Research Korner: Joint Venture

Reason why companies want to go into Strategic Alliances and how does Strategic Alliances benefit the company in surviving and competing with it competitors

Introduction Strategic alliances involving equity investments by each of the partners tend to be more ambitious and often more enduring undertakings. Moreover, firms undertaking equity-investment alliances usually have a specific purpose or objective in mind for the partnership. The agreement may also cover other types of arrangements, notably the interchange of technology and the supplying or purchasing of each other's products. Compared to establishing wholly owned enterprises, strategic alliances may involve more modest investments although significantly in excess of those for such other strategies as exporting or licensing (James Jr. & Weidenbaum 1993). Their other characteristics also fall in between these two alternatives, as does the degree of risk, the profit potential, and the degree of control over the resultant products and their manufacturing and sales. Some alliances consist of simple cross-border partnerships, in which the company participates in the foreign market with a local firm. Other alliances are true global ventures, in which multinational corporations cooperate with other global firms at several levels of the organization and in multiple locations, usually with the objective of expanding the operations of both firms on a worldwide level (James Jr. & Weidenbaum 1993). Strategic alliances are a global phenomenon because of its various effects to businesses. This paper intends to determine the reason why companies want to go into Strategic Alliances. The paper intends to identify how does strategic alliances benefit the company in surviving and competing with it competitors. Moreover the paper wants to determine some of the analytical measuring tools.   Discussion of topic Business trends Businesses are like mobiles in a windstorm being blown about by continuously changing gusts of wind. The mobiles' weights have gone awry and the mobiles shake for a period of time before they can settle into their original positions. When a gust of wind rips off one of the weights, the mobile again shakes and then settles into a new position. In this turbulent windstorm all of the entities that have been shaken about have not yet settled into their new configurations. People are not sure what things will look like or if they will settle down in this lifetime (Meyer & Shadle 1994).  What people do know is that new forces are at work. Employers and employees will have to be alert in order not to be swept away by the winds. There are different types of winds, crossing and mingling, making the mobiles dance and leaving employees looking for work. These winds constitute the business trends that dictate the new careerism. The increasing globalization of business has resulted in a windstorm of competition, causing companies to try to pare down and revitalize their bloated operations to be faster on their feet. The automatic-elevator, the modern telecommunication systems, and the automatic teller machine (ATM) are examples of how technology has replaced workers (Meyer & Shadle 1994).   Gone some time ago were the friendly elevator operators. Gone are the switchboard operators. And gone, too, are bankers' hours and many of the helpful bank tellers. Another wind that has been picking up is the notion of customer service and high speed management. Another wind affecting businesses is often referred to as Total Quality Management (TQM). TQM is shorthand for a number of changes in ways leaders can manage in order to respond to customer needs and improve the quality of the service or product for which the business is responsible. These changes include everything from empowering lower level employees to become involved in problem solving, decision making, and quality control to the introduction of advanced statistical process control strategies that can measure output, waste, rejects, and cycle time (Eckhouse 1999).Another wind upsetting the mobiles of business is the force brought about by experience-based learning. It is not an ill wind. It is the kind of fresh breeze any industry welcomes, but it does disrupt the status quo. To keep pace with the changes, it is helpful to have a perspective on the whole range of industries and occupations. Businesses also have available to them the opportunity to learn new ideas and perspectives, as international communication increases and free trade brings increased interchange among national groups. New industries and occupations are blown in by the winds, and industries and occupations with which people have become familiar are blown aside. Recently the terms sunset and sunrise have been used to remind us that while some industries are downsizing or vanishing altogether, others are starting up or growing (Eckhouse 1999). There are various business trends ranging from economic in nature, technological in nature or personnel related. To help a company survive the changing business trends sometimes they engage in strategic alliances. The strategic alliances reduce the burden of engaging in a business trend by splitting the cost and minimizing its negative effects.   Key impacts on the business and strategic alliances The emphasis on financial considerations in the business world is the cause of important omissions. The assessment of strategic decisions has sometimes suffered from this shortcoming, when certain financial criteria imposed subjectively have forced decisions to be studied from a purely financial viewpoint (Hopwood, Leuz & Pfaff 2004). The goal of maximizing corporate wealth also differs from the familiar notion of maximizing profit (Gaynor 2004). The paramount goal for most businesses is return. However, within the business, managers are focused on achievement in the two constituent areas of margin and utilization, with specific targets relevant to their area of responsibility. The highly competitive nature of many markets and the likely future prospect of continued economic turbulence as national and global economic fortunes vary, requires that business managers continue to look for opportunities to improve performance. This will primarily be achieved by improving effectiveness in the areas of winning/retaining customers, developing organizational competence and financial control (Elkin 1998).     Business research has identified key factors for business stability. The key factors involve the management style, concentration on core business, control of costs and resources, understanding product and service profitability, control of working capital, maintenance of realistic stock values, and cash forecasting.  The management approach must be relevant to the commercial requirements of the marketplace and the situation of the business. A different approach will be required dependant on the boom or recessionary nature of the market sector and the general economy (Elkin 1998).  There should be no interest in diversification unless this is clearly linked to the business and yields direct cost or competitive advantage.   Businesses need to consistently pursue cost reduction/efficiency initiatives and should refrain from the delay of taking action.  Moreover a business needs to have a clear and accurate understanding of the actual profit generated by different products/services. To do that a business must have appropriate systems to identify actual costs.  