Inter-Organisational Dynamics

UNIT 19:

STRATEGIC ALLIANCES AND COALITION FORMATION

Objectives After going through this unit, you should be able to: understand the meaning and scope of strategic alliances appreciate how strategic alliances evolve explain why is it important to study alliances and coalition formation examine how alliances work.

Structure 19.1 Nature and Forms of Alliances 19.2 Strategic Alliances in Developing Country Markets 19.3 Tenets of Strategic Alliances 19.4 Why Study Strategic Alliances 19.5 How Alliances Evolve 19.6 Making Strategic Alliances Work 19.7 A Road map of Emerging Market Alliances 19.8 Managing the Trade-Offs 19.9 Summary 19.10 Further Readings

19.1 _ NATURE AND FORMS OF ALLIANCES

"In a truly happy and successful marriage, love blossoms only after you are married for a while" "In any relationship, the power equation shifts over time"

Strategic alliances are cooperative arrangements between organizations belonging to some country or different parts of the world or different ends of the supply chain. These' alliances represent connection between otherwise independent organizations that can take many forms and contain the potential for additional collaboration', which are more than just the deal. They are mutual agreements to continue to get together to avail of stream of opportunities. Business alliances have come to be recognized, in the business world since the early 1970s as prominent tool to derive synergistic benefits, combat competitive threats, access to latest technology, widen market base, strengthen financial position and above all to achieve competitive edge on a sustainable basis. Alliances are a response to uncertainty and provide comfort that the firm is taking action. They are a tool for extending or reinforcing competitive advantage, but rarely a sustainable means for creating it. The alliances open up possibilities that could not have existed for either partner acting alone. There are a variety of arrangements for joint developments and alliances. Some may be very formalized inter-organizational relationships; at the other extreme there can be very loose arrangements of cooperation between organizations, with no shareholding or ownership involved'. The reasons why these different forms of alliances might occur are

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varied, but they are likely to be conceived with the assets involved in the alliance. As such, the form of the alliance is likely to be influenced by asset management, asset separability and asset appropriability. Thus, alliances may take the form of networks opportunistic alliances, subcontracting Iicenses and franshises, consortia, joint ventures and acquisitions and mergers. Joint ventures are typically thought of arrangements where organizations remain independent but set up a newly created organization jointly owned by the parents. Consortia may well involve two or more organizations in a joint venture arrangement and would typically be more focused on a particular venture or projects. In joint ventures and consortia, the inter-organizational relationships are likely to be formalised, in the form either of shareholding or agreements specifying asset sharing and distribution of profits. In such form of alliances the assets involved need to be jointly managed. However, the assets can be separated from the parent companies without damaging knock-on effects in that company. For example, expertise can be specifically used for the joint venture without its removal harming the parent organization. As against joint ventures and consortia, networks are arrangements whereby two or more organizations work in collaboration whereby two or more organizations work in collaboration without formal relationships, but through a mechanism of mutual advantage and trust.' More opportunistic alliances might also arise which are likely to be more focussed around particular ventures or projects, but may not be formalized. Such kind of alliances are more akin to market relationships, than to contractual relationships. In such alliances, assets do not need joint management. Capital, expertise, know how and so on can come together more informally. Further, assets can not be separated easily from the firms involved, or without harm being done. For example, one partner may provide access to distribution channels which are part of their operation as a whole. Informal alliances are useful if the assets involved were split off into a separate organization, there would be high risk of their being appropriated by another party involved. This is particularly found in the case of the know-how and skills of the different parties involved. There may exist other arrangements in between the formal and informal ones, such as franchising, licensing, subcontracting. In franchising, the franchiser hold specific activities such as manufacturing, distribution or selling but the franchisee is responsible for the brand name, marketing and probably training. In licensing, right to manufacture a patented product is granted for a fee. In sub-contracting a company chooses to subcontract particular services or part of a process to other companies. In these intermediate arrangements, relations are contractual in nature but ownership is not involved. Such arrangements are common in the cases where particular assets can be separated from the parent organization to their advantages, for example, by setting up distribution or manufacturing in a country in which it would find problem in operation. The concept of partnerships for profit and growth is nothing new. Businesses have long been inclined to lean towards this form of organizational arrangement for achieving cross-border growth. The traditional objectives were primarily driven by mercantilism, either to seek captive markets in erstwhile colonies or to seek raw material or other low cost factor inputs. Consequently, it is not surprising that most of the first wave of alliances tended to have a dominant partner from a former colonial power, with the other partner from the former colony being the conduit for the host country market, or to serve as a cheap, reliable source of resources. The dominant partner typically exercised management control and more often than not, flow of communication and information was uni-directional. The dominant partner tended to have equity

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investments in the partnership, and policies Were oriented towards satisfying the home country shareholders. This arrangement did not create serious conflict of interests at the time, partly because of previous historical ties, and* partly because of the clearly understood teacher - disciple role of the partners. The rationale for cross-border business partnerships, if anything, has become even more compelling than ever before, given the following megatrends explain why Universalization of customer preferences and tastes Rapid dispersal and diffusion of technology and increasing rate of its obsolescence Internationalization of financial markets The emergence of global competition

The implications of these developments are clear :The markets are becoming ever so large for any single organization to service efficiently The risks of technology dispersion and obsolescence make a sound case for forming alliances The internationalization of financial markets facilitates listing by companies in various bourses - this in turn creates the need for local partners to foster investor confidence The emergence of global competition further fuels the need for alliances among national companies

However, the driving force for alliances today is somewhat different from the first wave of alliances. This is more for strategic considerations of achieving a sustainable competitive .advantage,. than for straightforward reasons of market access or resource mobilization. Moreover, the nature and scope of partnerships has expanded for these very reasons, ranging from equity joint ventures to other hybrid forms such as franchises to agreements covering specific activities in the value chain, such as research and development, distribution, outsourcing, etc. The umbrella name for such business arrangements is Strategic Alliances.

