Joint Ven

However, the barriers to successful joint ventures and international collaborations are challenging. In many cases, these barriers emerge during the start-up stages of an alliance. The objective of this paper is to identify and analyze the different types of challenges the organizations should evaluate during the early stage of their alliances. It is based on a literature survey and the findings of Canadian high technology industry. The study shows that the key challenges in the first year of joint ventures/international collaboration relates to relationship issues, which arise between the partners.It recommends stronger focus on these issues while designing and implementing a joint venture or collaboration. The paper concludes with suggestions to build an effective and long lasting working relationship between partners. Introduction Global companies actively search new possibilities to create and sustain a competitive edge in today’s business environment in which the capabilities to adapt and respond are crucial for survival. Interestingly, this method of search necessitates a radical rethinking of business models and organizational boundaries.The traditional go-it-alone business model has now become stagnant even for the best resourced organizations, and in order to sustain competitive advantage several companies have expanded their business operations by forming joint ventures or collaborations with other companies worldwide. Emerging models of alliances focus on relationship-based organizational structures and cooperative strategies, which are highly flexible and show an ability of responding to rapid and radical changes occurring in the marketplace and technological developments.Inter firm cooperation has attained a feverish growth over the past few years. Throughout the 2000s, some studies estimate that the number of joint ventures increased at a rate of around 22% annually (Child & Faulkner 2008). Harbison and Prekar (2008) stated that 32,500 strategic alliances were formed worldwide between 2004 and 2007 alone. For hi-tech companies, which attract a large number of collaborations in particular, alliances have formed the forefront in their competitive strategy. Despite the growing popularity of joint ventures, collaborative success remains elusive for many organizations.Evidence also demonstrates even those ventures, which eventually were successful must have frequently encountered serious problems in their start-up years. For instance, Bleeke and Ernst (2003) found that 65% of the cross-border alliances they studied faced serious managerial problems in their first two years. A Bain and Co. study observed for every ten joint venture negotiations, which end in an agreement, six will fail to meet expectations of partners and of the other four, only two will survive for a longer period (Rigby & Buchanan 1994).Researchers emphasize that a challenge of strategic alliance management is to convert collaborative agreements into effective and productive relationships. Thus, this means giving close attention to the relationship issues of alliances, particularly during the early stages of the venture. However, few studies have tried to examine how the process of cooperation between organizations and individuals actually occurs in alliances and the problems that many organizations face while initiating and sustaining collaboration.This paper attempts to respond to this issue by investigating some of the key challenges and issues that organizations encounter during the process of implementing their strategic alliances. Literature Review How Start-Up Stages are Managed that Determines Alliance Success Doz and Hamel (1998) observe that how collaboration begins, and its start-up process is as significant as the strength of the strategic premise on which alliance is formed. In their opinion, the decisions arrived and particularly the gravity of the interactions that occur in the initial hases of the venture will determine its future development and success. Besides, More and McGrath (1996) gives credit to alliance success since the ability of companies is efficiently managing relationship problems. Wildeman et al. (1996) viewed that soft or relationship issues were the root cause of the premature failure of 75% of alliances. In the same text, Kok and Wildeman state “A lack of focus on issues such as trust, culture and chemistry is to blame for the breakup of most alliances because relational issues are neglected when it comes to negotiating agreements between partners” (1998).However, these issues are significant to achieve mutually rewarding successful collaborations. Early Stages of Ventures are Fraught with Ambiguity and Uncertainty No matter how much attention organization pay to the structural and strategic design features of the collaboration, the actual take-off situation is likely to pose a challenging experience for most of the companies. Sherman (1992) states that learning to work together with different cultural background, language barrier and to develop a good understanding is difficult between partners.Nevertheless, the beginning stage of a joint venture or collaboration is a crucial shakeout period in which there is a necessity of a strong foundation for a long lasting working relationship. Doz and Hamel (1998) also found that the initial circumstances of an alliance rarely encourage cooperation. The staff and managers involved find themselves in an