There should be rigorous management of stocks, work in progress and debtors to ensure the minimum of finance tied up. Lastly a business needs to have thorough cash forecasting and good management of cash flow (Elkin 1998). Aside from returns or profits, businesses there are other factors that create a huge impact to business. This includes the inventory cost, competitions and the problems in distribution of products. The inventory cost or expenses in keeping supplies or materials impact a business greatly because too much expense doesn’t help in the business growth and achievement of goals.  High level competition can create huge impact to businesses because the level of competition may force a business to use too many resources.  The problems in distribution of products can create huge impact to the business because lower distribution of products may mean lower income, loss of clients, and a tarnished image. Through strategic alliances, the effects of key impacts to businesses will be lessened (Wikipedia 2001). Through strategic alliances, initial problems of the key impacts will be given solution.   Why should organizations go into strategic alliances? There are many motivating factors behind the formation of strategic alliances and other cooperative strategies. Organizations go into joint ventures because of the need for resources, notably, money, skill and manpower. There are three basic motivations for the formation of strategic alliance. One of which is it represents the lowest transaction cost alternative; strategic alliances enables an improved strategic position to be achieved, and it gives an opportunity for organizational learning. These motives may be alternatives, although in some cases all three motivations may apply. A particular motive for adopting a cooperative strategy and entering into alliances is provided by the challenge of entering new international markets (Child & Faulkner 1998). The choice is one between exporting, entry via cooperative contracting such as licensing, franchising, counter-trade, and contract manufacture, and investment in the target market through setting up joint ventures with local partners (Child & Faulkner 1998).   Although the formation of alliances and joint ventures is presented as typically the result of unitary decisions in the presence of sufficient information to make them, it is more usually the product of a coalition of views in both partners pointing to the possible advantages of such an alliance, when the actual benefits and costs cannot be known until the alliance has been in operation some considerable time. They are, therefore, as much political as economic decisions depending heavily on the internal corporate political power of their champions, and placed at risk if those champions should lose power in their home organizations strategic alliances are generally formed because each partner feels inadequate in a particular area of its activities and wants to learn from the other partner. Clearly this involves risk if total integrity is absent, as one partner may take and not give fully in return. From an economic perspective, the main argument for alliances is that they are usually formed as a result of an external stimulus or change in environmental conditions to which companies respond with a feeling of internal corporate need that they feel is best met by seeking a relationship with another corporation (De Rond 2003). A further factor advancing alliance formation as opposed to the alternatives of merger/acquisition or organic development is the need to limit risk. The spreading of financial risk is frequently cited as a fundamental motivation for the formation of strategic alliances. Another motive behind the conclusion of strategic alliances is the need for speed in reaching the market. Alliances are the fastest means of achieving market presence to meet an opportunity. Finally the motivation to cooperate remains high even when the alliance has exposed the partners to the temptation to steal each others' secret (De Rond 2003). Strategic alliances are needed by firms because of the changing business scene (Wharton School 2008). Firms need to engage in strategic alliances because of the need for resources, the need for lower transaction cost, a chance to improve its strategic position, a chance for organizational learning, a chance of entering new international markets, the need to prepare for a change in environmental conditions, the need to limit risk, the need for faster market entry, and the chance to gain business secrets.   Implementing strategic alliances There are many types of alliances, but commitment is what makes alliances strategic. Companies enter a number of more transactional relationships through licensing, joint programs, and sourcing arrangements. Whereas all those are important, they are not considered strategic alliances. Alliances are about growth. Alliances are about capabilities. Alliances are about consolidation (Bain and Company 1996). Combining a business’ technology with someone else’s distribution systems gives big advantages to both companies without either one of the business losing their independence. If businesses cooperate well, neither one of them has to deal with the other parts of each other's business that they don't understand or need. Capabilities are widely recognized as the key competitive differentiators among corporations. But few companies are the worlds best at more than a handful of capabilities. One of the most important challenges for growth is to be able to deploy world-class capabilities wherever one conducts their business. So the best companies are searching to obtain capabilities from whatever means available whether it is acquisition, internal development, hiring, and various forms of partnerships and alliances. Alliances are redefining corporate boundaries (Freidheim 1998).   The nature of strategic alliances has shifted from issues peripheral to the core business of the partners to issues squarely in the crosshairs of the firms' strategy. In a brief ten years; strategic alliances have leaped onto the global business stage as one of the most important vehicles for growth and competitiveness. Alliances have become larger and closer to the strategic core of companies and have become a larger and larger part of the corporate portfolio. The major drawbacks of strategic alliances such as difficulty in negotiating and managing are receiving considerable top-level attention as alliances become an ever-greater part of the corporate portfolio. The United States trails Europe and Asia in alliance skills (Culpan 2002). When comparing their own practices with those of companies that achieved superior alliance results, the self assessment ratings of European and Asian companies were higher than those of U.S. companies. European and Asian companies indicated that their U.S. counterparts were behind in the critical skills of integration planning and implementation. U.S. companies are too quick to think the job is completed when the negotiations are finalized. As the Europeans and Asians know, that is just the beginning. Companies’ best at establishing alliances use a process consisting of four stages: identification, evaluation, negotiation, and implementation (Culpan 2002). Implementing the strategic alliances starts after the agreement has been reached between two companies. Part of the implementation stage is the gradual integration of some aspects of both businesses. In gradual integration the goal is to assist members of the organizations in adjusting to the alliance.  One problem with the implementation of strategic alliances is the resistance to it by some personnel. As long as the firm has plan of action towards the resistance, the implementation stage should proceed smoothly.  