Academic journal article Management International Review

Performance Relationships in UK International Alliances

Academic journal article Management International Review

Performance Relationships in UK International Alliances

Article excerpt

Introduction

Since the mid 1970s, the incidence of alliance formation between partners from advanced industrial economies has accelerated (Anderson 1990, Hergert/Morris 1988, Glaister/Buckley 1994). A major driving force for alliance formation is the recognition by many managements that in an intensely competitive international business environment self-sufficiency will not bring success but that the ability to compete will be considerably improved with the help of partners (Inkpen 1995, p. 1). Two contractual forms of alliance can be identified - equity joint ventures and non-equity joint ventures. Equity joint ventures (EJVs) involve the incorporation of a new company in which two or more partners hold an equity stake. Each partner will expect to participate in the decision making activities of the jointly owned entity, will anticipate a proportional share of dividend and expect representation on the board of directors (Harrigan 1985, Geringer 1991). Examples include the 50-50 EJV established in 1988 between ICI of the UK and Du Pont of the USA in industrial paint products for the purposes of product development, production and marketing. From ICI's perspective the venture was particularly important in facilitating international expansion and to cope more effectively with a common competitor. From Du Pont's perspective the alliance was particularly important in terms of exchange of complementary technology, and enabling both product diversification and faster entry to the market. In 1989 the UK publishing group EMAP established a 50-50 EJV with Bayard Press of France, for the purposes of product development and marketing. The venture facilitated international expansion for Bayard Press and was particularly important in enabling fast entry to the UK market. These motives also applied to EMAP which also used the EJV to shape competition through forming the venture with a potential competitor and the partners together being more able to compete against other competitors.

In contrast to EJVs, non-equity joint ventures (NEJVs) do not involve the creation of new firms, but are formal long-term agreements between partners to cooperate in some way. Employees of the partner firms tend to work together directly from their own organisations. With NEJVs carefully defined rules and formulas may govern the allocation of tasks, costs and revenues, and there is at least a moderate degree of inter-organisational dependence (Contractor/Lorange 1988). In the financial services sector in 1988 the Royal Bank of Scotland established a NEJV with Banco Santander of Spain, for the purposes of product development and marketing. This venture enhanced the range of products for Banco Santander and provided access to the Royal Bank of Scotland's technology. For the Royal Bank of Scotland the venture facilitated international expansion and enabled it to gain a presence in new markets. At the end of the 1980s the Dalgety Group (through Spillers Foods) established a marketing NEJV with Asahi Breweries of Japan. Asahi Breweries would promote and distribute Spillers' petfood products in Japan, thus gaining a new range of products while Spillers would benefit from fast entry to a new international market. This venture was terminated within two years of formation, however, due to poor performance.

The underlying factors that promote successful outcomes in international alliances is a relatively unknown area. Saxton (1997, p. 444) points out that a number of recent reviews (Smith et al. 1995, Varadarajan/Cunningham 1995) reached the same conclusion: 'Scholars know little about the underlying causes of successful alliances.' Given the increased emphasis on international alliances as an organisational form, this paper presents new findings on aspects of alliance characteristics and performance in international alliances from a sample of UK partner firms with alliance partners from developed market countries. The basic goal of the paper is to identify relationships between measures of alliance performance and alliance characteristics. …

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