Border Alliances and the Success Components †MyAssignmenthelp.com

Question: Discuss about the Border Alliances and the Success Components. Answer: Introduction With the exponential increase in globalization, now a days cross border strategic alliances have tend to become a significant tool for multi national companies to use in order to expand their businesses globally. It is also termed as cross border mergers and acquisitions (MA). In other words, cross border alliances are implemented by organizations to effectively maintain as well as strengthen their position in the global market place. Also, the cross border alliances help organizations to effectively improve the performance of their company by focusing on cost cutting or by considering a premium position. Also, another reason for organizations to choose cross border alliances is to redirect the company as well as reinvent the existing business model. There are many failed cross border alliances because organizations fail to analyze systematically as to what the organization is acquiring and what are the expected after effects of the merger and acquisitions (Harvard business review on strategic alliances, 2003). There are three main factors that are mainly considered by every organization opting for cross border alliance and they are defined as follows: Will the cross border alliance be helpful for the organization to implement premium prices? Will the cross border alliance be helpful for the company to change or modify the growth trajectory? Will be alliance be useful to lower the cost for organization by leveraging assets? The typical cross border alliances involves two or more organizations operating in different locations and signs an agreement / contract to co operate and work as partners in a specific domain that will benefit the involved organizations (Lvesque and Murray, 2010). In other words, the cross border mergers and acquisitions or alliances are defined as the partnerships that exist between two or more global organizations and aim to pursue mutual benefits and interests by sharing the capabilities and resources. Majority of the time, the cross border alliances are considered to be very efficient and relatively fast way to expand their businesses into new markets and implement latest trends and technologies. Now a days the cross border alliances have become a very common approach for organizations to compete globally and expand their business verticals by signing deals that leads to cross border alliances. The CBAs (Cross border alliances) are differently applicable for different i ndustries, for example, in the insurance domain, CBAs provide an effective means to shift to new global markets. But, whereas in software technology industry, cross border alliances help in new product development as the alliance deal with global firms help them in the process of manufacturing as well as distribution of software products (Owen and Yawson, 2011). Detailed Discussion on Concept of Cross Border Alliances Types of CBAs When considering the cross border alliances for the implementation of business strategies, organizations have various options. Limited partnerships and licensing agreements represent the complex and least intense form of cross border alliance. These elements are basically governed via legal agreements and most often they need slight change or adjustment in the regular processes and operations involved in the organizations. Cross border alliances (CBAs) of more complex forms include international mergers, international acquisitions and international joint ventures (IJVs). These types of cross border alliances have certain interdependencies which cannot be handled only through legal agreements (Butler, 2007). The organizations involved in complex forms of CBAs should learn to handle their processes and operations in ways that take into consideration of differences as well as similarities between partners. Also, it is very important to note that cultural plays a very important role in cross border alliances and there are several issues associated with this factor (Demirkan, 2015). International Joint Ventures (IJVs) In this type of cross border alliance, two or more organizations (parent) from different locations develop a legal entity which is exposed to joint control of the two parent organizations. The newly established entity is generally situated outside the actual country of any one of the parent organizations. Considering an international merger, the two organizations operating in different locations / countries agree upon effectively integrating their processes and operations as well as hold the responsibility of sharing the control of the newly developed organization. Basically, in both the international mergers and international joint ventures (IJVs), there is establishment of new identity for the newly established legal entity (Harvard business review on strategic alliances, 2003). The best example for international joint venture is the Davidson Harley BV which created an equal share partnership. The main purpose of forming the IJV was to supply the required amount of instrument panels to the Ford Company that was into the development of world car concept. This cross border alliance helped Harley Automative Company (in UK) to meet all the requirements of Ford Company for its suppliers and helped the Davidson Textron (in US) to expand its business in Europe. This example of cross border alliance has been considered one of the successful partnerships in the history of automotive industries (Harvard business