Forming International Business Alliances: A Case Study of the Global Packaging Industry

By Alon, Ilan | Journal of Small Business and Entrepreneurship, Winter 2005 | Go to article overview

Forming International Business Alliances: A Case Study of the Global Packaging Industry


Alon, Ilan, Journal of Small Business and Entrepreneurship


Introduction

The aim of this paper is to examine a particular strategic international alliance in the packaging industry and to recommend a legal structure for such an alliance using a successful case study of the global packaging industry. Global Packaging Alliance (GPA) has members strategically located all over the globe and is, consequently, able to provide packaging, packaging services, and components to international customers in a cost effective and timely manner, and on a consistent basis. This paper analyzes the formation and expansion of this unique alliance and provides a benchmark for other companies and industries to follow.

International alliances are defined as "relatively enduring inter-firm cooperative arrangements, involving flows and linkages that use resources and/or governance structures from autonomous organizations, for the joining accomplishment of individual goals linked to the corporate mission of each sponsoring firm. (Parkhe, 1991: 794). International strategic alliances are becoming a fast-growing method of foreign-market entry.

Compared to foreign direct investment, international strategic alliances embody a lower level of financial investment and risk and allow for the pooling of resources, skills, and abilities across multiple firms for the purpose of achieving a joint purpose. International strategic alliances, however, are not risk free. The different decision style of the alliance companies, the loose association that exists among the alliance firms, and the sharing of strategic resources exposes firms to potential failure and an unstable business environment in which one partner may take advantage of another. The popularity of strategic alliances has increased and the use of alliances in the international sector has moved into mainstream corporate activity despite implementation difficulties (Beamish et al., 2003).

Beamish et al. (2003) conceptualized strategic alliances as a range of joint venture options that vary in terms of the level of interaction and cooperation. At the lowest level of interaction and cooperation are cooperative agreements, followed by patent licensing, franchising, cross licensing, R&D consortia, co-production/ buy-back, and equity joint ventures. In this case, the GPA has opted for a structure that combines various elements from the different kinds of strategic alliances, which include cooperation in technology, marketing, and manufacturing.

Despite the risk factors associated with strategic alliances, this mode of entry into foreign markets has its advantages. For example, strategic alliances have the potential to lower the transaction costs, hedge against strategic uncertainty (Kogut, 1988), acquire needed resources, allow firms to evade international barriers to entry, protect a firms home market from international competition, broaden a firm's product line, allow a firm to enter new product-markets, and enhance resource use efficiency (Vaidya, 1999). Firms utilizing strategic alliances can enhance their firm-specific resources (physical assets, intangible property, patents and trademarks, human resources, and complementary resources), technical capabilities (R&D, manufacturing, marketing, sales, and market knowledge), and managerial competencies (management skills and abilities, and value-added activities).

The advantages gained by using international strategic alliances depend on the type of industry and the way in which the alliance is structured. For example, Varadarajan and Cunningham (1995) contend that firms in a mature industry are more likely to benefit from strategic alliances, whereas Vyas et al. (1995) proposed that technology-based alliances tend to benefit high-tech industries more than traditional industries.

A number of normative frameworks have been sketched out as well. Vyas et al. (1995) suggest that firms should conduct SWOT, goal compatibility, and value-added analyses for participating firms prior to committing to the alliance.

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