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The essence of transnational alliances.

The Essence Of Transnational Alliances

We have entered an age in which strategic business alliances between companies in different countries will prove to be the core capability needed to compete effectively in world markets. Such alliances no longer provide mere enhancement to international sales; companies that fail to adopt an international outlook do so at the risk of putting their futures in jeopardy.

Much has been written about the value-added chain. In order to compete in the marketplace, companies must upgrade--add value--in three ways: design technology, process manufacturing, and marketing. Why are strategic alliances so necessary in these areas? Why can't a company simply stay in-house and capture all of this value-added chain for itself?

The answer is twofold: time and resource costs. As competition is magnified by the emergence of new players across the globe, engineering and design cycles are becoming ever shorter. Where once an industrial equipment manufacturer might have had a decade to design a new product, the cycle today may be reduced to one or two years. Companies must farm out different components in order to hit the market in a timely fashion. Moreover, capital and human resource limitations reinforce this necessity.

European, Japanese and American companies are increasingly turning to transnational strategic alliances (TSAs) in order to remain competitive. These TSAs are formed among two or more enterprises in two or more countries. They seek to integrate varying combinations of deliverable resources and capabilities (products, production facilities, marketing and distribution outlets and financing), in response to emerging market opportunities. In many instances, individual companies are unable to exploit these market opportunities on their own because of:

* Financial resources required to take advantage of the market opportunity are beyond the company's means.

* The time factor is such that unless the necessary resources and capabilities are mobilized within a short time period, competitors stand ready to pre-empt the emerging market opportunity.

* The company does not consider it feasible or prudent to add to its internal value chain the elements needed to respond to the market opportunity.

The willingness of American companies to enter into strategic alliances varies widely. Most U.S. companies still take a short-term defensive position, often seeking to reduce manufacturing overhead. Competitors in Japan and elsewhere take a longer-term view in terms of acquiring new product technologies and establishing marketing and distribution channels. The following strategic alliances have emerged in recent years and show how companies can help each other cope with global competition.

Pharmaceuticals - E.R. Squibb (U.S.) has teamed up with Novo (Denmark), a small insulin and enzyme manufacturer, to market a new insulin product that is five years ahead of the market. Novo is supplying the product and production technology, and Squibb is responsible for providing the sales and distribution network for the North American market, as well as for compliance with U.S. government regulations pertaining to Novo's newly developed injection system.

Automobiles - Daimler Benz (West Germany) has entered into a strategic alliance with Mitsubishi (Japan) to jointly develop, manufacture, and market vans in Europe. The two primary motives are the sharing of product development and production investment costs, and having rapid and effective access to marketing and distribution networks in Europe and Japan.

Robotic Equipment - BMW (West Germany) invested in an automated, machine-vision inspection system for automotive parts developed for them by American Cimlex (U.S.). BMW gained rapid access to a highly innovative product and a fast track from the laboratory to a marketable commercial prototype. American Cimlex, a much smaller company, gained access to otherwise unobtainable financial resources and to BMW's manufacturing know-how and global marketing capabilities.

Aircraft Engines - Rolls Royce (UK), in fierce competition with General Electric and Pratt and Whitney, is a member of a five-nation, seven-company consortium whose aim is to design, manufacture, and market several hundred advanced turbojet engines for the next generation of Airbuses that are competing intensively in world markets. The consortium's aims are to reduce the financial burden, share developmental risks, and maximize the access to the national markets of consortium members.

The operational realities of structuring and managing TSAs involve a number of internal and external adjustments in corporate policies and practices.

* Internally, new organizational structures are needed to permit rapid and flexible response to changes in total market demands and competitive conditions. Deep changes in the corporate culture--in management's mind-sets and lifestyles--are a prerequisite to developing and implementing TSAs.

* A new approach to outsourcing is indispensable in order to avoid the erosion of a company's technology base and a deepending dependence on foreign partners for production and product design capabilities.

* Mutual dependence and mutual learning, rather than cost avoidance, should be the long-term objective in structuring TSAs. The international partnership should aim for a balance in contributions in product development, manufacturing, and marketing.

* Techniques for finding and getting likely candidates for foreign partners are a critical element of advantageous TSAs.

Dr. Baranson is associate director of the Manufacturing Productivity Center, IIT Research Institute, in Chicago. He was formerly research professor of International Business at the Stuart School of Business Administration, Illinois Institute of Technology, and associate director of the Center for Research on Industrial Strategy and Policy. Dr. Baranson was a visiting lecturer at the Howard Business School, Staff Economist at the World Bank, International Marketing Manager at Global Dynamics Corporation, and is the author of several books.
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Author:Baranson, Jack
Publication:Industrial Management
Date:Mar 1, 1990
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