1198017 张帆
Abstract: With the development globalization in high-technology fields, the importance of strategic alliances has been realized. However, the initial stage of an alliance is a critical and dangerous period which may lead to the failure of the strategic alliance. Through studying the strategic alliance case of AMD and Founder, companies could get some suggestion about how to handle the early stage of international strategic alliance. Key words: strategic alliance, initial stage, AMD and Founder
Chapter One
Introduction
Globalization is a trend of the world nowadays and it can also be a very expensive process, as it requires the firm to own a well-developed R&D capabilities, financial support, production, distribution network, sales & marketing skills so as to make an outstanding over its rivals internationally. However, a firm may discover that it lacks at least some of the necessary internal resources to effectively extend its global reach. Therefore, in most occasions, a firm may seek for partners to share the cost as well as the risk in this process. As Hamel indicate that the fast extension for the world and the future demands the development of capabilities, insights and infrastructures to develop faster than ever, which few companies can deal with. And also they must be swifter if they
decided to apply strategic advantage. If a company cannot change itself correctly and quickly, it will miss vital opportunities and then be far lagged behind the huge wave. So the strategic alliances among different enterprises have emerged as the wise choice for many companies for the purpose of the development for the world and the development for the future (Hamel). Strategic alliance now has become a favorable way for lots of multinational companies as a strategy to face violent economic development and increasingly rapid competition in the global market (Gilroy). Compared with other widely applied strategies, such as mergers and acquisitions, many companies tend to choose the „bond‟ option rather than the „buy‟ or „build‟ option to stimulate growth and increase corporate wealth (Pekar). With the overwhelming development of the strategic alliance in recent decades, particular in the 20th century, Cyrus and Freidham are confident about that it will become the major method of global consolidation in the future. But the unsuccessful rate of the strategic alliance is surprise high, especially for the cross-boarder alliance, which is usually having difficulties with various cultures. As a result, the purpose of the paper is to evaluate the strategic alliance between -a cross-border alliance between a typical Chinese company and a well-established American multinational corporation, and to analyze how to do the international alliance in the beginning stage of the partnership to ensure the success of the alliance. The structure of this paper is:
Chapter one is a brief introduction of the strategic alliance and the structure of this paper. Chapter two shows the development of strategic alliance theory and the fail of international strategic alliance. Chapter three analyses the crucial elements in the early stage of alliance. Chapter four is of the case study on the alliance between AMD and Founder. The last chapter draws lessons from the strategic alliance between AMD and Founder.
Chapter Two
1. Definitions of Strategic Alliances
For centuries, business strategists and economists have considered alliances from a very narrow perspective, as anomalies worthy only of a footnote (Gomes-Casseres). Along the development by using alliances in high-technology fields in the 1970s and 1990s, the importance of strategic alliances has been realized, and the view among theorists is changing (Gomes-Casseres). The alliance revolution itself has been gaining momentum for the past two decades, more than 20% of all revenue earned by the Fortune 1000 is derived from alliance activity compared with less than 5% only 15 years ago (Cyrus and Freidheim). What‟s more, in the last years of the 20th century, there is a rapid growth in the diversified types of alliances among firms, which was viewed as the period of alliance capitalism. Alliance is increasingly regarded as a tool to develop enterprise business in order to maximize the shareholder‟s
value. More importantly, the nature and life span of alliances have changed dramatically, it used to be considered as having only a simple aim and being attached to the main business, but now it becomes a core part of their strategy (Cyrus and Freidheim).
There is no accurate definition of strategic alliances. Various views have been put forward by lots of strategists and economists. Here list a few of these definitions. Among which, one is stated that international alliances are “cooperative arrangements, involving cross-border flows and linkages that utilize resources and structures from auto-organizations headquartered in two or more countries” (Parkhe). Strategic alliance was also regarded as long-term co-operative agreement involving customer, vendor and competitor and was used to gain the competitive advantage (Stafford, 1994, p.64). Arino et al. think alliance is a formal agreement between two or more business organizations to achieve a set of private and common goals by sharing resources such as intellectual property, people, and capital and fix assets.