19.2 STRATEGIC ALLIANCES IN DEVELOPING COUNTRY MARKETS

Companies in developing country markets can and do find strategic alliances attractive. For those in a position of strength, such as the large business houses of India or the Chaebols of Korea, it can be a powerful vehicle for growth, or a way to leverage inherent strengths, such as a unique distribution network or a low cost manufacturing base. For other local companies in these markets, this could be the only viable alternative to survive in the home market which has opened up the economy. The house of Tatas, and Samsung of Korea provide good examples of the strong companies in the developing country markets going the route of strategic alliances, while Sanmar, which started as a small company in Tamil Nadu, is a good illustration of a local company competing successfully with global companies by forming a series of strategic alliances (Figure I and II ). That there is a potential for gain in a strategic alliance for both partners is an established fact, considering that it is, currently, an accepted choice, for mode of entry into the Latin American, Asian and East European markets in as many as half the number of instances. Some are successful. For example, Nintendo and JVC are two Japanese companies which have alliances with Gradients, a leading Brazilian Electronics company, to manufacture and/or market products under their own brands

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as well as under the brand name Gradiente. The alliances have helped the Japanese companies to gain market penetration rapidly in what they obviously consider an important market. The Brazilian company has acquired skills in manufacturing, and has become a profitable company with a secure market: position. Figure I and II show partial and selected list of partnerships for purposes of illustration only. Figure I TATAS Business Segment Computers Materials Source: Press reports Business Segment Consumer Electronics Partner IBM Ryerson SAMSUNG Partner Sanyo NEC Corning Texas Instruments Hewlett-Packard GTE

Strategic Alliance and Coalition Formation

Semiconductors Multimedia

(Note: Crosslicencing, technology, R & D agreements not shown) Source: History of Samsung Electronics

Figure II SANMAR Business Segment Safety Valves Control Valves Source: Company reports Alliances in India: Tectonic changes in economic policy of the Government leading to opening up of the domestic economy to outside world witnessed 'a flurry of alliances struck between Indian companies and transnationals to seize the emerging opportunities in the market place. As many as 4470 alliances of various forms between transnationals and Indian companies were formed in India during the post liberalization period. It may be noted from Table I that wave of joint ventures and alliances started blowing since 1991 when 285 alliances were forged. Number of alliances tended to increase in the subsequent four years to touch an all time high figure of 1208 in 1995. Reasons for increase in formation of joint ventures and alliances are many. Liberated from the stranglehold of FERA, MRTP Act and the Industries Development and Regulation Act, 1961, firms began to substitute their greenfield growth plans with merger and alliance strategies so as to enter new business areas or to consolidate in existing lines. Moreover, corporate restructuring has forced many organizations to reshuffle their businesses and consolidate their chosen areas of operation keeping in view core competencies so as to cope best with tomorrow. Partner Crosby Gulde

Another facilitating factor for merger and alliance deals has been redefinition of firms

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by the Board for Industrial and Finance Reconstruction (BIFR). According to this, firms, which have eroded their net worth, no longer have to post net losses for two successive years before they can be declared sick. This is putting more firms than ever on the chopping block.
Table 1 Alliances in Post Liberalization Period Year 1991 1992 1993 1994 1995 1996 Source: Business Today, October, 7-21, 1996. Further, the legal hurdles to the mergers and alliances have been dismantled paving the way for firms to hit. the takeover trail. The wave of mergers and alliances which took place between 1977 and 1985 and then in 1989-90 culminated in 1995. However, the difference is that in the last wave, the game has been no longer dominated by a single player. Firms and businessmen, small and large, low-profile and high profile. Indian and foreign ... are into mergers and alliances. It is interesting to observe that while the number of alliances in post liberalization period has multiplied, number of divorces is also increasing in the business world, creating apprehensions about the effectiveness of this tool to squeeze opportunities and counteract competitive threats. The basic reason for this apprehension is the mistaken belief of the management that alliances are designed for immortality. Top executives devote more time to screen potential partners-in financial terms than to managing the partnership in human terms. They tout the future benefits of the alliance to their shareholders but do not help their managers create those benefits. They worry more about controlling the relationship than about nurturing it. In short, they fail to develop their company's collaborative advantage and thereby neglect a key resource.3 Forming and managing alliances successfully are based on certain fundamental tenets which are discussed below. No. of Alliances 285 842 858 872 1208 524

19.3 TENETS OF STRATEGIC ALLIANCES

Tenet of Maximization Selfishness is the paradigm of the perfect joint venture. The alliance partners must strive to maximize benefits to each other. Besides the immediate benefits to the firms coming together, the arrangement offers the parties an option on the future, opening new doors and unforeseen opportunities to both the partners. The longer both partners can extract gains from their collaboration, the longer will the relationship last. Conversely, JVS self-destruct when one partner gets more from it than the other. Therefore, the starting point is to short list the benefits that one can expect from the other. Tenet of Flexibility Another fundamental principle of alliance is that the conditions governing the creation and the continuance of joint venture and other collaborative arrangements change

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continuously in view of change in government policy, market conditions and corporate imperatives. These changes force the partners to review their own objectives which, in turn, may rob the alliance of its raison de etre. At this stage, the arrangement either has to be renegotiated under a fresh set of assumptions and conditions or it must be disbanded. It will, therefore, be in fitness of things to look upon their collaborative arrangement as essentially mortal enterprises, whose existence should be reviewed and if necessary, renewed at intervals instead of being assumed to be immortal. However, no joint venture should start out with objectives common to both partners. The JVs between Godrej Soaps and Proctor & Gamble for marketing and distributing soaps and detergents and between Coca-cola and Parle Group for bottling and distribution of soft drinks disintegrated precisely because the objectives of the partners started overlapping. It is, therefore, essential, to differentiate the gains of partners so that they strive to maximize them. For example, Times watches and Titan industries obviously had their eye on the same watch market when forming their JV. However, while Timex entered the JV to leverage its partner's powerful distribution and retail chain, Titan's objective was not marketshares, but protection against other rivals. As a result, both partners both partners are focussing on getting their own objectives fulfilled, with the harmony between the objectives ensuring that there is no collision of visions. Titan industries even transferred its best selling - Aqura brand to the JV in order to make.it worth. Timex continued the relationship so that the protection afforded by the partnership was not withdrawn. Tenet of Clarity In order to ensure smooth functioning of joint venture, it is imperative to delineate the roles and responsibilities of the partners. A crucial factor behind the smooth functioning of Wipro-GE is the clear demarcation of responsibilities, based naturally on the unique competencies of each. While technology and globalization are GE's preserve, human resources, finance, corporate affairs and legal issues are those of Wipro's. This role definition will also help the partners to gain synergistic benefits. However, the role of the partners should be reviewed constantly in view of the change in the comparative advantages each partner will derive over a period of time. Tenet of Value Addition The basic premise of an alliance is a pooling of complementary skills. As such, the partners should strive to add value not only to the joint venture but also to each other by complementing their resources. Indian companies entering JVs can use their classic strengths - quick market access, distribution depth and knowledge of local conditions - not as stand-alone skills, but as supporting elements to their transnational partners' abilities. Tenet of Autonomy One of the basic requisites for the successful functioning of any alliance is its autonomy, for the fact that only an autonomous organization can succeed in the marketplace, delivering to the partners the benefits they seek. Joint venture or any other form of alliance should not be an appendage or node of either of the partners. This is why RPG's Goenka leaves the effective management of his group's JVs to a management committee which meets at two-month intervals to iron out all issues relating to the partnership and meets the CEO's to review operations. Further, the partners must have the freedom to exit from the alliance. For, only the security that comes from the knowledge that it is bound to the relationship can give