To manage the implementation of strategic alliances, analytical measuring tools such as KPI should be used by both organizations.   KPI analytical measuring tool The concept of key performance indicators (KPIs) is a way of formalizing and describing critical success factors (CSF) (About.com 1996). At the corporate level, a periodic survey of customers would be a key performance indicator, since corporate managers are responsible for the overall corporation effort. Measurable activities that contribute to improvements might be improved product quality, improved customer service and support, improved delivery times, and more customer-suggested product improvements. Each of these activities suggests its own set of key performance indicators (Thierauf 1999). The most important part of this process is that the KPIs are measures that the people responsible for them can actually control and for which they can be held accountable. And because of this combination of responsibility, control, and accountability, these KPIs, including financial ratios, are certain to be relevant and important to the managers assigned to them. The success that the typical company has in attaining its general objectives and measurable short- to long-range strategic planning goals depends on the degree of integration of operations that are critical to its success. A company’s CSF forms the basis for measurement using KPIs and financial ratios (Thierauf 1999).    For a typical company, there are a number of KPIs that are useful in determining viability (Sayers 1997). Typical ones include the ability or inability to make changes to a company’s strategies,   increase or decrease in company sales, increase or decrease in market share, increase or decrease in customers’ satisfaction, research on continuing the status quo or bringing new products to market, acceptance or non acceptance of new products and services by customers, increase or decrease in quality of products and services, improved or unacceptable delivery times, increase or decrease in sales and operating expenses  and increase or decrease in gross profit and cash flow for a company’s products and services  In a similar manner, a number of KPIs can be developed not only for a company’s other functional areas but also for the company as a whole. These KPIs tend to focus on financial ratios. Overall, a company has control over KPIs. The company is able to manage the performance of these areas and make changes when necessary (Sayers 1997). KPI or Key Performance Indicators assist the organization in defining and measuring its progress via comparing the company's achievements with its organizational goals. KPI will see if the implementation of the strategic alliance is still intact with the organization’s goals. KPIs make use of various factors to assess the current state of a business and then prescribe certain courses of action. KPIs are different and depend on the nature of a certain organization and that organization's strategy.  KPI helps an organization to measure its overall progress compared to organizational goals. It focuses on knowledge-based processes that are difficult to quantify. Critics of KPI describe it as too expensive and difficult. A serious issue in KPI is that once it is created, it becomes difficult to change it yearly because yearly comparisons can be easily lost. Moreover some believe that KPI's are extremely difficult for an organization to use specially in terms of getting comparisons with other similar organizations.   Case Study In 2000 Ericsson and Sony established a London-based joint venture, Sony Ericsson (Sony Ericsson 2008), to exploit the opportunities of third generation mobile systems, whose implementation had begun in Japan (Wallach 2005). Sony Ericsson makes use of its competences to achieve continuous growth and development.  The strategic alliance of Sony with Ericsson proved beneficial for both companies; their alliance gained them a unique identity in the cell phone industry. The alliance of Ericsson with Sony helped both companies survive a tumultuous business existence and helped them achieve better profits. Sony Ericsson’s resources come from reliable suppliers and manufacturers.  The materials used in creating the products should be recyclable or harmless to the environment. Sony Ericsson’s competences include its highly advanced product, competitive products and concept of sustainability.   Conclusion The alliance of Ericsson with Sony proved that strategic alliances help companies satisfy their need for resources and their need for lower transaction cost. The alliance of Ericsson and Sony gave both companies a chance to improve its strategic position and gain learning as an organization. Moreover the strategic alliance of Ericsson and Sony paved the way for them to have a chance at entering new international markets. The alliance of Ericsson and Sony proved further that business success can be acquired through engaging in Strategic alliances.   References Child, J & Faulkner, D 1998, Strategies of cooperation: Managing alliances, networks, and joint ventures, Oxford University Press, Oxford University Press, Oxford.   Culpan, R 2002, Global business alliances: Theory and practice, Quorum Books, Westport, CT.   De Rond, M 2003, Strategic alliances as social facts: Business, biotechnology, and intellectual history,  Cambridge University Press, Cambridge, England.   Eckhouse, B 1999, Competitive communication: A rhetoric for modern business, Oxford University Press, New York.   Elkin, P 1998, Mastering business planning and strategy: The power of strategic thinking, Thorogood, London.   Freidheim, C 1998, The trillion-dollar enterprise: How the alliance revolution will transform global business, Perseus Books, Reading, MA.   Gaynor, GH 2004, What every new manager needs to know: Making a successful transition to management, AMACOM, New York.   Hopwood, A, Leuz, C & Pfaff, D (eds.) 2004, The economics and politics of accounting: International perspectives on research trends, policy, and practice, Oxford University Press, Oxford.   James Jr., H & Weidenbaum, M 1993, When businesses cross international borders: Strategic alliances and their alternatives, Praeger Publishers, Westport, CT.   Meyer, JL & Shadle, CC 1994, The changing outplacement process: New methods and opportunities for transition management, Quorum Books, Westport, CT.   Sayers, P 1997, Competitive tendering: management and reality achieving value for money, E & FN Spon, London.   Thierauf, RJ 1999, Knowledge management systems for business, Quorum Books, Westport, CT.   Wallach, B 2005, Understanding the cultural landscape, Guilford Press, New York. Website Sources: About.com website 1996, Key Performance Indicators, viewed 04 December, 2008, < www.sonyericsson.com/>.   Bain and Company 1996, Strategic Alliances, viewed 04 December,2008,<http://www.bain.com/management_tools/tools_alliances.asp?groupCode=2>.   Sony Ericsson 2008, Company profile, viewed 04 December,2008,<http://management.about.com/cs/generalmanagement/a/keyperfindic.htm>.   Wharton School 2008, Strategic Alliances, Strategic Alliances, viewed 04 December, 2008, <http://executiveeducation.wharton.upenn.edu/open-enrollment/strategy-management-programs/strategic-alliances-growth-opportunities.cfm?roie=5040&slx=YahooPI/>.   Wikipedia 2001, Strategic Alliance, viewed 04 December, 2008, <http://en.wikipedia.org/wiki/Strategic_alliance>.

Reason why companies want to go into Strategic Alliances and how does Strategic Alliances benefit the company in surviving and competing with it competitors

Introduction Strategic alliances involving equity investments by each of the partners tend to be more ambitious and often more enduring...