unfamiliar situation in which they do not have a clear vision of future prospects. Moreover, they possess different attitudes, assumptions and expectations from the alliance as well as show fears about their role in it.This situation becomes further complicated because of communications barriers, cultural differences, lingering suspicions about motives of partner and a likelihood of latent opposition in the partner companies. Furthermore, in situations where partners happen to be competitors, tension between them may accelerate the mix and deteriorate the relations. Moreover, if these early conflicts, uncertainties, tensions and misunderstandings are not dealt deliberately and carefully then they can create mistrust and strengthen an “us versus them” feeling in the partners, thereby weakening the foundation of the venture.Given the uncertainties and ambiguities that typically prevail during the launch of an alliance, it would be wise to consider the initial stages of cooperation as a period of trust building, mutual discovery, trust building and sense making by the companies involved. Besides, BuEchel et al. (1998) recommend that the early formation of a trust-based relationship is a significant factor in establishing the conditions for success. Other authors also support that trust performs a central role in collaborative relationships and organizations often assign failed alliances because of a lack of trust (Parkhe 1998).According to Faulkner (1995), trust implies having enough confidence in a partner to transfer valuable know-how and other expertise to promote the joint venture despite the risk since the partner can take advantage of this situation. Sabel (1993) argues that no party to an exchange will exploit the other’s vulnerability in a situation of the confidence. The presence of trust decreases opportunistic behaviour and coordination costs facilitating conflict resolution and enables alliances accommodate to changing environments (Parkhe 1998).This process of building trust takes a long time. The first beginning months of the alliance can be crucial; however, by establishing the foundation of trust the partnership can develop and then flourish. Parkhe (1998) observes that it is significant during the start-up stages to focus attention on eliminating the conditions of surprises, ability to show trustworthiness and create understanding for mutual trust. Moreover, he emphasizes that trust is brittle and if it is broken during the initial stages of an alliance it would be difficult to re-establish.Thus, trust is extremely difficult to establish and preserve, especially in international collaborations where cultural differences in attitudes and the propensity play a critical role. However, it is unlikely that the partners will be comfortable in sharing information and investing in a venture without commitments of trust between them. Moreover, in the absence of trust, an atmosphere of suspicion is most likely to prevail. This holds true in case the partners are potential competitors.Lewicki and Bunker (1996) recommend a model of trust in joint ventures, which develops from the initial to the final developed stage. In this model, alliances begin on impersonal conditions with the partners calculating that availability of the limited knowledge, the potential benefits of the alliance exceed the risks of partners backing out from their commitments. It is named as a calculative trust. If start-up cooperative activities endorse this calculation and promote repeated transaction and interaction, then the parties will also start developing a knowledge and understanding of each other.Conditions are then favourable for a transition to trust based on mutual confidence and understanding. An effective communication between the potential partners and the positive attitudes of cooperation ultimately leads to a friendship and a sense of shared identity. Faulkner (1995) considers the both by referring to it as bonding, and a key prerequisite for alliance success. Finally, the literature also suggests that trust can deepen as a relationship matures, but the dynamics of alliance must be very carefully considered promoting the evolution and development of trust.Managers Emphasize Technical/Legal over People Issues Unfortunately, evidence demonstrates that many managers view people issues soft and insignificant when compared to technical and operational ones. In doing so, they ignore the fact that the ability of the partners to work jointly through conflicts and uncertainties is ultimately key to achieve the value creation goals of the alliance. In several cases, the problems and challenges that alliances encounter in their initial stage are the result of corporate executives exhibiting a “deal making” orientation.Furthermore, they tend to focus on establishing alliances rather than sustaining them. As a consequence, they emphasize on the venture’s legal issues while ignoring the relationship aspects, which actually determine the process of cooperation. Prekar (1989) comments that often senior executives devote more time in screening potential partners with respect to financial terms rather than managing the partnership in human terms; thus, failing to nurture the relationship. Doz and Hamel (1998) argue that few top executives recognize how to move from structural aspects of alliance forming to the actual alliance management for strategic value.In many cases, they do not even possess