International Alliances

International alliances using cooperative relationships come in all shapes and sizes, often under the rubric of strategic alliances. This Chapter discusses the different types of international alliances and the motives and logic behind them.

Basic Types of International Alliances

In general, strategic alliances or strategic partnerships can be defined as “a coalition of two or more organizations to achieve strategically significant goals that are mutually beneficial” (Kotabe/Helsen 2014, p. 282). International alliances or cross-border alliances are partnerships of organisations/companies from different countries. By setting up a partnership, the companies strive for a joint competitive advantage. This joint competitive advantage is based on combining strengths or mitigating weaknesses (see Figure 17.1). From the point of view of new institutional economics, strategic alliances are positioned between the transactional options market and integration/hierarchy (see Chapters 15 and 18), or on a scale between externalisation and internalisation.

Figure 17.1

Strategic alliances result in a new economic phenomenon: co-opetition. Cooperation and competition are no longer considered direct opposites. Rivalry, a basic feature of dynamic competition, is compatible with cooperation in order to achieve a common aim. This tendency also leads to a new perspective or even a new paradigm in competition theory and competition strategy. From the perspective of legislation, strategic alliances are not only more tolerated than before but are even actively being encouraged. However, any cooperation that could lead to collusion, such as price fixing, is still considered a highly sensitive subject.

Figure 17.2

Source: Adapted from Hollensen 2014, p. 370.

Critical Mass Alliances and Closing Gap Alliances

Critical mass alliances or Y-Alliances (Porter/Fuller 1986) achieve a joint competitive advantage by compensating for individual weaknesses. Companies in this case tend have similar strengths and weaknesses in their value chain activities. Critical mass can be achieved through cooperation in upstreamor downstream-based collaboration in the value chain (see Figure 17.2), for example, by bundling the partners' purchasing volume in a buying group or through joint R&D in creating an important innovation, such as in the field of semi-conductors, biotechnology or gene technology. The logic of this type of alliance is based on economies of scale.

Closing gap alliances or X-Alliances (Porter/Fuller 1986) are based on combining asymmetric but complementary strengths in value chain activities (see Figure 17.2). They therefore rely on mutual access to resources and potentials, such as local resources and capital, expertise, technologies, image, etc.

One example is entering a foreign market by establishing a firm (equity joint venture) with a domestic partner in the target country. The domestic partner knows the local market and has access to distribution channels, while the “entering” partner has, for example, a strong brand and marketing expertise. Figure 17.2 illustrates the differences between Y-Alliances and X-Alliances.

 
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