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each partner the freedom to pursue its strategies without feeling trapped. This is why Times and Titan frequently explore the possibility of breaking their JV, checking whether either partner would be better of by going it alone. Tenet of ownership One of the reasons for the fall out of any form of alliance is ownership. At the time of formation of alliance, when the partners are unsure about the commercial viability of the alliance, they agree to settle for minority stakes. But as the venture succeeds, establishing ownership control often becomes' an issue. For instance, the Indian partner often wants an increased holding, for greater managerial control. Likewise, the transnational partner may need 51 per cent so as to corner the major portion of the gains of the venture. In view of these conflicting interests, the partners should meet periodically and thwart out the issue amicably. Otherwise, the venture's possibility of success will be killed. Matching Tenet At times, alliances collapse because one of the partners finds itself unable to finance the JV's needs after its initial contribution to the equity. A JV continues to work if the partners are investing their resources as per the agreement. JVs can fall apart due to poorly planned financing. For instance, Voltas had to pull out of its Joint Venture with Pepsi once it realized that it was not possible for it to sustain the losses that Pepsi anticipatedf the venture to ride in its bid to corner the soft drinks market. It is, therefore, desirable for the partners to determine in advance the financial requirements of the venture, pattern of funding the requirements and audit their financing capacities. They should discuss issues threadbare so as to avoid any misunderstanding in future.

19.4 WHY STUDY STRATEGIC ALLIANCES

While the rationale for strategic alliances appears to have been taken for granted, the specific objectives underlying many a strategic alliance have obviously either not been clearly understood by the partners, or the importance of cultural differences among them have been overlooked. Some partners view an alliance as a temporary solution to a problem such as access to a market or plugging a current resource gap. Yet some others view a strategic alliance as an inevitable loss of control and waste precious time and energy building silos of protection which defeat the very purpose for which they entered into such an alliance in the first place. These are some of the factors contributing to the business trauma of failed strategic alliances. Especially in the Indian context, as a recent entrant in the mainstream of the global economy, it is important for us to understand what makes for a successful strategic alliance. Far too often, it is tempting to make the simplistic assumption that if partners belong to the same cultural background, a strategic alliance will be successful, with disastrous consequences. A major Indian business house and another highly successful Indian trading company, set up a joint venture with a leading Indian business group from Kenya, in Indonesia. The local Indonesian partner also happened to be of Indian origin, a .second generation immigrant. Their common initial cultural origins notwithstanding, the collaboration broke up in less than six months I The same Indian business house, set up yet another joint venture in Indonesia with an Indonesian partner not long thereafter, to manufacture Viscose Staple Fiber, with technology and some equity from an Austrian company. This venture has turned out to be highly successful, in spite of differing cultural origins of the partners !

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Other factors, notably the popularity of alliances between companies in the emerging markets and global companies and the hype surrounding their inevitable success can tend to underestimate their complexity. They are hard to achieve and often highly unstable, when you consider that even alliances between companies from compatible economic and cultural backgrounds have at times failed. It is in this context important to understand that to make strategic alliances in emerging markets work, both partners must overcome formidable differences if they are to develop successful alliances. Failure to overcome these differences expeditiously have resulted in many high profile joint ventures in Asia and Latin America being dissolved, restructured, or in some instances, being bought out by one of the partners. Sources of Differences Between Alliance Partners Al the outset, it is necessary to identify the sources of differences between partners as well as other factors which affect strategic alliances, given the fact that the success of an alliance is of strategic importance to both partners. Size : First, most global companies are considerably larger than their potential emerging market partners, possess an abundance Of financial resources, and have a broader range of skills. This makes it very difficult to find, equal, complementary and compatible partnerships - a balance that is at the heart of many a successful and enduring alliance. A research by Mckinsey and Company, a leading firm of management consultants, concluded that among alliances executed in India, the global partner typically has a sales volume of around 30 times that of the local partner. Perhaps a case illustrates the implications of size differentials starkly. A worldwide leader in the consumer non-durables business, with global sales of several billion dollars and a $ 70 million Indian company enjoyed a successful joint venture that trebled its market share in four years and . became the third largest company in its business in India. But then the global partner wanted to add capacity and make India a regional supply source for Asia and Africa. The local partner's share of the necessary additional investment, approximately $17 million, amounted to almost a quarter of its annual turnover. When it declined to invest, the global partner ended up buying out the venture. Ownership structure : In emerging markets, companies are usually either state-owned, or family- owned or controlled. State-owned enterprises can lead to frustrating negotiations for multinational partners because they have no single decision maker; often, they have to seek approval from a range of political constituencies. But on the other hand, a multinational partner can equally frustrate a local partner whose business is family-owned if its country manager has to seek approval for decisions from other senior managers, while the patriarch or matriarch of the family business can make decisions unilaterally. Objectives : The differences in ownership structure implies that the different partners may have conflicting agendas. The family-owned business may be more interested in ensuring a steady stream of dividends for shareholders than in maximizing growth or short-term shareholder value, Culture : Cultural differences lead to different value systems for the potential partners, which could have implications for leadership, motivation and organization structure. Management styles : Cultural differences and differences in ownership structure have implications leading to differences in management styles which have a profound impact on the joint venture's performance.

Strategic Alliance and Coalition Formation

Other Factors Affecting Alliances Besides partner differences, there are ripples caused by environmental and evolutionary

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changes in the emerging markets : Expansion of free trade zones : This ntrend promotes a regional approach to business undermining national joint ventures. Many times, MNCs invest in several states because of inter-state rivalry in attracting foreign direct investment. In emerging markets, this results in subscale operations. The result is, either closure of unviable units or rationalization. Consolidation of local companies : The forces of globalization and deregulation have led rival local companies to consolidate which has resulted in the same local company having joint ventures with two different multinationals or vice versa. Errors of judgment : Many multinationals have overestimated their partner's strength and now want to increase control. Growth of emerging markets : As emerging markets become more important, there is an imperative for global companies to reevaluate their historic alliances and considering how to either expand or break their relationships. Changing priorities of local partner : Many family-owned businesses and seeking to restructure alliances in order to divest or improve performance. This trend is increasingly evident in India, because of the growing sophistication of the investor in the stock market.

