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Home arrow Management arrow Strategic Management in the 21st Century. Corporate Strategy

CROSS-BORDER (INTERNATIONAL) ALLIANCES AND CULTURAL DIFFERENCES

When an alliance involves partner firms from different countries, it is often referred to as a cross-border or international alliance. It has been argued that the fundamental mechanisms and considerations that determine alliance performance/success are similar regardless of whether an alliance is cross-border or within border. However, it is important to note that the cross-border context of an alliance can bring into play a number of cross-border contextual considerations that might impact the influence of fundamental mechanisms of alliance performance/ success.22 Though it is beyond the scope of this chapter to give detailed treatment of all such considerations, one particular consideration is the cultural differences that exist between countries/regions of the world. These can impede effective cross-border cooperation between firms, and can have implications for the degree of reliance placed on various mechanisms firms use to make alliances work. For example, cultural differences in attitudes toward formal contracts have implications for how contracts are used, and to what degree they can be relied upon.

THE RESOURCE-BASED MOTIVATION FOR FIRMS TO ENGAGE IN ALLIANCES

Given the definition of strategic alliances provided earlier, it is clear that resources are a critical consideration when considering entry into an alliance and with regard to alliance relationship dynamics and performance outcomes. In general, there are two broad types of resources that partners bring to an alliance: complementary resources and idiosyncratic resources. Complementary resources are those that eliminate deficiencies in each firm's individual portfolios of resources, and thus enhance each other's ability to achieve business goals by supplying distinct capabilities, knowledge, or other assets.23 For example, in 1997 Cargill and Dow formed an alliance to develop and commercialize plastic made from corn that could be used as a replacement for plastic produced from traditional petroleum feedstock.24 The resource that Dow needed but lacked (and that Cargill possessed) was technology related to the production of lactic acid and polylactic acid. Conversely, Cargill needed but lacked the market access that Dow possessed. By pooling their respective resources, Dow and Cargill were able to eliminate deficiencies in each other's individual portfolios of resources, and achieve business goals that would have been difficult for either firm to achieve alone. It is important to note, however, that complementary resources are a necessary but not sufficient condition for alliance success. To extract the competitive advantage potential of complementary resources, an alliance must also develop idiosyncratic resources.

Idiosyncratic resources are often defined as those that are developed by alliance partners through the process of synthesizing (or combining) the complementary resources that the partner firms bring to the alliance.25 More precisely, they possess all of the following characteristics: (1) they are developed by the partners during, and for, the alliance, (2) they are unique and specific to the alliance, and (3) they are required to facilitate the combination and use of the distinct complementary resources that are brought to the alliance by each of the partner firms. Idiosyncratic resources may be either tangible (e.g., a joint-manufacturing facility) or intangible (e.g., a common customer service routine).

Idiosyncratic resources play a vital role in enabling an alliance to leverage the value-creation potential of the complementary resources that partner firms bring to the alliance. Consider the example of an airline alliance whose goal is to provide passengers with seamless travel. Though the partner airlines may have the necessary complementary capabilities to serve the different geographic regions traveled to by each airline's customers, the alliance's ability to provide the seamless travel desired by their customers would require the development of idiosyncratic systems to effectively integrate the complementary capabilities. Complementary capability in this example is characterized by the independent route networks served by each airline that exist pre-alliance. A customer could book two tickets and use each airline for different segments of the journey. However, in the context of an alliance, this would not provide passengers with much advantage or provide competitive advantage to the partner airlines. To leverage their complementary capabilities and provide truly seamless travel, the partners would need to develop idiosyncratic resources such as joint customer service offerings that take service inquiries regardless of airline, specialized IT investments to provide a common Internet interface between individual IT platforms, revenue-sharing processes, and joint training of sales and service personnel on both airlines' product/services and procedures. These idiosyncratic capabilities would not only be specialized resources developed by the partners, during and for the alliance, but since they are highly specific or idiosyncratic, they would be difficult to redeploy outside the alliance.

The magnitude of partner investments to develop idiosyncratic resources will depend on the complementary resources the partners bring to the alliance.26 High degrees of resource complementarity provide incentives to invest in the development of idiosyncratic resources since they increase the likelihood that further investments in idiosyncratic resources will result in creating competitive advantage.27 This is a critical observation since idiosyncratic investments are usually quite costly. Consider, for example, the cost of system integration required to provide the seamless travel experience in the airline alliance example. Moreover, the motivation to build and maintain the alliance will, over time, become more and more tied to the partners' increasing investments in idiosyncratic resources. There are two explanations for this. First, since idiosyncratic investments are of little value if the alliance were to end, they create a mutual dependence that motivates the partners to make the alliance work and endure. Second, as partners increase their investments in idiosyncratic resources, they also increase their ability to integrate and exploit each other's individual complementary resources. This allows the alliance to extract more of the potential competitive advantage offered by the pooled complementary resources.28 This aspect of increasing partner investments in idiosyncratic resources creates a more positive partner dependence that provides the partners with a profit-making motivation to make the alliance work and endure.

To further impart competitive advantage, idiosyncratic resources should be unique to the alliance and constantly evolve to help maintain the sustainability and inimitability of the alliance's resource advantage, both of which are promoted by increasing levels of joint investment.29

All else equal, ongoing investment in the development of idiosyncratic resources provides the alliance with resource advantages that are difficult for competitors to replicate, and certainly not without requiring a substantial amount of time to do so. Even if competitors knew the secrets behind an alliance's idiosyncratic resource advantage (a highly unlikely assumption), they would still have to overcome so-called time compression diseconomies associated with attempting to replicate the advantage.30 In other words, most idiosyncratic resource capabilities can only be developed effectively through painstaking efforts over long periods of time. Competitors that use accelerated efforts to try to capture similar resource outcomes are likely to both incur greater costs than if the investments/effort were made over a longer period of time, and achieve results that are less effective than those of the alliance they are attempting to mimic.31

 
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