Definition of Cross-Border (International) Strategic Alliance
A cross-border (international) strategic alliance is a type of strategic alliance in which firms that have headquarters in different countries form a partnership to share some of their resources and capabilities.
Purposes of Cross-Border Strategic Alliance
The first reason explaining the existence of cross-border strategic alliances is the limitation in domestic growth opportunities. Cross-border strategic alliances provide firms with strategic flexibility for growth. Being flexible, in this context, means firms can quickly respond to market changes and new competitors, strengthen local market presence, optimize the costs of research and production and access intangible assets such as managerial resources.
The second reason why firms consider cross-border strategic alliances is because of restrictions in foreign government economic policies. In some countries, local ownership is an important national policy. Therefore, a full range of entry modes to the potential markets may not be available to foreign firms. In these countries, a strategic alliance that operates globally may be one of the best options.
The third reason firms form international strategic alliances is to create value propositions in locations outside their home markets. Firms do this by cooperating in terms of development, procurement, and product processes that neither firm could have if operating independently.
The fourth reason for firms to utilize cross-border strategic alliances is the ever-growing intensified global competition. To combat international competition, firms may use cross-border alliances to provide synergies between firms. Synergies come in different forms, such as consolidating overlapping financial, technological, or managerial resources, or providing economies of scope and scale.
The fifth purpose of international strategic alliances is to help firms facilitate the development of their strategic competitiveness. They do this by bringing resources together to work collaboratively. This activity may create capabilities and possibly core competencies required for new competitive advantage.
Limitations of Cross-Border Strategic Alliance
The first limitation of cross-border strategic alliances is that due to their complex and risky nature, cross-border strategic alliances are difficult to manage effectively and efficiently.
For example, two firms partnering through a global strategic alliance to build next-generation military and civilian helicopters. This alliance faces complexity by the fact that they must design and produce the next-level helicopters. The risks of this alliance would be that they must reply to unique cultures and norms as a foundation to design and develop the products.
The second limitation of cross-border strategic alliances is that conflicts are common within international alliances.
To minimize the impact of conflicts, firms should focus on nurturing activities that are particularly critical to the mutual relationship. Thus, partners of the alliance should agree about the purpose of the alliance and the processes by which the mutual goals can be achieved. Secondly, firms must realize the importance of cooperation, as it provides information and resources to complete work. Therefore, it is critical to understand the dependency between firms’ activities.
Advantages of Cross-Border Strategic Alliance
Compared to international mergers and acquisitions, international strategic alliances give firms greater flexibility in responding to market changes and the emergent of new competitors. With strategic alliances, especially non-equity, firms can quickly adjust their direction and change strategy by terminating alliances that no longer facilitate new mission and vision, do not align with new objectives, and provide no substantial benefit.
Compared to other types of strategic alliances, international strategic partnerships can help firms overcome many different liabilities while operating in a global environment. Firms may have a lack of knowledge regarding local culture or institutional norms. The local firms also have significantly more information and knowledge about factors such as markets, sources of capital, legal procedures, and politics.
Disadvantages of Cross-Border Strategic Alliance
In comparison to international mergers and acquisitions, international strategic alliances may entail higher performance risk, and suffer from relational risks that naturally exist in a partnership.
These problems occur because cross-border alliances have a more loosen decision-making structure. Planning and implementation activities are generally beyond the control of any partner.
Challenges in Forming Cross-Border Strategic Alliances
One of the key challenges in forming a cross-border strategic alliance is the selection of local partners. Firms can do this by assessing the strategic fit of the potential partner with the company’s strategy and corresponding resources (assets and capabilities.)
To know whether the partner may have strategic fit or not, firms must evaluate (1) whether partners agree on fundamental values, shared mission and vision about the creation of joint value, and (2) whether the alliance is important to the partner, especially top management and stakeholders.
Another key challenge in establishing a cross-border partnership is the development of trust. Having mutual trust may facilitate the sharing of knowledge and reduce opportunistic behaviors.
Resources
Further Reading
Related Concepts
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2016). Strategic Management: Concepts: Competitiveness and Globalization (12th ed.). Cengage Learning.
- Hill, C. W. L., & Jones, G. R. (2011). Essentials of Strategic Management (Available Titles CourseMate) (3rd ed.). Cengage Learning.
- International Strategic Alliances: Their Role in Industrial Globalization. (2000). Organization for Economic Co-Operation and Development. Published.
- International Strategic Alliances. (2004). Journal of Global Marketing. Published.