Multinational Corporations' Use of Strategic Alliances

The recent trends of how MNCs are using various types of strategic alliances include:

1. Technology Exchange
R&D is expensive, and payoffs don’t always come quickly. This factor is the most significant element to the other trends following, as today’s products life spans are very short, and time is of the essence in business.

2. Global Competitors
A large dominant player with deep pockets such as IBM causes smaller players such as Fujitsu to scramble for partners. Big players such as GE and Fanuc causes other players to join together to compete more effectively against the big boys.

3. Industry Convergence
High-tech is about convergence. Applications and production greatly overlap. Again, time is of the essence, and alliances of existing players can help block out new entrants.

4. Economies of Scale and Reduction of Risk
Pooling resources and focusing activities can raise the amount of activity, or the rate of learning, and also avoid duplication. Risk-hedging could be another benefit resulting from sharing the risk with another party.

The relative pros of collaboration exploded in the ‘80’s, where “Triad Power” and “Stick-to-Your-Knitting” management concepts seduced many companies. Triad Power focused on the need to develop strong positions in the U.S., Western Europe, and Japan. Stick-to-Your-Knitting focused a company’s efforts on its strengths, and other operations would be outsourced to alliances. DEC and Ericsson, Chrysler and Maserati tried this with some success.

The cons of collaboration are obvious: one firm may use the opportunity to develop competitive advantages; the complexity of organization and strategy managing these alliances are significant; “learning by doing” is a valuable experience which adds knowledge to the company which is lost in collaborations; short-term solutions may cover up long-term problems. Xerox and Fuji-Xerox faced some of these issues, as international partnerships often face: economic, political, social, cultural. American companies are accustomed to expectations of Wall Street and watching for hostile takeovers, and are quite short-term in vision; whereas Japanese companies are seemingly insensitive to stock fluctuations, and more long-term in vision.

The rationale for the collaborative strategies is that in today’s global economy, the types of alliances above are critical to survival. Timing is everything, and if your competitor has something you need, and you have something your competitor needs, and you can agree on friendly competition, this is better than gaining no market share at all against all the other competitors in the field – especially if there’s a Goliath in the field, Davids need to band together. At the end of the day, the longer a firm goes without gaining more or new market share, the greater its chances of being squeezed out by competition.

Today’s strategic alliances are generally between companies in industrialized nations. The focus of these alliances are on creating new technologies or other products, instead of hashing over old ones. Most importantly, today’s alliances are usually made during industry transitions, when positions and advantages are being redefined. Unlike traditional JV’s, today’s alliances are widely varied, from formal JV’s, to sharing R&D, to minority equity participation.

My view on alliances is that generally they seem to be beneficial in some way. For example, in Japan, strategic alliances are certainly beneficial for both parties. For example, KFC and Mitsubishi, Philips and Matsushita, Mitsubishi and Caterpillar benefited in ways as discussed above:

- KFC and Mitsubishi
KFC-J got a strong established partner with government connections and financial and real estate resources, Mitsubishi got an outlet for its poultry operations.

- Philips and Matsushita
Philips needed a hot growth area other than stagnating Europe, Matsushita had trouble finding an American partner and admired the Philips organization. A technology exchange and licensing agreement helped both.

- Mitsubishi and Caterpillar
Cat realized that industrially developing countries would grow their own Cat competitors unless Cat was there already. Komatsu turned down Cat’s overtures, but Mitsubushi accepted, fulfilling a domestic demand during Japan’s high construction years.