review on strategic alliances, 2003). IM and As This stands for International Mergers and Acquisitions and in this type of cross border alliance, the organization that is headquartered in one country gets complete control of the organization that is headquartered in different country. In the acquisition case, the organization that is acquired ceases its existence as a legal organization or entity and the organization which has acquired it takes complete control over its identity and operations (Klaas Jagersma, 2005). Most of the acquisitions are smooth and friendly and enter into bidding process voluntarily. But, there are certain instances where the organization becomes the target of takeover strategy. The takeover acquisitions are generally observed when a bid of unsolicited type is made for the firm that is giving poor performance. Though acquisitions, takeovers and mergers are different processes, but in general all the three concepts involve combing the processes as well as operations of the two organizations as m ergers and acquisitions (Lvesque and Murray, 2010). Approaches to Manage the Cross Border Alliances (CBAs) There are several specific conditions present in a cross border alliance which figure out the limitations or challenges of effectively handling the cultural diversity which are meant to be faced by alliance members. For instance, the number of entities as well as the number of countries involved could be only two, if two domestic or local firms from two different countries enter into an acquisition or a merger deal. On the other hand, the diversity can be higher if either the firm involved in an acquisition or the merger has global processes and operations, or if one of the companies has recently got into other acquisitions or mergers (Meijerink, 2014). Considering an international joint venture, there have to be minimum three firms involved in the cross border alliance, where two parents and the new venture are situated in at least two different countries. In a complex scenario, the new joint venture is situated in a third country and the circumstance where more than two parent organizations plan to collaborate to give rise to a joint venture, then there are several challenges of handling cultural diversity (Arieli, 2008). Now, considering the cross border alliance of Harley Davidson, three different countries and three firms were involved in the United States Davidson Textron was located, in the United Kingdom there was Harley and in the Netherlands there was venture of Harley Davidson (Owen and Yawson, 2011). Irrespective of the number of countries and the companies involved in the cross border alliance, the approach of generalmanagement applied in cross border alliances can be segregated to fit into one of the four approaches. These four approaches effectively reflect on the several ways to manage the cultural diversity that exists in any kind of cross border alliance (Owen and Yawson, 2011). Figure 1 shows the four different approaches to manage the cultural diversity in cross border alliances and they are portfolio, new creation, blending and absorption. Portfolio Approach In this type of approach, the managers in firms are involved in the cross border alliance and who retain a great autonomy deal. Though the cross border alliance develops economic and legal interdependencies, themanagement at the top level assumes that the firms involved in the alliance will tend to operate more or less in the same way as they used to operate before the formation of the cross border alliance. In the portfolio approach, the cross border alliances strategic value does not require the integration of different organizational systems, and thus the cultural diversity is effectively handled by maintaining the separated organizations (Qiu, 2010). This type of scenario is often encountered when one organization acquires another with the aim to diversify into another region or another business and then let the acquired firm to function as an autonomous subsidiary relatively. Blending Approach This type of approach is applicable when the managers at top level expect the organizations (two or more) involved in the cross border alliance to merge or come together into an entirely new organization which retains the best aspects of partners of alliance. This approach or scenario intends to effectively manage the cultural diversity via integration, with parties of each culture getting adapted to the culture of other party. This approach can be applied in a merger or a joint venture or an acquisition. This approach is mainly used in mergers and acquisitions which occur in an industry between organizations that complement strengths of each other and manage to offset the weaknesses of each other (Xia, 2011). New Creation Approach This scenario is encountered when the alliance partners agree to establish a new firm that is entirely different from each of the original firms. This approach is mainly applicable for joint ventures, especially when the new joint venture is situated in another country other than the countries of the parent organizations. Also, it is possible to initiate the mergers for the purpose of establishing a new firm, although it is not very common. A significant indication that merger is tending to establish a new creation is that the new firm gets an entirely new name (Stroup, 2016). Absorption Approach Lastly in some alliances of acquisition type, the buyer intends to get complete control over the target firm. The firm that is targeted here can be very attractive for the buyer