Doing Business Overseas

Flight Engines Limited   Introduction               This paper discusses a case of joint venture in the aviation sector.  Specifically, this paper gives further answers to questions from the actions made by the Flight Engines Limited in its connection with Indian firms.  It is inevitable that globalization and international business wouldn’t be included in this paper since the focus of the case is the merging of Foreign Service firm (i.e. FEL) and the local firms (Indian Air Force and Component Repairs Limited).              This paper also provides the nature of doing business overseas as well as the reasons for globalization.  At the end part of the paper, recommendations and answers to the questions of the case of FEL have been available.    Terms and Conditions of Trade for Repair and Overhaul Business                         Commercial aircraft maintenance, repair and overhaul (MRO) services is straightforwardly connected to the size and operation of the commercial aircraft fleet.  The type of maintenance, size of airline, and the type of service provider are the factors that may cause variations to the needs of the MRO of aircraft operators and their options of servicing aircraft.  Most of the time, the main players in this market were independent service providers and the airlines themselves.  The larger the airlines, the more MRO services they in-house taking advantage of economies of scale which smaller carriers lack.              Engine manufacturers for instance, have found that the MRO market is very lucrative, especially as profit margins for original engine sales went down during the 1990s.  In lieu of selling engines, some Original Equipment Manufacturer (OEM) began selling power of flight hours through leasing arrangements.  Maintenance relationships with the OEMs were often preferred by the airlines as leasing of aircraft and engines grew.  As smaller European airlines move into the U.S. market, there was a growing role of OEMs along with the increase in global activity by airlines and MRO market has become much more global.              Nowadays the MRO industry, where Flight Engines Limited belongs, is slowly beginning to recover from the traffic slowdown of late 2001 and was predicted to resume its steady growth over the next few years.  It is thus suggested that consolidation among airlines and further competition from OEMs will create further opportunities for alliances and consolidation.  In order to compete, MRO firms will have to offer a wider array of services with greater geographical coverage.  Such condition is appropriate and suitable to the larger firms and it is expected that the number of providers will decrease over the next years as smaller players leave the market or merge.                As many professional service firms do not compete on price and cost not even primarily maximizing profits, it is enormously crucial for professional service firms to analyze both costs and benefits carefully prior to coming up a decision to go global.  Otherwise, internationalization or globalization may turn out to be a formula for success or it may be even reduce the probability of success in its most extreme sense which is survival.  As a preparation for a plan of globalizing services, professional service firm managers and owners should be able to anticipate undesirable outcomes in order to formulate counter measures before implementing a global strategy.                Flight Engine Limited has a key characteristic as a professional service firm.  The bulk of the earnings is based, on the professionals’ application of their expertise, either in terms of a fixed fee for the service, sometimes on a ‘no cure, no pay’ basis, or in terms of a project contract stipulating payment at an agreed fee for the man-hours required to complete the task.  Yet another major difference lies in the nature of potential opportunism.  For the professional service firm, opportunism is typically linked to diagnosing a larger, more complex problem than necessary, thus increasing the number of man-hours required.  On the other hand, the opportunistic professional service firm may involve more junior personnel than initially agreed, which may lead to both an increase in the number of hours required and possibly also a decrease in the quality of the solution delivered.  Therefore, an ethical requirement for professional service firms is that short term gains need to be given up in situations of conflicts of interest, in order to protect the professional reputation and client trust required for long term survival.     One of the major challenges with the specialized knowledge typically constituting the foundation of professional value creation is the fact that the client generally does not have sufficient knowledge to judge the quality of the service delivered.  In other words, the information asymmetry is substantial ( 1984).  For this reason, high ethical standards enforced by a profession or by the firm itself are required, if a firm is rightly to be called a professional firm.               The terms and conditions for trade in the repair and overhaul business can be accessed through a four-part typology of how international transactions in services as provided by the General Agreement on Trade in Services (GATS). <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Cross-border flows</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> The movement of a consumer to a supplier’s economy</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> The movement of a commercial organization to the consumer’s economy</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> The movement of an individual supplier to the consumer’s economy</li> </ul>   Free trade and investment in services occurs when service providers and consumers are able to interact through whichever mode they decide, free of any regulatory distortions.  Any policy that impedes service producers and consumers interacting through any of these modes of supply is an impediment to international service transactions.   The GATS does not define market access. Article XVI (1) obliges members to grant market access to scheduled industry subsectors, while Article XVI (2):(a)-(f) contains a list of quantitative measures considered to be limitations on market access.  Article XVII (1) defines national treatment as treatment no less favorable than that accorded to like domestic services and service providers subject to the limitations and conditions set out in the country’s schedule of commitments.  An uncomfortable overlap exists between the two commitments, with national treatment being interwoven with market access.  Despite this confusion, it appears that the GATS application of market access was applied to broadly cover barriers to both foreign and domestic suppliers, that is competition policy ( 1996;  1996).   Doing Business Overseas               Flight Engines Limited is considered and belonged to the professional business service firms (PBSFs).  These PBSFs,\ have been accounted as a great part of the growth of globalization.  (1992) define International Joint Venture as “a separate legal organizational body representing the partial and fractional holdings of two or more parent firms, in which the headquarters of at least one is located outside the country of operation of the joint venture.  This entity is subject to the joint control of its parent firms, each of which is economically and legally independent of the other”.   Reasons for Doing Business Overseas             Right from the end of the twentieth century until entering the twenty-first century, globalization has greatly improved the worldwide economies without showing a sign of reduced growth in global sectors.  This astonishing and fairly apparent global and international development can be accounted to a couple of factors.  One factor is the level of education of both buyers and suppliers raising the requirements for firms trying to achieve a knowledge-based competitive advantage substantially.  Another important reason is the trend for outsourcing with the combination of the rapid diffusion of information leading to an increasingly globalize economy.              Most firms find that in this competitive context, given the fact that they also need a critical mass of knowledge workers in any area in order to stay ahead of competitors, specialized knowledge-based services are better outsourced and sought from expert firms.  Firms in all industries outsource activities which are not core to their own competitive edge, and expert service firms typically are able to offer both better quality and lower cost than internalized staff.  In addition, with the rapid development of new knowledge in all areas of society, small internalized staff units face an ever increasing danger of their knowledge being outdated.  