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7.5 Conclusion

In this chapter, we discussed alliance strategy and management for global businesses. The creation of a local entity presents pros and cons to wholly owned subsidiaries and joint ventures. In summary, selection of the tradeoff is between reducing pre-market entry risk (joint ventures) and post-market entry risk (wholly owned subsidiaries). Reducing ex post facto risk through joint ventures requires a management appropriate to each phase in an alliance: alliance formulation, alliance structure design, and alliance execution. It is also effective for companies to create a knowledgebase of alliance experience and establish a specialized division that focuses on alliances to effectively move forward with new deals. Companies with a high level of alliance management capability can reduce the ex post facto risk of joint ventures, and thus opt to make business transformations through alliances with local companies.

In this chapter, we discussed the expansion of global businesses through alliances based on the creation of complementary relationships with local companies. Strategic international alliances can take on the forms of co-specialization (partnerships with complementary assets), co-option (selective partnerships with competitors) to pursue scale merit at a global level, and learning and internalization with the objective of strengthening internal capabilities through an alliance (Doz and Hamel 1998). Co-option is prominent in the electronics industry, which requires speedy business decision-making and scale merit. On the other hand, learning and internalization is appropriate to the automotive industry, where it is critical to increase productivity by adopting strength in production and other technologies that differ from one company to another. Japanese companies tend to exhibit the “not invented here” syndrome and lag behind in terms of creating international alliances. However, alliance strategy is an important component in a company's management strategy from a global perspective, and it is thus important for companies to deepen their understanding of various forms of alliances and proactively work on these alliances.

We concluded this chapter by discussing government alliances in the form of infrastructure businesses through PPPs. They do not merely involve the subcontracting of operations by governments to private corporations, and must be understood as an alliance between public and private sectors to increase business values by sharing business risks and maximizing benefits to both parties that form the alliance. Governments in emerging countries possess limited ability to manage PPP businesses, thus private companies have no other option but to undertake excess risk. Despite the high risks, the incentives to pursue infrastructure business-related PPPs in emerging countries is strong, and such business opportunities abound. Japanese companies must therefore carefully analyze the underlying risks related to infrastructure projects and make business proposals on the basis of governments' needs in these countries, and patiently negotiate the sharing of appropriate risk levels. Companies may also find it effective to enter into alliances with local companies in negotiating projects with governments in host countries.


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