company because of certain valuable assets and also due to certain business reasons, the target firm is not able to operate on its own. In such a circumstance, it is expected that the target firm will not have its own identity and adopt the practices ofmanagement of acquiring firm. In other words, it is expected that the acquired firm effectively assimilate into the acquirer firm (Stroup, 2016). Success Components of Cross Border Alliances Effective structuring the cross border alliance is a big challenge faced by the organizations and the organizations which have succeeded in developing effective cross border alliance follow the similar patterns in which the alliances are structured. In this section of the report, the various success components of cross border alliances have been described in detail. Developing a collaborative type of business plan with the prospective organization partners in order to establish enthusiasm before the negotiation of issues related to ownership,management control as well as the financial contributions. Rather than considering it to be a separate task, the structure of the alliance must be an effective end product of developing a business plan in detail. Commitment at the top level is very important to overcome the hurdles of tough negotiation as the alliance deal reaches the closure stage (Li, Wei and Liu, 2010). Considering the negotiations faced by cross border alliances, which can last up to 12 months, there are certain chances that the partners tend to fail to reach an agreement, and in that case, the back up strategies must be acquired in parallel with the alliance negotiations. The second most important success factor is to construct an alliance firm with strong capabilities of conflict management. It is very important for the alliance firms to build capabilities that are critical for managing problems coming in the early stages and enabling the alliance between firms to evolve with time. Majority of the cross border alliances have been extremely successful in realizing the financial and strategic alliance objectives, when there was equal division in the ownership. Successful cross border alliances have strong boards that are capable of segregating them from the conflicts that rise between the parents (Sun et al., 2012). Yet another successful component of an effective cross border alliance is that the strategy must always have an explicit view on whether the aim is to sell or buy specific position in an alliance for a long period or to develop a truly independent business which will evolve individually for the parent firms. Organizations must make a decision at the outset, if they want to be a seller or the buyer of a specific partnership and accordingly shape their method to managing and structuring it accordingly (Arikan and Shenkar, 2013). Another factor that leads to success of the cross border alliance is that the organizations must understand that majority of the qualities needed from the managers involved in a cross border alliance are slightly different from the ones that are expected in the parent company. It is very important that the managers involved in the alliance have to be impartial and should be committed to a single brand or a company. The alliance managers must be capable of carrying out things with high pressure and also tolerate top management pressure. Thus, it is quite clear that the managers role in cross border alliance must require greater sensitivity. The managers must be very clear about the cultural variances and the diverse objectives (Lee, Lee and Lee, 2013). Conclusion It is quite common to have cross border alliances in todays global organizations to stay in business and face cut throat competition. The difficult stage during this cross border alliances is to have absolute understanding and agreement on goals and roles of each party involved in the cross border alliance. If this understanding is not clear among the partners then it causes severe misunderstanding which can end up in not achieving the intended goals. It is a very common practice in mergers and acquisitions to try and start build synergies between the teams of partners involved in the cross border alliance after signing the deal, but survey data suggests that it is much better and effective to plan and check feasibility of the how both teams can work together before signing the deal. Both the partners can agree on what the market trend is and agree upon a plan to leverage that market trend. It is extremely important to have clear specific goals for each of the partners. Although this might not be a cause of conflict amongst the partners, it is better to have specific goals so that both the partners are accountable and they can make the cross border alliance a profitable success. The success rate of the cross border alliance has increased over the years. According to a report from Boston consulting group the best thousand firms make 12% of their income from new cross border alliances. From a managerial point of view cross border alliances are not the most ideal situations. But companies need to adapt to new techniques such as cross border alliance to stay relevant in the industry. To make the alliance successful it is very important to ensure that each of the partner respect each others national and working cultures. It is important to understand the value of effective communication in which the synergies amongst the teams need to be identified and strengthened upon before deciding share amongst partners. 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