19.5 HOW ALLIANCES EVOLVE

Formation of Strategic Alliances: Relationships between organizations begin, grow and develop or fail in the manner similar to relationships between people. Successful alliances normally pass through four overlapping, phases, viz., courtship, engagement, discovery of differences and developing mechanisms to bridge differences. Courtship Courtship is the first phase of any alliance. The two organisations meet, are attracted and discover their compatibility. It is also an exploratory phase in which the partners explore their alliance making options in the form of a marketing arrangement, a technology transfer deal, a licensing arrangement, etc. Alliances and partnerships are initially romantic in as much as their formation rests largely on hopes and dreams. In fact, collaborative relationships draw energy largely from the optimistic ambition of their creators. Risk of missing a rare opportunity also motivates corporates to form a joint venture. The initial romantic relations may go well if the process of choosing the partners is based on the criteria of self-analysis, chemistry and compatibility. Self-analysis gives confidence to and strengthens bonds of relations the partners know themselves and their industry, they assess changing business milieu and the executives of both the companies evaluate the potential partners. At times, deals are. based on rapport between the two chief executives. The feelings between them that clinch or negate a relationship transcend business to include personal and social interests. Also, a good personal relationship between the executives creates a good deal of image to be helpful in smooth sailing of the venture in future. Compatibility is the crux of the successful courtship. Compatibility should be in terms of broad historical, philosophical and strategic considerations. Initial relationship building between the partners helps in identifying common experiences, values and

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principles, and hopes for the future which matter a lot for maintaining and strengthening relationship in future. Engagement During the second phase of alliance engagement the two companies draw up plans and finalize the deal. At this stage, the top executives should institutionalize and disclose to the stakeholders what starts as personal relationship, philosophical and strategic compatibility, and shared vision of the two organizations and their chief executives. This is necessary to get approval of the new tie by other people in the companies and of other stakeholders. At this stage, agreements between the partners should be made. These agreements should consist of three major aspects, viz., specific venture to be taken, commitment to deploy resources and continuing autonomy for all the partners. Alliance becomes reality only when the organizations agree to set up a venture or project. This project provides opportunity to the partners to work together and learn from each other and provides basis for measuring performance. There should be an agreement between the partners regarding the resources-financial and human-to be committed by each partner in the venture. Such a commitment reflects a willingness to connect the fates of the organizations. Issues like ownership and management should also be settled so as to avoid any possibility of break out of the alliance in future. Specific agreement should also be made about the continuing independence for the organization joining the alliance. So as to maintain and strengthen the relations, the partners should preserve continuity in their product lines. Discovery of Difference As the alliance is underway and functionaries of both the organizations get involved in its day-to-day functioning, top management may discover that the organizational people have different perceptions about the alliance undermining the commitment forged at the top. This could be because employees at different levels were less visionary and cosmopolitan than top managers and less experienced in working with people from different culture. Further, people in both organizations may not experience the same attraction and rapport as the chief executives did. Differences in organizational relationships such as who will be involved in decisions, how quickly decisions are made, how much reporting and documentation are expected; what authority comes with position and which functions work together, emerge as the alliance begins to work. Numerous other logistical and operational differences are also discovered to be hiding behind the assumed compatibility such as different product development schedules, views of the sales process or technical standards, etc. The most common conflicts in relationships occur over money: Capital infusion, transfer pricing, licensing fees, compensation levels and management remuneration. The above problems tend to become complex with increasing areas of collaboration which, if not, dealt with properly may lead to disintegration and departure. Developing Mechanisms to bridge differences Before the differences between the alliance partners and the employees of the organizations go out of control, the top management should resolve them. Comprehensive mechanisms relating to structures, processes and skills for bridging organizational and interpersonal differences should be devised. Establishing multiple ties at different levels helps in proper communication, integration and control. The relationships should strive for strategic, tactical operational and cultural integration.

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Strategic integration can be achieved if top executives constantly interact among themselves to evolve broad purpose and mission and objectives of the venture or bring about changes therein, if required. Broader and more frequent exchange of views among the top leaders will help the alliance companies moving in complementary directions. Tactical integration is equally important so that middle level managers meet together to develop plans for specific projects or joint activities to identify organizational or system changes that will link the companies better, or to transfer knowledge. Such integration can be achieved through constitution of working groups which may meet periodically to define specific ways of cooperating in each area. Operational integration provides ways and means for the employees in the alliance companies to carry out the day to day work to have timely access to the information, resources or people they need to accomplish their tasks. The operation integration can be achieved through participation of employees in each other's training programs. This may help in developing a common vocabulary and product development standards. Computer connections between two companies provide direct interchange which quickens product development and delivery cycles. Interpersonal integration is essential to build a strong foundation for creating future value. This can be achieved through sharing of information among the organizational people and holding conferences and workshops for executives and country managers from both the organizations to suggest measured for business development, creative excellence and international client management. Cultural integration is necessary to ensure harmony. It is not enough to first ensure that the two organizations have compatible cultures. For cultural congruence in case of a transnational and an Indian company planning a joint venture cannot really extend beyond some broad commonalties in terms of the degree of freedom offered to people, the extent to which systems are present and corporate values.4 Cultural integration can be achieved if managers from the two affiliated companies commit themselves to teaching and learning. With this commitment, they demonstrate interest and respect which help build the goodwill which is so useful in smoothing ever cultural and organizational differences. Above all, productive relationships and also the integration demand changes within the partners. The partners should develop the culture of learning and borrowing ideas from each other. This may be helpful in creating new roles for regional and country managers as well as for the directors. In order to expand the dimensions of collaborative ventures successfully, it is inevitable to empower the managers and other executives engaged in decision making to review and revise their companies' current procedures to make venturespecific decisions. However, the staff involved in alliance activities often need more knowledge and skills. They require strategic and financial information and negotiating skills to work effectively with one another. Having seen the complexities of sustaining a successful and enduring alliance across borders, it seems logical to develop an understanding of how alliances evolve, before we can formulate some ideas on how to make them work. When an industry is deregulated and national markets are opened up, the forces of international competition are unleashed and domestic companies are typically faced with choices of consolidating nationally to achieve scale economies or to seek global partners with a view to seek new technologies and/or skills. As there are changes in the regulatory environment, so too do the options available for multinational and local companies. The implication of this is that alliance structures established under one set of rules can quickly become obsolete under another. Pressure to restructure or dissolve partnerships may ensue.