Consequently, knowledge intensive service firms are found relating to all types of industries as well as to the public sector.  These knowledge intensive service firms are different enough to challenge the industrial logic presently dominating most discussions of management and value creation, because they are fundamentally knowledge-based as opposed to capital-based. And they are different enough to warrant more research into their characteristics and their management practices, in order to achieve maximum value creation, not only in the knowledge intensive service firms themselves, but also in their client firms.             Despite the fact that several threats and disadvantages can be cited along with the commencement of international business, international firms are not even shaken by such risks.  There is no wonder why globalization has been on the rise since its success depends on international firms providing trade to other countries.  With the above-stated reasons on why international firms globalize their business operations, it is noticeable that these advantages are of greater importance than the perceived risks.  Venturing into Foreign Markets             It has been highly suggested and recommended that careful and pro-active planning should be in front when trying to invest in foreign markets.  This may refer to the choice of entry-mode which particularly affects a firm’s performance in the foreign trade ( 1986).  Firms involving in international or foreign trade may include businesses that are outsourcing their services and operations or commit to an international joint venture in order to gain entry into the foreign market of choice.  The Technology Transfer International business is usually defined as the transfer of factors of production owned by organizations across national borders, or the transfer of parts of that organization across national borders (1989).  Technology transfer, on the other hand, refers to the application of technology to a new use, or to a new user for economic gain (1981).  Technology transfer is generally thought of as being product-embodied, process-embodied, or person-embodied. That is, technology transfer can be said to occur through the specific transfer of products, processes, or people.  Most of the emphasis in the research and practitioner literature has been on the latter two types of technology transfer-process-embodied and person-embodied.  To the careful reader, however, technology transfer, which occurs by process or person transfer, never occurs without some overarching organizational framework.  Thus, if we augment this basic taxonomy of technology transfer by including organization-embodied factors, the processes of international business and those of technology transfer become virtually inseparable. Technology transfer can then be considered to be the core, or the heart of international business.  Flight Engines Limited does have processes of technology transferred to India.  However, when it comes to international business, technology transfer is fundamental to the accomplishment of international business.  Moreover, the success of the international business transaction under consideration frequently depends on the effectiveness of the technology transfer embodied in that transaction (1991). The twin concepts of international business and technology transfer share some additional important overlaps.  Both are crucial to the business community, yet they are extremely complex issues involving economic, political, social, and cultural factors.  When issues of complexity emerge, as is the case with international business and technology transfer, simplifying assumptions and frameworks are usually sought to help explain the complexity.  From a simplified model, implications can then be derived for research or practice.  Very often those implications are derived using mathematical techniques, and later those implications are related to some observed reality.  This represents the inductive approach in science. Broadly interpreted, technology transfer is an integral part of the process of international business.  To be successful in international business, the firm must initially possess some specific comparative advantage, which it then seeks to transfer across national borders.  In navigating this terrain, the firm concerns itself with the overall effectiveness of its products, people, processes, and indeed, its organization.  All of this occurs through technology transfer.  To illustrate just how this process works, we begin by establishing a somewhat "abstract" model of the competitive market as an initial benchmark.  We then introduce some major "imperfections" that, in reality, are all non-economic factors, to determine whether technology transfer is desirable from the corporate point of view. Assessing Potential Impediments to Service Sector             Foreign direct investment (FDI) plays a key role in services trade.  For foreign suppliers of many services, such as communications, financial, retailing and various business and professional services like the Flight Engines Limited, it is important to establish a commercial presence in a market to allow ongoing direct contact with consumers.  Restrictions on FDI can therefore potentially have significant implications for services trade.              The first major problem in the analysis of Foreign Direct Investment barriers is the lack of information on the restrictions imposed in each economy.  With this regard, the Flight Engines Limited has already coped up with this during its previous connection with the Indian agency.              There have been very few mergers and acquisitions in the world airline maintenance industry as a whole.  There was quite a lot of merger and acquisition activity in the United States in the 1980s, but overall, particularly international mergers and acquisitions are almost non-existent.  The reason for this is the prohibitive stand by regulatory authorities world-wide.  Consequently airlines have been forced to use other ways than mergers and acquisitions in their search for more competitiveness.  There is a strong need to consolidate the industry but, largely due to government control, airlines can only go halfway along the consolidation path.  Potential Risks for FEL (termination of the agency)             Quitting a certain joint venture would not be a simple termination.  It would also involve risks.  Such risks would apparently be the claims of the previous partner of the FEL since it is one of the provisions of the agreement between the agency and the FEL.  However, FEL can reduce or lessen the exposure claims through professional and smooth exit of FEL stating its purpose of termination.             Under a joint venture, there are adaptable reasons why termination exists.  It could be the dissolution due to partner’s ownership structure to exploit economies of scope as well as government policy changes ( (1987).  Consequently, duration and survival appear to be unacceptable measures of performance since termination of a joint venture may be the result of success, failure, or simply an adaptation to changes in the environment.  In this case, FEL has the permissible and acceptable reason in terminating the joint venture with the agency.  In other words, FEL may use the “changes in a partner’s environment” or the “changes in partner’s corporate strategies” (1993).  In following this approach to termination, FEL will be able to lessen its exposure to claims.  Generally, joint venture termination is not due to failure but rather an adaptation to changes and the aim for better opportunities.  Knowledge Creation and Transfer in International Service Firms             The globalization and even the viability of service firms at the beginning of the twenty-first century clearly depends on the ability of these firms to produce, transfer, and guard knowledge that they use in providing services to clients.  From the simplest financial services that a bank provides to a foreign client or a foreign affiliate of a domestic client, to the most complex management consulting project that involves extensive interaction between the service provider and the client firm, each of these situations requires the service provider to take specialized knowledge and apply it to a client’s needs, while trying to retain the relevant skills, structures, and other appropriable aspects of that knowledge.  In short, the service firms rely fundamentally on their ability to produce the knowledge that they sell to clients, and equally on their ability to utilize and protect that knowledge from competitors.  Knowledge is the key competitive advantage in the service sector ( 2000).             