Kingston university | |
|Discuss the most frequent sources of failure in forming strategic alliances. What can be done to mitigate these problems? | |International Business Strategy | |BSM103 | | | |05/03/2010 |
Lecturer: Adam Raman
Sources of strategic alliances’ failure
and how to mitigate these problems
Taking a decision to join an alliance would be very risky, in spite of any advantage that the alliance would give the firm, due to the high possibility to fail; unfortunately, this fact has formed an assumption that the formation of strategic alliances is more likely to fail, as long as more than sixty percent of alliances tend to fail according to (Kalmbach and Roussel, 1999, cited in Elmuti and Kathawala, 2001). However, this essay discusses the frequent sources that lead alliances to failure as well as it emphasizes key features that could be followed in order to mitigate these problems.
According to Elmuti and Kathawala (2001), the most frequent sources of failure in forming a strategic alliance could be the following:
1) Cultural clash: It is considered to be the most significant problem that firms face when forming alliances, the language acts as a barrier against an effective communication, while in terms of operations, companies operate differently as their cultures differ, in 2001, Daniel and Radebaugh stated that American companies evaluate performance using financial measures such as profit and market share, while Japanese evaluation relies on how companies operate to help themselves build a strategic position. On the other hand, in 2000, Steensma et al. said that the national cultural characteristics effect directly the formation of an alliance and temperate the technological doubts and formation of alliance relationship.
2) Lack of trust: The concept of sharing the risk is missing. Basically, what happens in alliances in case of failure is that each firm blames the other, which increases the size of the problem instead of solving it. However, trust is an aspect of success, and it has three forms, responsibility, equality, and reliability. Therefore, the alliance members should work on these forms, and improve the trust among individuals, as long as people trust each other rather than the companies.
3) Unclear objectives: Nowadays, the purposes of forming strategic alliances are wrong in most of the cases; hence, many companies join alliances to fight competitors. This action prevents them from focusing on their businesses. On the other hand, it discovers the existing problems within the alliance members; In addition, alliances might be formed to solve internal problems of a company. It is assumed that the increase in number leads to a fast repair which makes companies to join many alliances.
4) Poor managerial coordination: When decisions are made by members and don’t match high levels of management, this could disrupt the whole alliance, particularly, when allied companies treat themselves as enemies, since they were competitors prior to alliance. For example, if a company does its marketing for its products and sells them by its own, while it was in alliance with another company, this would cause a direct separation. Moreover, Bruner’s 1999 example about Volvo in 1993 when it tried to merge with Renault which destroyed the shareholders wealth of Volvo temporarily.
5) Difference in attitudes: Different companies have different...
References: 1. Elmuti, D. & Kathawala, Y. (2001) “An overview of strategic alliances”, Management Decision, 39 (3), pp. 205-218 Emerald [Online] Available at (Accessed: 01 March 2010)
2. Cojohari, N. (no date) Competitive advantage of strategic alliances [Online] Available at (Accessed: 02 March 2010)
3. Scot, B. (2001) Partnering in Europe: Incentive based alliancing for projects. London: Thomas Telford Ltd.
4. Scot, B. (2001) Partnering in Europe: Incentive based alliancing for projects. London: Thomas Telford Ltd.
5. Kermally, S. (1999) when economics means business: the new economics of the information age. Great Britain: Biddles Ltd, Guildford & King’s Lynn
6. Birchall, D. & Tovstiga, G. (2005) Capabilities for strategic advantage: Leading through technological innovation. New York: Palgrave Macmillan.
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