a specific game plan. Andersen Consulting found that most of the companies had formed alliances with high hopes, but no realistic plan to realize them. Often, their implementation problems directly relates to the partnership selection process, for example, many companies use a very structured approach to evaluate the financial and technical strength of prospective partners, but their evaluation of the relationship aspects tend to be extremely superficial.The relationship aspects such as culture, chemistry were more subjective and qualitative and few of the companies were capable of assessing them in a structured way. As a consequence, they tended to be worse ignored or de-emphasized. Finally, during implementation of a new venture, there is a desire of both partners to speed up joint activities up and move quickly to start producing results. Herein, is the dilemma because market pressure demands speedy action by the partners, whereas relationship building is a time consuming process.Raphael (1993) had warned that the fast start-up of ventures can pose extreme risk for both partners unless they possess substantial experience or have worked together in managing previous relationships. Results and Discussion A close examination of CATA revealed that 60 organizations encounter challenges in major four key themes during initial start-up and during the continuation of collaborations and joint ventures with partner companies. The following issues show what firms should consider in the initial stage and while maintaining international Joint Ventures: 1.People/relationship issues, which involve problems related to culture, communication and roles; 2. Operational issues that involve problems related to the implementation of technical details such as technology transfer and scheduling; 3. Strategic issues concerning the goals of the venture; 4. Results related to the performance of the venture. Table 1 and 2 show key problems encountered by organizations during joint ventures and collaborations. [pic] Table 1: Start-up Problems [pic]Table 2: Issues Concerning Relationship The literature review also supports and reveals that the relationship aspect of cooperation provides organizations with key challenges in alliances. More than half of the first year issues identified by organizations belong to this category. Specific relationship issues include barriers in communication, cultural differences and uncertainty over allocation of roles and responsibilities. Communication Problems Overall, in the first year of alliance, communication issues dominate the problem as cited by organizations.Communication problems accounted more than 50% of relationship- related issues and over 25% of the total problems cited. Organizations cited problems with respect to both maintaining and establishing communications with partners and several organizations observed that the formative year of their alliance were afflicted by misunderstandings between the partners. In many cases, the physical distance between partners made it difficult to hold face-to-face meetings and to follow-up, giving rise to communications problems.In some cases, personality conflicts created problems among the individuals involved in the initial and operational stages of the alliance. Differences in language in international alliances also accelerated problems and in many cases, communication between partners was restricted by structural or organizational differences. Poor communication between partners can derail the start-up of a venture and significantly decrease its performance. Moreover, it can establish an atmosphere of suspicion and mistrust that can undermine both the effectiveness and legitimacy and of the venture.Cultural Differences The second largest group of relationship problems cited by organization relates to cultural differences between partners. There were frequent references to cultural misunderstandings and cultural mismatches because of different national cultures. The most dominant differences cited involved national cultures such as dress code and behavioural code while interacting with top executives. In addition, culture clash is one of the prime reasons for alliance problems and failure.A survey of German and British managers involved in alliances observed that cultural differences were the source of conflict in working relationships rather than technical or operational issues. Cultural conflict is inevitable when organizations with different beliefs, attitudes and values interact in the situation of co-operative relationships. Each partner will unintentionally or intentionally attempt to introduce its own values and cultures into the mix. Cultural differences are highly visible in the initial stages of co-operation, especially when both partners have little prior experience with each other.The gravity of culture conflict is high when there is a high level of interaction and independence between the partners. Such conflicts are often visible in international alliances where serious differences arise over issues, such as goal setting, decision-making, objectives, target setting, time orientation and competitive behaviour. Roles and Responsibility Problems The third relationship problem identified by organizations in the start-up year relates to confusion over the respective responsibilities and roles of the partners.The difficulties encountered surface from a lack of defining partner’s responsibilities