This may not seem like a particularly striking statement, with all of the emphasis being placed on knowledge management in recent years (1995;  1997). Even so, it is quite remarkable that this one dimension is the key to competitiveness time and again in the services sector. In other sectors such as manufacturing or extractive industries, such issues as natural resource availability and production scale economies often play very large roles in creating competitive advantage, along with knowledge such as patentable products or production processes. In services, knowledge is the critical element, and frequently it cannot be protected by patents, trademarks, or copyrights.             The ways that these firms move knowledge among affiliates are numerous, beginning with the relatively costly transfer of experts to foreign assignments, and perhaps ending with low-cost, frequent streams of electronic mail (e-mail).  Since the key knowledge has been found to be relationships with clients and knowledge of the industry, these things are particularly hard to transfer, except when the client is a multinational with which the service firm deals in another country (or other countries).  Since the service firms generally had more than half of their business with multinational clients, the possibility to utilize knowledge of these clients is very real. In addition the firms often have proprietary methodologies for producing their services.  These methodologies can be transferred along more traditional lines, namely through manuals, training programs, and various telecommunications means.   Recommendations and Trade Proposal (CRL & FEL joint venture) The recommended structure of business agreement between the Component Repairs Limited and Flight Engines Limited can be broken down into major subjects through an outline:                I.      Purpose and character of a joint venture or agreement In this section of agreement is a clear statement stating the major goals or strategy adopted by the foreign partner (i.e. Flight Engines Limited).  Similarly, the major goals or strategy of the local partner should also be made available.  In addition to that is the identification of the products, industries, markets, or customers that will be served.              II.      Contributions of each partner The first and most obvious form of security for both firms is the capital.  Included therewith is the existing land, plant, warehouse, offices, or other facilities.  In merging of two firms, each manufacturing design, processes, and technical know-how should be laid out in order to visualize each party’s capabilities.  The technical assistance of workers and their training should be provided by the FEL to the local partner.  In return, the local partner (CRL) will provide the workforce needed as well as the location and property.  Furthermore, it will be the local partner’s job in promoting strong relationship with the local government, financial institutions, customers, suppliers and the like.  Both parties will have to work for the development and advancement of the management.             III.      Responsibilities and obligations of each partner The FEL shall be in charge of providing the machinery and equipment while the local partner (CRL) will be of assistance in the procurement and installation in the locality.  Moreover, it would also be the post of FEL in constructing and modernizing the machinery and equipment.  Personnel management will then be handled by the local firm since the workforce comes from the locality.           IV.      Equity ownership This section has been very critical to most of the cases of joint venture termination.  Hence, there would be a need for clear and understandable agreement regarding equity ownership.  This would involve granting equity to foreign partner for manufacturing and product technology and industrial property rights.  Correspondingly, granting equity to local partner for land, plants, warehouses, facilities and others.  More importantly is the provision of specification of ownership share of foreign partner and of the local partner.  Upon realizing this agreement, it would be the foreign partner that has the advantage most of the time in the international joint venture.             V.      Capital Structure This section is the provision of the structure of capital.  It would involve the equity capital or what is termed as financing.  This is the money being raised by the firm in exchange for a share of ownership in the company.  In addition to equity capital is the loan capital which is the part of company’s capital structure being raised through loans both national and foreign.  Another important consideration is the working capital that measures how much company assets available in building the business.  In thinking ahead, there should also be discussion on the provisions for raising future loan funds since it will be useful in the advancement of the business and to get the future program started.  Accordingly, there should also be guarantees to loans by both partners.           VI.      Management This section deals with the management of the joint venture.  It would initially involve the appointment, composition, and authority of the board of directors as well as the executive officers of the joint venture.  After the selection and formation of the joint venture entity, strategic and operational planning follows.          VII.      Supplementary agreements This section involves licensing and technology agreements as well as management contracts.  There should also be provisions on technical service agreements between partners.       VIII.      Managerial policies Under this section are the specification and the declaration of dividends.  After the joint venture earn a profit, such earnings can be used as the payment to shareholders (dividend) or reinvesting the profit in the business through expansion and extension or could be also used in debt reduction or repurchasing of share.           IX.      Settlement of disputes Settlement of disputes is handled by the board of directors and the executive committee.  In addition to that, there is also mediation and arbitration should misunderstandings and arguments occur.            X.      Knowledge Transfer Given that knowledge is the key competitive advantage in the producer services sector, firms need to find ways to build their knowledge resources, share that knowledge among affiliates, and protect it against incursions by rivals.  Since the knowledge ordinarily resides in people, other than that which has been codified into some kind of medium such as a document or a computer program, the firm faces the need to find and hire high-quality people, to train them in the business, and to retain them over time. One general strategy that has emerged, in particularly the advertising and consulting industries, is the use of teams of people to provide the services to clients.  By creating and using teams, the firm is able to take the offensive in developing new knowledge from the co-operation among team members, and take the defensive in making sure that team knowledge is not able to be ‘stolen’ by a defecting team member.  Both of these attributes enable the firm to build a stronger competitive advantage. The kind of knowledge that seems to produce key competitive advantages is relationships with clients.  This knowledge includes person-based knowledge of key individuals at the client firm; team-based knowledge of the client firm’s people involved in the overall relationship; and historical ‘knowledge’ embedded in the supplier/client relationship that has built up over time.  The latter two types of knowledge are more appropriable by the firm, since no individual can capture the full relationships.  Firms should aim to build up those kinds of knowledge, since they can provide the most durable competitive advantages. In pragmatic terms this means always looking for ways to ensure that services are provided by multi-person teams. It means building relationships with clients that last for years, and that thus build up the historical trust and willingness to co-operate of long-term relationships.   Conclusion             FEL need not worry about gaining profit out of the joint venture with the new firm since usually most foreign firms have the advantage of bigger share and control over the local partner.  In addition to that, as long as the recommended joint venture agreement will be followed prior to merging, the foreign firm (i.e. FEL) has the majority control of the venture.  This is for the simple reason that most of the investing foreign firms are richer than the local country.  Given that the recommendations stated in this paper will be pursued, there would be nothing much that FEL should worry about as the joint venture will surely goes right and well as planned.

Doing Business Overseas

Flight Engines Limited Introduction This paper discusses a case of joint venture in the aviation sector. Specific...

