The Way to Win in Cross-Border Alliances
Bleeke, Joel, Ernst, David, The McKinsey Quarterly
Our analysis of 49 cross-border alliances shows that although they pose many challenges, they are in fact viable vehicles for international strategy. While two-thirds of cross-border alliances run into serious managerial or financial trouble within the first two years, many overcome their problems. Of the alliances we analyzed, 51 percent were successful for both partners. Only 33 percent resulted in failure for both.
IN THE FACE of newly opening markets, intensified competition, and the need for increased scale, many CEOs have put the formation of cross-border alliances on their agendas for the 1990s. To international managers, the strategic benefits are compelling: alliances are an expedient way to crack new markets, to gain skills, technology, or products, and to share fixed costs and resources. Yet a lot of the war stories suggest that alliances are all but doomed to failure, and CEOs setting up cross-border alliances or dealing with early problems find little is systematically known about how to make alliances succeed.
To better understand cross-border alliances and what it takes to make them work, we examined the partnerships of 150 top companies ranked by market value (50 each from the United States, Europe and Japan). The 49 strategic alliances that we studied in detail varied widely in size, location, industry, and structure. Some were established to speed entry into a new market; others to develop and commercialize new products; still others to gain skills or share costs.
How can managers maximize their chances of success in these ventures? What wisdom can be derived from the experiences to date? Here are a few of our findings: * Arguments over whether cross-border alliances or cross-border
acquisitions are superior are beside the point; both have
roughly a 50 percent rate of success. But acquisitions work well
for core business and existing geographic areas, while
alliances are more effective for edging into related businesses
or new geographic markets. * Alliances between strong and weak companies rarely work.
They do not provide the missing skills needed for growth, and
they lead to mediocre performance. * The hallmark of successful alliances that endure is their ability
to evolve beyond initial expectations and objectives. This
requires autonomy for the venture and flexibility on the part of
the parents. * Alliances with an even split of financial ownership are more
likely to succeed than those in which one partner holds a
majority interest. What matters is clear management control,
not financial ownership. * More than 75 percent of the alliances that terminated ended
with an acquisition by one of the parents.
All of these findings have implications for creating and managing successful cross-border alliances.
Alliance or acquisition?
Both cross-border alliances and cross-border acquisitions are good vehicles for international strategy and have similar success rates (51 percent and 57 percent respectively). But that doesn't mean they are interchangeable. When used to expand core businesses, both cross-border alliances and acquisitions work well. But for expanding existing businesses into new geographic regions or for edging out into new business, cross-border alliances work better.
Leveraging geographic strengths
When moving into new geographic markets, managers should try to structure alliances to capitalize on the distinctive geographic positions of the partners. Some 62 percent of the alliances that involved partners with different geographic strengths succeeded (see Exhibit 1). This is very different from the finding for cross-border acquisitions: the success rate was just 8 percent when the acquirer and the target company did not have significant overlapping presences in the same geographic markets. …