To summarize the content of different views, usually, the strategic alliance refers to as a cooperative agreement between two or more companies for the purpose of sharing complementary resources and experience that the company lacks when they face the globalization and is used as a wise way to gain sustainable competitive edge. According to the nature and life span of alliances, it can also be classified into three
different forms of strategic alliances: horizontal, vertical and diagonal alliance. Generally, horizontal strategic alliances have competitors within the same industry and this kind of alliance is often used for R&D purposes. Vertical strategic alliances can be made with customers or suppliers in some value chain activities. While diagonal strategic alliances have partners from other industries. To make the strategy in a more clear form, Arino stated that “alliance‟s forms can be varied in a number of ways; it could be performed under the forms like equity joint ventures, non-equity collaborative arrangements, licensing or franchising agreements, management contracts, and long-term supply contracts. They may end up in two kinds of firms: a consortium of firms or networks of organization. Firms are increasingly co-operating through non-equity ventures; the strategic alliance goes far beyond the more familiar joint ventures and includes a myriad of non-equity arrangement”. 2. Failure of Strategic Alliances
Inter-firm cooperation has reached a feverish pace over the past decade, especially for the technology companies, for which alliances have moved to the forefront of the competitive strategy (Brown, 2002).However, despite the growing popularity of strategic alliances, the success rate are still low, and also a number of recent studies have noted that the failure rate of alliances is in the range of 50-60%. particularly in the early period of alliances, as Brown stated that the initial stage of an alliance is a
critical and dangerous period which full of uncertainties and ambiguities, managers need to find ways to handle the early stage to deal with potential problems to make the foundation for a good relationship later. Studies have shown that two thirds of all alliances have serious experience leadership and financing problems during the first two years (Bronde and Pritz). Evidence shows that even these alliance finally succeed the managers also must frequently confront severe problems in their early years.
There are many reasons to explain the failure of the alliance. A main reason is an inadequate ability to manage the alliance. It is because leaders always played a key role in the success of alliances but alliance leaders from outside the organization will cause problems. Another major reason is terrible selection of alliance partners. Because of competitive pressures, many firms formed alliances without adequate investigation or understanding of their real needs. Another common reason is lacking of trust between partners and cultural conflicts.
Chapter Three
Researchers suggest that the common challenges of strategic alliance management are how to turn collaborative agreement into productive and effective relationships. It requires the close attention to the partnership aspects of alliances particular in the early stage of the alliance. But, Kelly pointes out that there are few studies that have study how the process of
interaction between individuals and organizations takes place in alliances, and how these problems influenced the sustaining of the collaboration. Hamel pointed out that the initial circumstance of an alliance may not encourage cooperation, for both staff and manager will unhappily realized themselves under unfamiliar circumstances. Therefore, it easily leads to uncertainties, conflicts and tensions which can cause mistrust then decrease the effect of alliance if they fail to be handled carefully and deliberately.
Arino et al. shows that managing cultural conflicts from the very beginning of the alliance is very important because they can be barriers to keep partners from effective communication, especially in cross-border alliances. Hamel indicated that the early process of collaboration is important as the strength of the strategic premise. In their viewpoint, the decisions made and particularly the nature of the interaction that take place during the initial stages of the alliance will more likely to play a determining role in its future development and even the final success. 1. Form trust
To make a successful alliance, managers are required to make a bridge for communication for it important for create an environment that is trustful for partners. Trust-building can be used as a complement to more formal structures because this kind of invisible mechanism indicate an expectation that business partner will sacrifice its own interests to the
“joint interest” of the alliance under most circumstances. The building of trust in an enterprise reduces coordination and opportunity costs, and resolves conflict and can make alliance adapted to new environments. Trust building is a critical determinant to the alliance success. 2. Culture mixture
International alliances usually have different cultural beliefs, values and assumptions that originate from the parent company; it requires managers to reconcile these differences. Experiences suggest that cultural mixture or a good cultural match is essential and has a high position in successful cross-boarder alliances than any other particular strategic or financial synergy. If an enterprise finds a partner that can shares its values and beliefs, it can build the compatibility with its partners of the international alliance to concentrates time, energies and capital on the external business environment to increase the chance of success in the international alliance.
3. Brand arrangement in strategic alliance
Brand equity has become one of the most essential business concepts since 1980s. It puts the “added value” to a product as an effort of past investments in the marketing for the brand. Strategic alliance is a flexible way for various companies to share and contribute their special and unique resources where brand is one of the significant invisible assets. As enterprisers try to use the complementary features of different brands by
taking brand alliances. Co-branding has become a strategic method for many companies to achieve higher market shares. It is explained as “two or more brands are simultaneously presented to customers”. Nowadays, brand alliances bring both opportunities and risks for enterprise brand management.
Chapter Four
1. The background of Founder and AMD
Founder Technology Group Corporation, listed on the Shanghai Stock Exchange market (600601), a subsidiary to PKU Founder Group, is one of the most influential hi-tech enterprises in China. Its revenue exceeds one billion US dollars in 2007, with its employee‟s number surpassing 4500. Founder Technology, with its professional processing and manufacturing bases, efficient enterprise management platform and strong R&D institutions, has successfully maintained a benign tendency of development relying on its strategies of steady operation, moderate expansion and sustainable growth. As the leading products of Founder Technology, FOUNDER computers have been honored by the government as \"Chinese Famous Brands\" and “National Inspection-free Product\years on China market, with its year-on-year growth rate twice as much as the global average. Meanwhile, Founder Technology establish strategic partnership with renowned international companies such as Microsoft,
Intel etc. Its annual output of PC in 2007 reached 3,500,000 sets and ranked the fourth in Asia-pacific area.