Motivations For International Strategic Alliance

Introduction Strategic alliances concerning investments of equity by business involved tend to be more motivated and often more long-term undertakings. Furthermore, business effort towards equity-investment alliances more often than not had a explicit intention or aim in mind for the joint venture or alliances. The alliances arrangement may also include other forms of agreement, particularly the trade off of technology and the supplying or purchasing of each other's stuff. As indicated in the paper of Jenster & Hussey, (2001), in comparison to the establishment of wholly owned enterprises, such strategic alliances may engage more unpretentious investments even though considerably in excess of those for such other strategies like licensing or exporting. Their added distinctiveness also plunge in between these two options, as does the quantity/level of risk, the profit potential, and the extent of control over the ensuing products and their manufacturing process and profit.  In addition, Jenster & Hussey, (2001) added that there are some alliances that involve simple cross-border joint ventures whereas the firm or business participates in the foreign market with a local firm. Aside from this, there are other alliances that are considered genuine global ventures whereas the multinational corporations cooperate with other global business at different levels of the business and in numerous areas.  Basically their objective was more on expanding the operations of both businesses on a wide-reaching level (Jenster & Hussey, 2001).  With respect to the current business environment, the so-called strategic alliances are known to be global phenomenon since it possesses significant effect to involved businesses. With this, this paper aims to discuss information concerning the reason behind why companies numerous global companies want to go into Strategic Alliances. The Companies Numerous companies especially the technology-based companies are now forming strategic alliances.  As for the latest news, Facebook, a social networking site formed an alliance with Microsoft, one of the leading companies in terms software, services and technology solutions. Based on the press release of Microsoft (2007), “Facebook and Microsoft expanded their advertising partnership and that Microsoft took a 0 million equity stake in Facebook’s next round of financing at a billion valuation. Under the expanded strategic alliance, Microsoft was the exclusive third-party advertising platform partner for Facebook, and started to sell advertising for Facebook internationally in addition to the United States.” On the other hand, Apple and HP also formed an alliance last January of 2004.  As for their agreement, HP consumer PCs and notebooks are preinstalled with Apple’s iTunes® jukebox software and an easy-reference desktop icon to point consumers directly to the iTunes Music Store, ensuring a simple, seamless music experience. This offering is yet another way that HP is helping consumers enjoy more from their personal digital entertainment content (Apple, 2004). As for concrete samples of such alliances, in year 2000 Ericsson and Sony established a London-based joint venture. The new business was called Sony Ericsson which aimed in exploiting the opportunities of third generation mobile systems in which the implementation had commenced in Japan (Sony Ericsson, 2010).  As seen in the current condition of the company, Sony Ericsson makes use their capabilities to achieve continuous development and progress.  And in accordance to the observed success of the company, the strategic alliance of Sony with Ericsson demonstrated positive effect or both firms in which their fusion gained them a distinctive identity in the cell phone industry. The alliance of Ericsson with Sony helped both firms survive a chaotic business existence and helped them attain improved returns. Actually, Sony Ericsson’s resources come from consistent and dependable manufacturers and suppliers.  Sony Ericsson made sure that the raw materials used in developing the products are environment friendly. Sony Ericsson’s capabilities include its extremely advanced product, viable products and notion of sustainability. The Changing Business Trends Companies around the globe are like mobiles in a storm being blown about by incessantly changing breezes of wind. The mobiles' balances have gone skewed and the mobiles quiver for a period of time before they can patch up into their original poses. When a breeze of wind rips off one of the balances, the mobile again quivers and then patches up into a new spot. In this tumultuous twister all of the units that have been stunned about have not yet settled into their latest arrangements. According to Hitt, Ireland, & Hoskisson (2003), people are not certain what things will look like or if they will settle down in their current stance.  What people do know or what we know is that innovative strengths are at work. In business or even in normal work environment, employers and employees need to be attentive in order not to be swept away by the wind breeze. There are different types of wind breeze, crossing and blending, making the mobiles be unstable and send-off employees looking for employment. These wind breezes comprise the business trends that state the new careerism. The increasing business globalisation has resulted in a twister of competition, causing firms to try paring behind and invigorate their swollen operations to be more rapidly on their feet. From this and in relation to business context, changes in the world tend an individual or a business unit collaborates to the needs of the changing environment. Firms may add and omit business efforts in order to survive.  For instance, the importance on financial concerns in the business world is the reason of important exclusions. The evaluation of strategic decisions has occasionally suffered from this inadequacy, when definite financial criteria imposed instinctively have forced decisions to be considered from a merely financial standpoint (Kaplan, & Norton, 2001). The purpose of maximising business wealth also differs from the well-known idea of maximizing profit (Kaplan, & Norton, 2001). The principal aim for most businesses is profits. Though, within the firm, executives are paying attention on accomplishment in the two element areas of fringe and exploitation, with explicit targets applicable to their part of accountability. The extremely aggressive nature of many industries and the likely outlook of sustained economic instability as countrywide and global economic fortunes fluctuate, requires that business managers keep on looking for chances to perk up feat. This will principally be attained by enhancing efficiency in the ranges of /retaining clientele, increasing business capability and fiscal management (Kaplan, & Norton, 2001).   Business studies like Kaplan, & Norton, (2001) and Neely, (1998) identified significant features for business firmness. The significant features engage the organization style, attention on core business, costs and resources control, assessment of product and service effectiveness, working capital management, safeguarding of sensible stock values, and cash forecasting and projections. As stressed out by Kaplan, & Norton, (2001), the management style must be appropriate to the viable necessities of the market and the condition of the company. A diverse style will be required dependent relative on the rumble or recessionary environment of the market segment and the general market (Kaplan, & Norton, 2001).  There should be no concern in diversification unless this is evidently associated to the company and defers direct cost or viable advantage.   Firms need to constantly practice cost reduction/efficiency schemes and ought to cease from the holdup of taking action.  Furthermore, businesses need to have a lucid and precise perceptive of the definite earnings produced by diverse products/services. In order to practice this, a certain business must have suitable systems that will identify actual costs.  Apparently, rigorous management of stocks is also recommended and made sure that work in advancement and debtors are tied up.  Aside from this, there must be valuation of all stocks at the accurate value. Lastly a firm should have systematic cash forecasting and excellent cash flow management (Neely, 1998). Aside from returns, business companies must also be aware that there are other factors that create a huge impact to their progress. This comprises the inventory cost, competitions and distribution of products issues. The cost of inventory and expenses in keeping materials has a significant blow to a business since too much cost doesn’t help in the business development and attainment of goals.  