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Drawing on the concept of the product life cycle theory, it seems reasonable to suggest that alliances in emerging markets typically go through four evolutionary stages : nascent, frenzied, turbulent and mature ( see Figure III ). The; transaction cost theory helps to understand the nature of the alliances at each stage of its evolution. In the Nascent stage, strict regulation and lack of market transparency limit alliance activity to non-equity technology licensing and distribution arrangements. This is because at this stage, the costs of internalization of the activity through an equity joint venture is greater than an arms-length transaction such as a license or a marketing tie-up. When the deregulation of an industry or a country gets under way, it can create a Frenzy of alliance activity, as global companies seek to gain access to a new market, influence government policy, or build a portfolio of options, and local companies attempt to acquire world-class skills. Many alliances formed in this stage are created to comply with local ownership provisions. Further deregulation, and a multinational's growing familiarity with the local environment lead next to a period of Turbulence. This is evidenced by the restructuring or dissolution of alliances as alternatives become available. Foreign partners can now decide to go it alone or increase their ownership stakes. As the market for corporate control develops, merger and acquisition activity commenes. When regulations unravel, the alliances which especially become fragile are the ones which were motivated by regulation rather than by business economics. For example, until 1992, India's Foreign Exchange Regulation Act prohibited non-indians from holding a stake more than 40 % in any Indian company. Since liberalization, this limit has been eliminated or raised to 51 % in most industries.. The consequence is that existing shareholder are coming under strain as foreign partners attempt to increase their holdings. The risk of conflict deepens if a multinational launches a wholly owned subsidiary that competes with its partly owned subsidiary. Questions then arise over where the parent company will want to launch its new products and focus its investment. The potential for trouble in a company such as RPG-Ricoh, which is a joint venture with Ricoh of Japan, with a company such as Getetner Duplicators, which is now a wholly owned subsidiary of Ricoh, should be obvious. Eventually, as the emerging market stabilizes, the Mature stage is reached. At this point, the environment starts to resemble developed markets, in which alliance structures are driven by business logic.

Strategic Alliance and Coalition Formation

19.5 MAKING STRATEGIC ALLIANCES WORK

These challenges do not mean that emerging market alliances should be avoided. But they do raise the costs of failure and therefore increase the risks of failure. Before entering these deals, therefore, prospective partners should ask three fundamental questions: Is an alliance really necessary, or would an outright acquisition, direct investment, or contractual relationship suffice? How sustainable will an alliance be, given the partners' ambitions and strengths? And how should the strategy and tactics, they adopt reflect the distinct challenges of alliances between global and emerging market companies?

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Is An Alliance Really Necessary? Given the differences between partners and the complexities of managing a relationship, a reasonable (but rarely asked) question is: "Why are we forming an alliance in the first place?" If the main benefit of an alliance would be inside knowledge of customers, government, and suppliers, for example, the global company should ask whether it might be possible instead to hire five or ten key people who would bring this inside knowledge. In China and India, acquisitions and direct investments by overseas companies have increased, although alliances are still the main modus operandi foreign companies use

to enter the market. The proportion of wholly foreign-owned enterprises in China rose from less than 10 percent of incoming investment in 1991 to more than 30 percent in 1995. * In India, the figure grew from 5 percent in 1992 to 25 percent in 1995. Many global companies have operated as wholly owned entities in Latin America for decades.

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Acquisitions can be equally effective for domestic companies in the emerging markets. It is true that many domestic companies have responded to globalization by looking to joint ventures or broad-based technology licensing arrangements with international partners, particularly when they needed to bridge a technology gap. But India's Piramal group, for example, has expanded its pharmaceuticals business at a compound annual growth rate of almost 60 percent since 1988, largely by acquiring other local pharma companies that already have non-equity licensing arrangements with global concerns.
Other emerging market companies are experimenting with "virtual" alliances-piecing together the technology or abilities they seek without forming an alliance. One large Indian textile manufacturer aspired to enter the clothing business, but lacked manufacturing technology and marketing expertise. Rather than form an alliance, it cobbled together what it needed by hiring experienced people, persuading the equipment manufacturers to serve as technical consultants, and licensing certain technologies. This approach seems to have been followed in the Indian ceramic Tile Industry, when it was deregulated in 1985; previously this industry was reserved for the small removing scale sector. Since embarking on the program four years ago, the company has grown by 150 percent. Such a strategy would not suit all companies, however; the learning and coordination of relationships it involves call for highly developed skills and consume a great deal of management time. These alternative approaches are especially relevant when technology is readily available and global brands are not needed. Cheap, double-edged razor blades based on a common technology continue to take 83 percent of the Indian market, for example, despite the introduction of high-quality blades by Gillette in 1993. Will the Alliance Last? When an alliance is deemed necessary, both companies should assess at the outset how the partnership will evolve - whether it is a marriage of equals that will endure, or something else. Achieving an equal balance in an emerging market is particularly challenging because of the differences in size, culture, skills, and objectives that were mentioned in the earlier section. Such alliances are also vulnerable to rapid regulatory change. Two factors influence the sustainability and likely direction of an alliance: each partner's aspirations-that is, the desire to control the venture-and relative contributions. Aspirations can tip the balance. Does the global partner desire full control in the long run? (If it does, the alliance is likely to wind up in acquisition or dissolution.) Or does it want a permanent alliance in which the local partner provides specific elements of the business system, as with Caterpillar's long-standing relationships with its local distribution and service partners? Is the emerging market player's focus on the home market, or does it harbor global ambitions? If it does, and it wants to compete on its own against the multinational, conflict will be inevitable. Ultimately, though, the evolution of an alliance will be driven by each partner's strengths and weaknesses, and by the relative importance of its contribution. Examples of valuable contributions might include privileged assets (ownership of mining rights or oilfield reserves, for example); advantaged relationships such as access to regulators, operating licenses, and exclusive distributor relationships; or intangible assets such as brands, marketing, manufacturing, technology, management expertise, and patents.
* "Multinationals in China: Going it alone, " The Economist, April 19,, 1997.

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Usually, the global company contributes intangibles, such as technology, brands, and skills, that grow in importance over time. The local partner's contributions, on the other hand, are more likely to be local market knowledge, relationships with regulators, distribution, and possibly manufacturing-assets that may fade in importance as its partner becomes more knowledgeable about the market, or as deregulation undermines (sometimes overnight) the value of privileged relationships or licenses. Manufacturing cost leadership can also be fleeting in a globalizing economy. If the local partner essentially provides an "escort" service, it will almost certainly become less important. A survey of Chinese joint ventures indicated that Chinese partners systematically deliver less value than expected in terms of sales, distribution, and local relationships.* Given the fleeting nature of the importance of the relative contributions of the partners, and the inherent potential for conflict arising from different aspirations of the partners, it becomes obvious that for an alliance to be regarded as successful by both partners, building a strong coalition between the partners has to be the overriding and lasting aim of both partners. The coalition has to be further nurtured, based on mutual trust and continued commitment to the success of the alliance, even as specific objectives which determine success for each partner may evolve differently overtime. To assess whether an alliance will be a marriage for life and how it will evolve, partners in emerging markets should catalog the current contributions of each partner, plot how they are likely to shift (Figure IV), and negotiate to ensure that the venture will be sustainable or to protect shareholders against a likely shift in power. Figure IV

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Stephen M. haw and Johannes Meier, "Second generation 'MNCs in ,China, The McKinsey Quarterly, 1993 Number 4, pp. 3-16.