and roles as well as a poor allocation of functions or activities. These factors led to uncertainty, conflicts and confusion over management of specified activities or accountability for performance. In many cases, managers were unwilling to allocate control over specific functions where the partners showed superior capabilities and role confusion created finger pointing and acrimony. Operational Problems The other significant block of problems faced in the start-up year relates to operational issues.Twenty-nine per cent of the problems focused on planning the working details of the venture. Table 3 offers examples of some of the problems cited by organizations. While partners may arrive at broad agreement in the beginning of the alliance on resource flows, operational interactions and technical issues, problems are bound to erupt as the venture progresses. In particular, partners may find that combining technologies and skills are much easier in theory than in practice, especially if some of the skills are enclosed in a complex social or cultural system. [pic]Table 3: Operational Problems Other First Year Problems The formation of the alliance is broadly affected by economic conditions and the institutional frameworks in the host countries, including macro-economic policies, legal requirements, price controls, distribution channels, financial capital markets and methods of enforcement of collaborations. State regulatory activity impacts organizations’ freedom to form joint ventures and business coalitions. Hence, government intervention offers the significant opportunities and constraints for strategic alliance formation.Joint ventures often need formal approval from national governments, particularly with respect to antitrust or antimonopoly regulations. Likewise, research and development (R;D), ventures originate as government-funded projects, which may involve heavy state control. Taxation laws and international trade regimes created by the government of host countries can also influence organizations decisions whether to enter into overseas business relationships. Conclusion Strategic alliances act is an instrument for achieving collective goals, which directly benefit the collaborators.These alliances also form each partner’s corporate social capital, offering potential access to various assets controlled by strategic alliance network members. Alliances offer opportunities for organizations to tap the resources, skills, and knowledge of their partners in a portfolio of inter-firm agreements. Organizations must consistently be on the lookout for opportunities to increase trust and to nurture the partnership. Both of the partners should realize each other’s interest and cooperate in the alliance in such a way that it serves the interest of both.Relationship issues seem to be a key challenge for organizations involved in alliances during the start-up stage. Underestimating their significance or failing to control them during the operation and implementation phases of a joint venture has brought the failure of many ventures. As the ability to establish alliances increasingly has become a source of competitive advantage for organizations, both of the partners should cooperate with each other when dealing with the soft issues involved.Those organizations who jointly manage to show a capability to tackle with the relationship issues are clearly be in a comfortable position to out- perform their competition. Reference List Bleeke, J & Ernst, D 2003, Collaborating to compete: using strategic alliances and acquisitions in the global market place, New York: John Wiley and Sons. Child, J & Faulkner, D 2008, Strategies of co-operation: managing alliances, networks and joint ventures, Oxford: Oxford University Press.BuEchel, B, Prange, C, Probst, G & RuEling, C 1998, International joint venture management, Singapore: John Wiley & Sons Asia Pte. Doz, Y & Hamel, G 1998, Alliance advantage: the art of creating value through partnering, Boston, MA: Harvard Business School Press. Faulkner, D 1995, International strategic alliances: cooperating to compete, Maidenhead: McGraw-Hill. Harbison, J & Prekar, P 2008, Smart alliances: a practical guide to repeatable success, San Francisco: Jossey-Bass Kok, G & Wildeman, L 1998, Crafting strategic alliances: building effective relationships, KPMG Report.Kok. Lewicki, R & Bunker, B 1996, Developing and maintaining trust in work relationships, Kramer, R and Tyler, T (eds. ), Trust in organisations: frontiers in theory and research, Thousand Oaks, CA: Sage, pp. 40-101. More, E & McGrath, G 1996, Cooperative corporate strategies in Australia’s telecommunication sector, the nature of strategic alliances, Canberra, Australia: Department of Industry, Science and Tourism. Parkhe, A 1998, “Understanding trust in international alliances”, Journal of World Business, 33, pp. 221- 234.Prekar, P 1989, How battle-tested managers assess strategic alliances. Planning Review, 21, pp. 35 – 37. Rigby, D ; Buchanan, R 1994, Putting more strategy into strategic alliances, Directors ; Boards, 18, pp. 15 – 19. Sabel, C 1993, “Studied trust: building new forms of cooperation in a volatile economy”, Human Relations, 46, pp. 1138- 1165. Sherman, S 1992, Are strategic alliances working? Fortune, 21 September, pp. 76 – 78. Wildeman, L, Erens, F et al. 1996, Alliances and networks: the next generation, KPMG Survey.

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