(http://www.foundertech.com/eng/en/about.asp?About_MenuId=13) AMD is an American multinational semiconductor company based in Sunnyvale, California, that develops computer processors and related technologies for commercial and consumer markets. Its main products include microprocessors, motherboard chipsets, embedded processors and graphics processors for servers, workstations and personal computers, and embedded systems applications.
AMD is the second-largest global supplier of microprocessors based on the x86 architecture and also one of the largest suppliers of graphics processing units. AMD is the only significant rival to Intel in the central processor (CPU) market for (x86 based) personal computers. Together they held 99.1 percent (Intel 80.3%, AMD 18.8%) of the CPU‟s sold for quarter three of 2011. AMD‟s history is marked by a commitment to innovation that's truly useful for customers — putting the real needs of people ahead of technical one-upmanship. AMD founder Jerry Sanders has always maintained that “customers should come first, at every stage of a enterprise‟s activities.
(http://www.amd.com/cn/pages/amdhomepage.aspx ). 2. A strategic alliance between AMD and Founder
For AMD, it formed an alliance with the Founder Group for the purpose
to increase its market share in China. In the signing ceremony held in Beijing March 25, 2004, the coalition announced that AMD and founder group will form strategic alliance and provides computers based on AMD's 64-bit microprocessors for the Chinese market. Founder Group will make and sell computers based on AMD's 64-bit microprocessors; while AMD sees this move as a way to make a new start to its business in China.
For Founder Group, it sees the alliance as a response to increased competition from Intel, which has dominated the local market. Initially, they will target the publishing sector, of which the Group has a more than 80. For Founder aspect, though it is the large IT company in China, its products are mainly within China. Founder‟s distribution network is its biggest problem and it is not well adapted to serving the small and medium-sized companies who usually buy directly. Thus, in the first place, with an intention to expand its business globally, the firm needs a well-developed worldwide distribution network, which happens to be the advantage of AMD.
3. Problem in the early stage of strategic alliance
According to the data reported in the news, there is a high failure rate of strategic alliance and the figure is even higher in the international alliance due to trust issue, culture conflicts, brand management and other factors. The deal between AMD and Founder has raised close market concern and
doubts over the ability of Founder to make the business into a profitable one. Founder should pay high attention to culture conflict in the management in order to achieve a successful strategic alliance.
Due to Chinese culture, the business has the feature of centralized power and highly value personalized relationship, which is very different from that of the West. For instance, as the power is more centralized in the company, the decision-making process of the firm in China will be more controlled by the top management, and employees would follow the boss to make decisions for them. So the decision might be less likely to be questioned and denied by the subordinates, for one hand, it would be more easily and smoothly to the implementation of a decision in the company. On the other hand, it may block the participation of members because the employees are afraid that disagreeing with their boss will hinder the communication between the leading and the led. What‟s more, it also decreases the employee‟s initiatives in the company. While in the U.S., employees get used to having their opinion on the company decisions without worry of offending the boss and are more active in the discussion. They are regard as part of the brainstorming and are deeply involved in decision-making process.
So, how to overcome the cultural issue in order to adapt Asian‟s company‟s management styles to those of the westerns, and how Chinese managers and ADM employees from the U.S. would get along. What‟s
more, there is difference between an entrepreneur company and a well-established multinational company. There are several methodologies of how to deal with the partner‟s enterprise cultures in strategic alliances. It is summarized as follows:
a) Education and training among partnering personnel can facilitate adaptation and understanding as well.
b) An inter-consultant without biases can generate plans for new inter-partner programmers to decrease conflicts.
c) The adoption of joint „ceremonies‟ and „meetings‟ can force each parts‟ employees to enter the change process and support a mutual culture. d) The hiring of new personnel can help to mix the partner cultures.
Chapter Five
This paper is mainly talk about how to make a success in the early age of the strategic alliance, especially international strategic alliance, between firms. As the success rates of strategic alliance are still low, managers have to overcome trust issue, culture conflicts, brand management and other factors. At last, through the analysis of the case of AMD and Founder, this paper gives some advice from four aspects to overcome the culture conflict in management.
Reference
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G. Hamel, 1998. Alliance Advantage: the Art of Creating Value through Partnering. Boston: Harvard Business School Press
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Gomes-Gasseres, Benjamin, 1996. The Alliance of Revolution: the New Shape of Business Rivalry. London: Harvard University Press.
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