Figure V

Strategic Alliance and Coalition Formation

19.6 A ROAD MAP OF EMERGING MARKET ALLIANCES

Emerging market alliances tend to evolve along one of four paths (Figure V). The first is that trod by successful long-term alliances such as Samsung-Corning, established in 1973 as a 50-50 joint venture to make CRT (cathode-ray tube) glass for the Korean electronics market. Samsung needed a technology partner to pursue its strategy of integrating vertically into electronics components and materials; Corning wanted to expand in Asia. The joint venture had about 20 percent of the global market, revenue of $695 million, and net income of $49 million in 1996, with investments in Malaysia, India, China, and eastern Germany. Heineken and Anheuser-Busch also have a number of successful alliances with brewers in emerging markets, in which the local partner continues to produce and sell its local brand for the mass market, while producing or importing and selling the global partner's brew as a premium brand. The second path involves a power shift toward the global partner, often followed by a buyout. Take the case of two consumer goods companies that formed an alliance to target the Indian toiletries market. At the outset, their contributions were balanced. The global company brought international marketing experience, world-class management systems, and additional volume to fill local manufacturing capacity. The local company brought the technology to make soap from vegetable fat (the use of animal tallow is banned in India), low-cost manufacturing, local market knowledge, and established products and brands. The global company wanted access to an enormous and potentially lucrative market; the Indian company aimed to increase its capacity utilization and enhance management and marketing skills and systems. Gradually, however, the balance of power shifted. The global partner succeeded in getting an organization up and running and gained local acceptance for its product, whereas the Indian company was prevented from filling its capacity by slower than Inter-Organisational Dynamics

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expected sales. Moreover, the expected transfer of skills and systems to the Indian partner never materialized, while its own brands, which had been transferred to the joint venture, suffered. The alliance was dissolved by mutual consent in 1996. The way an alliance is structured and managed can determine its outcome. In one 5050 joint venture, an emerging market company brought important relationships, brands, and distribution skills that might have led to a sustainable alliance had the venture been structured differently. But the global partner enhanced its own bargaining position by placing its people in key positions in marketing, manufacturing, and finance; introduced its own products and brands; built the manufacturing plant; and imposed its systems and culture on day-to-day operations. The venture reportedly lost money for several years until it was bought out by the global partner, whereupon performance improved. Notwithstanding this outcome, the emerging market partner may have rated the exercise a success, since it sold its 50 percent stake at a premium. The third path sees a shift of power toward the emerging market partner. Local partners do sometimes build their bargaining muscle, increase their ownership stake, buy out their global partners, or exit the alliance to form other partnerships. SindoRicoh illustrates how a power shift toward a local partner can lead to the restructuring and continued success of an alliance. Sindo has been Ricoh's exclusive distributor in Korea since 1962. It built low-cost manufacturing capability, expanded the relationship to a 50-50 joint venture, then took majority ownership with a 75 percent stake. In 1996, it boasted sales of $309 million and net income of $38 million. The fourth path is competition between partners, followed by dissolution or acquisition of the venture by one of them. A 50-50 joint venture between GM and Daewoo to manufacture cars in Korea lost money until Daewoo acquired it outright. The partners had incompatible strategies: GM wanted a low-cost source for a limited range of small cars; Daewoo aspired to become a broad-line global auto manufacturer. Conflict and collision often result when the partners fail to agree on whether the joint venture or the parent companies will compete in related product areas or in other countries. Finally, although alliances are often likened to marriage, a successful alliance does not have to last. Success is measured not the duration, but by whether objectives have been met. Take the joint venture between GE and Apar to make light bulbs for the Indian market. The arrangement was dissolved after only three years, yet GE emerged from it a leader in the Indian lighting industry, and Apar was handsomely remunerated. Recognizing what path an alliance is following and how its balance of power is shifting is critical to ensuring that both partners have the opportunity to satisfy their objectives. Studies of strategic alliances in Asia and Latin America - and a growing body of experience - documented in business literature - help to identify some practical steps that companies can take to address the challenges of emerging market alliances. Alliance Strategies and Tactics for Companies in Emerging Markets Companies in emerging markets must recognize that they may be vulnerable over the lone term because of inherent power imbalances. Indeed, research studies conducted on alliances in many emerging markets offer evidence to support the suggestion that global partners are more likely to wind up with control when the balance of power shifts. On the other hand, emerging market partners may possess sources of value that cannot easily he replicated in the short term, such as customers, channel control, local brands, control over key supply sources, manufacturing capacity, and relationships with government officials and regulators. They should make the most of these bargaining assets. Above all, they should invest to ensure that they last.

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Before a company can develop a strategy to build power, it must set objectives for the alliance that reflect its aspirations and a hard-nosed assessment of its own strengths. Is its goal one of becoming a world-class operator able to compete in some areas with global companies on their own turf? Is it to develop a sustainable homemarket alliance based on an enduring source of strength? Or is the alliance a defensive measure to protect the business against threats from global brands or technology? And is it acceptable - or even inevitable - that the alliance will evolve toward a sale? When the aim is to develop a genuine alliance or build a platform for growth, strategies to maximize power include: Invest today to build power for tomorrow. The most critical issue for local companies is how to establish a sustainable source of value and thus maintain the balance of power. There are a number of ways to do this: Develop your own brands: Recent experience suggests that local brands can be more powerful than their owners tend to believe. In Brazil, electronics producer Gradiente has laid the foundation for more balanced partnerships by building name recognition and sales volume that match those of global brands. Wenezuelan building products manufacturer entering a joint venture with a global partner retained its own brands in several segments in which global technology was not required, and where craftsmen trusted the local product. Control distribution: Distribution is an area in which emerging market companies typically have initial advantages that can be extended to enhance their bargaining power. One industrial equipment manufacturer in Latin America increased its influence over distributors - and its clout with its global partner by offering inventory management systems, financing, and extensive technical support. Investing to keep the advantage is crucial. Rallis, an Indian agrichemicals company, owns the country's leading nationwide agricultural inputs distribution system and has distribution agreements with several global chemical companies. But though it may command the dominant dealer relationships today, new market entrants are beginning to go directly to the farmer. If direct distribution should take hold, what will happen to Rallis's power? Perhaps anticipating this, the company is itself experimenting with direct distribution. Secure proprietary assets. Most industry value chains in emerging economies have "chokehold" points - privileged assets in short supply. Locking these in can establish a continuing source of value. Indian Hotels owns the best properties near all the country's main tourist destinations, for example. And one metals company in Brazil entered a long-term arrangement with a key supplier for a crucial input that was in short supply. Preemptively acquire local competitors: Provided that these acquisitions make sense in their own right, they can strengthen a local company's negotiating hand by limiting the entry options for would-be players. Become a regional hub for your partner. Many multinationals have their hands full exploring the larger emerging markets such as China and Brazil. Few have the time and management capacity to concentrate on smaller but still important economies such as Chile or Peru. Local partners can improve their market position and their long-term stature in a partnership by becoming a regional hub. One Indian engineering consumables company expanded its joint venture with a European manufacturer to distribute products throughout Asia. Similarly, a Colombian industrial concern acquired its counterpart in Peru and is expanding in Venezuela, thereby not only increasing the contribution it makes to its alliance with a European company but also strengthening its own position by attaining economies of scale in regional distribution.

