that amount or because you were willing to accept a minority stake in exchange for gains that you thought were important during the negotiation phase. There can also be a loss of control over other important issues such as product quality, employees, operating costs etcetera. Other disadvantages include less efficient communication, poor resource allocation and difficulty to keep objectives on target over time. To make an international strategic alliance work, you have to first select the right partner or ally. A good partner access three characteristics, they help the firm achieve its strategic goals, whether they are market access, sharing the costs and risks of product development or gaining access to critical core components. The partner must access the capabilities that the firm lacks and values. Secondly, a good partner shares the firm’s vision for the purpose of the alliance. If two form approach an alliance with different agendas, the chances are great that the relationship may not flourish. Thirdly, a good partner is unlikely to exploit the alliance for its own ends, to dispossess the firm’s technological know-how while giving away little in return. For what reasons do home countries intervene in Foreign Direct Investment (FDI)? Countries find themselves intervening in Foreign Direct Investments (FDI) for numerous reasons, often to protect a country’s...
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