High level rivalry can generate huge impact to businesses for the reason that the level of competition may compel a business to use a lot of resources.  The troubles in distribution of products can produce huge bang to the business because lower allocation of products may mean loss of clients, lower income, and a stained image. But with strategic alliances, the effects of key impacts to businesses will be lessened. Through strategic alliances, primary problems of the key impacts will be given solution.  Why should businesses go into strategic alliances? There are a lot of motivating reasons behind the formation of joint ventures or strategic alliances and other cooperative strategies. As stated previous, businesses go into joint ventures because of the need for resources, particularly, skill money, and manpower. As indicated in the paper of Galbraith, (2001), there are three basic motivations for the development of strategic alliance. One of which is it embodies the lowest business deal cost alternative; it also permits an enhanced strategic situation to be achieved, and it gives a prospect for business learning. These motives may be substitutes, even though in some cases all three motivations may be relevant. An exacting motive for considering a cooperative strategy and entering into alliances is offered by the challenge of entering latest international market arena (Galbraith, 2001). The option is one between exporting, entry by means of joint contracting such as franchising, licensing, counter-trade, and contract manufacture, and venture in the target market by setting up strategic alliance with local associates (Galbraith, 2001).  Even though the alliances and joint ventures formation is offered as characteristically the product of unitary decisions in the existence of adequate data to make them, it is typically the result of a union of views in both businesses pointing to the probable reward of such venture, when the definite benefits and costs cannot be known until the coalition has been started. Thus, as much political as economic resolutions depending greatly on the inner corporate political influence of the champions, and placed at danger if those champions must lose power in their home organisations strategic alliances are generally created for the reason that each organisations feels insufficient in a certain area of its activities and needs to be taught from the other partner. Obviously this effort also engages risk if total truthfulness is not present, as one partner may acquire and not give fully in return. From an economic standpoint, the main argument for joint venture is that they are usually created as a result of an external motivation or change in business conditions to which business react with a feeling of internal business necessitate that they feel is finest met by in search of a relationship with a new business (Hitt, Ireland, & Hoskisson, 2003). An additional issue advancing alliance formation as contrasting to the alternatives of joint venture is the requirement to limit risk. The scattering of financial risk is often cited as a primary motivation for the creation of strategic alliances. Another motive behind the consideration of strategic alliances/joint ventures is the need for velocity in attainment the market. Alliances are the greatest means of attaining market presence to meet an opportunity. Finally, the motivation to collaborate remains lofty even when the alliance has uncovered the partners to the attraction to steal each others' secret (Hitt, Ireland, & Hoskisson, 2003). Strategic alliances are desired by business for the reason of changing business prospects. In the case of Sony and Ericsson or even Apple and HP, they engage in strategic alliances not only because of the need for resources.  But their alliances also created different opportunities that lessen transaction cost, improvement of strategic position, an opportunity for organisational learning, establishment in the international markets, the need to set up for a change in environmental circumstances, the need to limit business dangers, the need for quicker market entry, and the opportunity to increase and share business secrets. Implementing Strategic Alliances As discussed previously, there are numerous types of alliances in business, but commitment is what makes alliances strategic. As argued, a number of businesses enter numerous transactional dealings through joint programs, licensing, and sourcing agreements. While all those are imperative, they are not regarded as strategic alliances. Alliances are about development, capabilities and consolidation. Joining a business’ technology with other’s delivery systems provides big return to both firms without anyone of the firm losing their sovereignty. If firms collaborate well, neither one of them has to contract with the other parts of each other's business that they don't recognize or need (Rindova, & Kotha, 2001). Capabilities are extensively known as the key viable differentiators among companies. But a small number of corporations are the world’s best at more than a handful of capabilities, and hardly ever on a global level. One of the most significant challenges for development is to be able to arrange world-class capabilities where one carry out their business. So the finest businesses are incisive to acquire capabilities from whatsoever means obtainable whether it is internal development, acquisition, hiring, and a variety of partnerships and joint ventures. Alliances are redefining business limitations (Rindova, & Kotha, 2001). The environment of strategic alliances has moved from minor issues to the core business of the allies to issues directly in the crosshairs of the business' approach. In a short span of time; strategic alliances have jumped onto the international business juncture as one of the most significant mediums for development and competitiveness. Alliances have become superior and nearer to the strategic core of business and have become a bigger and bigger part of the business portfolio. The main downsides of strategic alliances for instance complexity in discussing and managing are receiving extensive top-level awareness as alliances befall an ever-greater component of the business portfolio. Conclusion From the discussed issues and in accordance to the alliances of stated companies, they proved that strategic alliances help them gratify their need for resources and lower transaction cost. Their alliances gave involved companies an opportunity to perk up its strategic position and expand learning as an organisation. In addition, the strategic alliance paved the way for them to have an opportunity at entering their respective market such as mobile phone market for Sony and Ericsson, digital music for both HP and Apple and advertising market for Microsoft and Facebook. These alliances justified that business achievement can be obtained through excellent strategic alliances. References: Apple (2004), HP and Apple Partner to Deliver Digital Music Player and iTunes to HP Customers. Accessed: January 04, 2010 from <http://www.apple.com/pr/library/2004/jan/08hp.html> Galbraith, J.R. (2001), Designing Organizations: An Executive Briefing on Strategy, Structure and Process, Jossey-Bass, San Francisco. Henry, C. (2006), ‘Periscopic media tour’, Strategy & Leadership, 23; 5, 58-66. Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2003), Strategic Management: Competitiveness and Globalization, 5th ed., South-Western, Singapore. Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2003), Strategic Management: Competitiveness and Globalization, 5th ed., South-Western, Singapore. Jenster, P. & Hussey, D. (2001), Company Analysis: Determining Strategic Capability, John Wiley and Sons, Chichester, pp. 135-171. Kaplan, R.S. & Norton, D.P. (2001), The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment, Harvard Business School Press, Boston, MA. Microsoft (2007), Facebook and Microsoft Expand Strategic Alliance. Accessed: 05 January 2010 from <http://www.microsoft.com/Presspass/press/2007/oct07/10-24FacebookPR.mspx> Neely, A. (1998), Measuring Business Performance, Economist Books, London. Rindova, V.P. & Kotha, S. (2001), ‘Continuous “morphing”: Competing through dynamic capabilities, form, and function’, Academy of Management Journal, 44, 1263-1280. Sony Ericsson (2010), Company Profile. Accessed: 04 January 2010. from <http://www.sonyericsson.com/cws/corporate/company/aboutus/profile>.   Credit:ivythesis.typepad.com

Motivations For International Strategic Alliance

Introduction Strategic alliances concerning investments of equity by business involved tend to be more motivated and often more long-t...