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Think twice before allying with a global leader. Global market leaders are often the most obvious partners because of their products, skills, capital, and prestige. But they usually have global aspirations too, and may well seek to tighten their control over any alliance they undertake in order to optimize purchasing, pricing, product development, manufacturing, and brand strategy. Autonomous ventures - or, worse still ventures in which a local partner calls the shots - can be anathema to truly global players. In the words of one chemical industry executive, "How can we serve our global customers in the same way across 20 or more countries when our partner operates the business? We can't even assure our customers that they can buy the same products with the same specifications from one country to the next."
Emerging market companies should ascertain whether a prospective partner is pursuing a "global" strategy - same brands, centralized decision making, global purchasing, unified R&D, consistent product portfolio and pricing - or a "global/ local" strategy with, for instance, local and global brands, strong country or regional managers, and regional product development. Considering alternative partners is especially important if the leading global players in an industry are inclined to swallow up local partners' stakes. A pattern has emerged in the behavior of one global consumer goods company in key emerging economies in Latin America and Asia. It enters a market by allying with a leading local consumer goods company; introduces its own brands, systems, and managers; becomes embroiled in conflict with its partner; and finally buys out the venture. An analysis of joint ventures in India indicates that majority control in 60 percent of Indo-American alliances lies with the US partner, while Asian partners have control in only 10 percent of their ventures with Indian companies. Europeans fall between these two extremes in their, hunger for control.

Consider less obvious partners. A smaller, non-global company may present less of a long-term threat to a company from an emerging market. One Latin American metals producer decided to form an alliance with a medium-sized German firm rather than a world leader. The alliance has prospered for 20 years, with neither partner aspiring to take full control. YPF, Argentina's privatized petroleum company, and Petrobras, Brazil's state-owned energy company, have proposed a $750 million project for the joint development and operation of a network of 1,500 gas stations, principally in southern Brazil, over five years. An alliance with a global leader from a different industry is another possibility. Telecom companies from emerging markets could consider allying with information technology providers to build their capabilities, instead of entering more predictable arrangements with global telecom service companies. Emerging market companies seldom consider taking a "financial" partner, yet this may make sense if they can build the internal capabilities to compete over the long term. Companies with attractive business propositions can win funding from sources as diverse as private equity funds, offshore Chinese holdings, and' industrial investors.

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Protect your future, by securing access to key intangible assets. Emerging market companies should consider. locking in key assets such as brands, technology, or distribution rights, for 10 to 2Q years if possible, rather than risk losing them within a short period or being forced to renegotiate the venture. They should also think how they, would survive termination of the alliance. This risk is highest. when the local partner contributes physical assets and capital that. rely on the intangible assets controlled by, its global partner. One Andean Pact manufacturer of transport equipment would have faced the loss of a, $200 million

business had its partner rescinded the license agreement on which their joint venture was based. It therefore insisted on a clause stipulating three years' notice of termination. A less canny Latin American industrial company had to consider a shotgun wedding with a new partner when its original partner quit before it had internalized the skills to operate the business alone. Create world-class alliance capabilities. For multibusiness companies that may form as many as 20 alliances across unrelated industries, it is better to employ a few experts with well-honed negotiating skills than 20 gifted amateurs. Mahindra & Mahindra, a leading Indian business house, has designated a single senior executive to work with the leaders of each business unit as they develop and manage their alliances to ensure that the lessons each one learns are transferred to the rest of the company. It assumed so far that emerging market partners do not wish to sell their share of the business. In actuality, they frequently do. The problem is that potential buyers can be unwilling to acquire joint ventures outright because of the importance of local operating know-how and relationships, or because of capital constraints. In this situation, a joint venture can be an effective step toward a sale, but the negotiations should look more like an auction than a typical alliance discussion. The local company should pursue simultaneous discussions with several potential partners or buyers, each of which should be asked to develop a proposal that includes an initial valuation for a controlling shareholding, proposed dividend flow, and terms for ultimate sale. Alliance Strategies and Tactics for Global Companies Global companies, like local companies, need to adapt their alliance approaches to succeed in emerging market alliances. Position early. Alcatel, VW, and AIG are leading operators in China today partly because they were early entrants into the telecommunications, automotive, and insurance industries, respectively. Procter & Gamble leads the Chinese detergents market because it secured access to production assets through majority ventures, then moved quickly to establish local sales and distribution. Early entrants frequently have more opportunities to lock up the most promising distribution channels, gain access to attractive production assets, and invest to build the business before competition intensifies. In many product categories in emerging markets, the desirable assets, brands, and distribution systems are controlled by a handful of attractive partners. Once they are spoken for, competitors may be locked out, especially if the cost of setting up alternative distribution is prohibitive (as it is for many consumer goods), and where adding capacity (in chemicals, for example) would create overcapacty. India's health insurance market, which is about to be deregulated, is a case in point. In effect, India has a single government insurer, one hospital group with locations in various metropolitan areas, and no provider groups. The partner options are limited, even for early birds. Shape the market. The "toe in the water" approach of seeding dozens of growth options at low cost in many markets may seem appealing. In reality, however, joint ventures established in this way often perish from a lack of time or commitment. The global companies that do best in emerging market joint ventures invest heavily and act to shape the market by introducing new business approaches or products. Think broadly about your partner's capabilities and consider the overall set of relationships that it can bring, not just the immediate joint venture or licensing proposition. The flow of opportunities that local partners, especially

