Businesses must have a global perspective in order to identify opportunities and threats of today's marketplace. Although warding off threats from global competitors is necessary, firms should also actively seek to penetrate foreign markets. The optimal choice of entry mode depends on the strategy of the firm. One way for a firm to enter into a foreign market is to create a strategic alliance. A global strategic alliance is an agreement among two or more independent firms to cooperate for the purpose of achieving common goals such as a competitive advantage or customer value creation (Harris, Moran, & Stripp, 1993). The term "strategic alliance" is often used loosely to embrace a variety of arrangements between actual or potential competitors.
Firms ally themselves with other organizations for various strategic purposes. An alliance allows firms to share the fixed costs (and associated risks) of developing new products or processes (Hill, 2000). It is also a way to bring together complementary skills and assets that neither company could easily develop on its own. In addition, it can make sense to form an alliance that will help the firm establish technological standards for the industry that will benefit the firm. However, if a firm is not careful, it can give away more than it receives.
A strategic alliance may take the form of a collaborative effort, licensing of technology, or joint venture (Berryman, 1998). A collaborative effort occurs when two companies agree to work together to the mutual benefit of both. Licensing technology is affected when one company licenses its production or service methods to another firm. A joint venture occurs when two independent firms agree to jointly produce a product or service. A joint venture is the most frequently utilized approach to gain access to foreign markets (Berryman, 1998). Today, joint ventures and strategic alliances are routine aspects of international business when allies share costs, establish a pool of joint resources, and create a synergistic effect in the problemsolving process. With the increases in strategic alliances, the way in which businesses view themselves and their competition is being drastically altered.
A successful venture can bring in enormous profits, while a failed one can drain organizations of both financial and human resources. The disadvantages associated with alliances can be reduced if firms select partners carefully, paying close attention to the issues of reputation and structure of the alliance so as to avoid unintended transfers of know-how. According to Badaracco (1991), the success of an alliance is based on three main factors: partner selection, alliance structure, and the manner in which the alliance is managed.
A good ally, or partner, has three principal characteristics (Badaracco, 1991). First, a good partner helps the firm achieve its strategic goals. Second, a good partner shares the firm's vision for the purpose of the alliance. The chances are great that the relationship will not work if two firms approach an alliance with drastically different agendas. Third, a good partner is unlikely to try to opportunistically exploit the alliance for its own ends. These characteristics suggest that the firms with reputations for "fair play" probably make the best allies.
Perhaps the biggest danger is that the firm will give away more to its ally than it receives. Firms can reduce this risk by carefully structuring their strategic alliances. Having selected a partner, the alliance should be structured so that the firm's risk of giving too much away to the partner is reduced to an acceptable level. Managing an alliance successfully seems to require building interpersonal relationships between the firms' managers. Hence, it appears one of the keys to making alliances work is building trust and informal communication networks between partners, while a second key seems to rely on taking steps to learn from alliance partners. …