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conglomerates, can contribute may exceed the value of the initial deal. When a multinational wants access to local relationships, it may be wise to consider companies outside its industry that could play an advisory or ambassadorial rather than operating - role. It is in this light that Camargo Correa, one of Brazil's largest family-owned conglomerates, views its role in its long-standing alliance with Alcoa. Camargo encompasses one of the country's leading construction companies, and has widespread relationships with industry and government at all levels. It is also involved in related industries such as the development of power projects and infrastructure. Alcoa has the clear leading role in their aluminum smelting joint venture, while Camargo has, over time, assisted in negotiations with government authorities, built manufacturing facilities, and provided capital. As most emerging economies are still at the nascent stage, industry experience may not be of lasting value in an alliance. Consider the case of a multinational seeking to join forces with a local company to enter India's non-durable consumer goods market. The key asset to acquire is distribution, but India's distribution system is archaic and will probably change dramatically over the next decade. The multinational could select the local market leader (and perhaps thereby educate a future competitor), but a more interesting choice might be a tobacco company, which is likely to have extensive retail distribution systems in India. Identify the key decision makers and involve them early. This is especially critical when dealing with a state enterprise. In China particularly, proposals to establish joint ventures must often be approved by a dozen or more government or quasi-government entities. Bring all your global capabilities to the table. Global companies have a strong suite of technical skills, geographic presence, business units, and systems, but rarely bring their full power to the negotiating table. The losers in several recent joint venture negotiations in the Chinese automotive and machine tool industries offered a solid but narrow manufacturing partnership; the winners offered technology, local parts sourcing, and substantial capability building. One Latin American state enterprise selected its partner because it could provide technical expertise on the ground to improve the business. Another Latin American company places as much weight on how potential partners might help it secure growth opportunities as on the immediate business they could do together. Recognize that 'a "51 percent or nothing" mindset will close off opportunities. Having 51 percent ownership does not guarantee control. Effective control has more to do with management structure, ownership of key intangibles such as technology and relationships, and knowledge. In fact, a 49 or 50 percent stake can provide an opportunity to gain full control later, with less risk and more flexibility. In one emerging market joint venture, the global partner owns the brand, controls the patented process technology, and is rapidly building its knowledge of the local market - yet it has only a 50 percent stake because its local partner, while recognizing that it needs an alliance in order to introduce new products, is unwilling to sell the "family silver" by giving up 51 percent. The 50-50 venture has none the less proved attractive for the global partner, given that its other options were to sink $200 million into a greenfield operation, form a partnership with a second-tier player, or forget about entering the market. It will, after all, have effective control over the most important business levers, and be positioned as the logical buyer of the business should the partners fall out or the family owners decide to sell.

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It is often worth asking, "What do we really need to make sure we can protect our interests in a 50-50 deal?" The notion of control can be broken down into rights to determine specific issues - capital expenditures, dividend policies, production volumes, and human resources, for instance. Some multinationals have found creative ways to address particular issues. One leading international oil company signed a 50-50 joint venture in the Indian market after concluding that a casting vote on capital expenditures was enough to protect its interests. Another global company agreed to a 50-50 joint venture with the proviso that it would have the right to build additional capacity if its partner vetoed expansion by the joint venture. Beware of entering long-term licensing arrangements without performance contracts. Many global companies have granted licenses because they had no other way to enter a market, or because at the time the market was negligible. In so doing, some have tied up the value of their intangible assets without any exit mechanism or promise of fair value in return. One US manufacturer granted a 20-year exclusive license covering several large emerging markets to a single company in the region, with royalty fees set as a percentage of revenues. When its partner underperformed and competitors proliferated, it had little leverage to renegotiate the arrangement. Recognize that the aims of family owners may differ from those of public companies. For one family owner of a profitable business, assuring an annual dividend of $20 million was one of the key terms of its alliance agreement-far more important than maximizing the value of each partner's contribution. Other family owners may be concerned that their name will stay with the business and that the deal should not be seen as a sale, even when they want to transfer control. And there is usually some sensitivity about preserving operating roles for qualified family members. Acknowledging these wishes may cost little, but can be worth millions. It can make the difference between being the chosen partner or one of the runners-up.

Strategic Alliance and Coalition Formation

19.7 MANAGING THE TRADE-OFFS

The most crucial issue pertaining to strategic alliances is to decide as to what extent the partners should accommodate the demands of an alliance. To decide this issue. requires weighing the potential value of the relationship against the value of all other company activities. Even if relationships have high value, and organization can handle only so many before demands begin to conflict, and investment requirements outweigh perceived benefits. Since joint business ventures are generic examples of the opportunistic alliance, the alliance is vulnerable to dissolution once one of the partners has gained experience with competence of the other and the opportunity can now be pursued without the partner. At times, fundamental differences between the objectives of the two companies lead to breakdown of alliance. For example, while the transnational seeks to integrate the JV into its global strategy, the Indian organization prefers that the venture remains rooted in the country so as to be responsive to local developments. Some times, the transnational wishes to strengthen its ownership and control while the Indian company has not intention of becoming subservient partner which led to the JV between Royal Dutch Shell and NOCIL being terminated after 28 years.' Changes in market conditions, policy framework and corporate imperatives may force the alliance companies to review their objectives which, in turn, may bring about change in particular relationship to the extent of its jeopardization. In view of the above, effective management of alliance demands managers to respond economic, political, cultural, organizational and human development and review and

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renew the relationships periodically. Inter company relationships are a key business asset, and knowing how to nurture-them is an essential managerial skill.

19.8 SUMMARY
Emerging market alliances can create sustainable growth platforms for both' local and global companies. But they pose different challenges from those faced by alliances in mature markets, and are often less stable. Before getting caught up in the heat of negotiations, companies should ensure they have a clear strategy and endgame in mind. They should also determine not only how many chips prospective partners bring to the deal, but how the value of those chips will evolve.

19.9 FURTHER READINGS REFERENCES

1. 2. 3. 4. 5. 6. Rosabeth Moss Kanter, Collaborative Advantage. Harvard Business Review, July-August, 1994 P-98. H.B. Thorelli, `Networks: between markets and hierarchies', Strategy Management Journal, Vol.7 Rosabeth Moss Kanter, Opcit P-96 Business Today, October 7-21, 1996 P-99 Bengamin, Gomes "Casseres, Group versus Group: How alliance Networks Compete" Harvard Business Review, July - August, 1994. Business Today, October 7-21, 1996 P.86

Strategic Alliances by Michael Y. Yoshino and U. Srinivasa Rangan, HBS Press, 1995 Corporate Encironmentalism in a Global Economy. Halina Szenwald Brown, Patrick Derr, Ortwin Renn and Allen White, Quorum Books, 1993 Partnerships for Profit, Jordan D. Lowism Free Press, 1990. "How to Make a Global Joint Venture Work " by Peter J Killing, HBR, May-June 1982, pp. 120-127. "How to Control a Joint Venture Even as a Minority Partner" by Jean-Louis Schaan, Journal of General Management, Vol. 14 No.1, Autumn 1988, pp. 4-16 "Learning Amount Joint Venture Sophisticated Firms" by M A Lyles, MIR Special Issue, 1988, pp. 85-97. "Competition for Competence and Inter-Partner Learning within International Strategic Alliances" by Gary Hamel, Strategic Management Journal, Vol. 12, 1991, pp. 83-103. "Joint Ventures: Theoretical and Empirical Perspectives" by Bruce Kogut, Strategic Management Journal, Vol. 9, 1988, pp. 319-332.
"

Bargaining Power, Ownership, and Profitability of Transnational Corporations in Developing Countries" by Donald Lecraw, Journal of International Business Studies, Spring and Sumrnar, 1984, pp. 27-43.

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"Knowledge, Bargaining Power; and the Instability of International Joint Ventures" by Andrew C Inkpen, and Paul W Beamish, Academy of Management Review, Vol. 22, No.1, 1997, pp.1997-202.