Chapter Nine
Acquisitions, Joint Ventures and Strategic Alliances in Global Business Strategy

If a man does not make new acquaintances as he advances through life, he will soon find himself left alone.

Samuel Johnson (1709-1784).
Lexicographer, playwright, essayist, poet.

Introduction

Most large companies are eager to grow but not all are especially decisive in their considerations of how to do so. The pros and cons of diversification and other growth vectors are not our main interest here, although they are essential for understanding global business strategy alongside discussions of corporate recovery and turnaround and there is always scope for probable routes to success despite apparently improbable outcomes.

Of far greater concern in this book (and this chapter) are the methods which firms typically take when striving for growth and the organizational challenges each of these creates.

There are essentially three approaches firms take when expanding their global business operations:

      1. Organic (internal) development. In SMEs, this typically leads to exporting initiatives. In established international companies and global corporations, this typically involves the launch of new products through established global supply chains (see the discussion relating to the ‘Profitable Growth Framework’ in Chapter Five, Analysing Global Markets and the Intelligent Company).
      2. Mergers and acquisitions (M&As).
      3. ‘Network’ solutions, including International Joint Ventures (IJVs) and Strategic Alliances (SAs).

In this chapter, we focus on categories 2 and 3. Organic growth features heavily in Chapter Five and also in Chapter Six, Strategic Marketing and Global Brand Management.

We begin with a discussion of the challenges associated with global business strategy by M&A. This FDI market entry mode is of huge significance as the title of this Financial Times article indicates: ‘Global M&A sprints past $1tn mark in record time after series of megadeals’ (Platt and Fontanella-Khan, 2018, 22nd March). But successful global business strategy via M&A has a very chequered history, most notably negative for the acquiring company and its increasingly detached institutional (short-term, indifferent) and retail (long-term, disenfranchised) investors.

For readers interested in exploring the wide-ranging issues associated with mergers and acquisitions, our recommended textbook, based upon the multiple criteria presented in the Preface, is Gaughan, 2018, Mergers, Acquisitions and Corporate Restructurings. It does come with a ‘health warning’ that the book is quite technical in places, not surprising given the multiple complexities associated with acquisitive strategies, many of which we discuss in the following sections. As Gaughan observes, three broad disciplines define the M&A subject arena:

      1.  Economics.
      2. Corporate finance.
      3. Law.

We add our own four dimensions in the discussion which follows, making seven components in total:

4.  Business environment dynamics.
5.  Global business strategy options.
6.  Interorganizational management capabilities for IJV and SA success.
7.  Effective and efficient post-acquisition integration capabilities and competencies.

For readers interested in a more detailed exploration of the subject of strategic alliances and how they might be managed, our recommended textbook, based on the same selection criteria and as indicated in Chapter Seven is: Tjemkes, et al., 2017, Strategic Alliance Management.

 


Concluding Remarks

In this chapter, we have acknowledged the importance of M&A in global business strategy, but we have also drawn attention to the paradox which underpins both its simplicity and complexity. Acquisition is a simple strategy: in a nutshell, don’t build market position, buy it. Complexity arises in post-acquisition integration and, from a different yet all-too-frequent perspective, explaining to angry investors where the enterprise value disappeared to!

There are winners, of course, most notably the shareholders of the acquired company. On this topic, the most common question this author is asked is: ‘what is the difference between a merger and an acquisition?’ Or, ‘which company acquired which?’ In response we can revert to complex discussions rooted in financial theory or tell the truth, i.e. it depends on who you ask. This is neither flippant nor facetious: many Castrol managers to this day genuinely believe that Castrol acquired BP. And their managers, in turn, do not denude them of the fallacy.

Network solutions are a much bigger, ongoing dimension of international business. The world’s number one brand, Apple, derives much of its enterprise value from the sweat and toil of its strategic alliance (Contract Manufacturer) partner Foxconn; Coca-Cola relies heavily on its business partners such as independent bottlers Coca-Cola European Partners and Coca-Cola Amatil for its income in what is probably the world’s biggest single Licensing arrangement. A significant percentage of BP-branded petrol stations worldwide are operated by Franchisees; ditto Marriot hotels, McDonald’s restaurants, Starbucks coffee houses and the mechanic’s favourite, Snap-on workshop tools.

Well-managed strategic alliances which bring together complementary assets and competencies (e.g. Snap-on and its franchisees which combines global presence with local market knowledge) typically have a more enduring lifespan than equity-based joint ventures such as that between Philips and LG Display which brought substitutable assets and diverging parent company ambitions.

As the old Chinese proverb proclaims: same bed, different dreams.

 


Chapter Nine References

Achrol, R. S. (1997). Changes in the theory of interorganizational relations in marketing: Toward a network paradigm. Journal of the Academy of Marketing Science, 25, 56-71.
Ahuja, G. (2000). Collaboration networks, structural holes, and innovation: A longitudinal study. Administrative Science Quarterly, 45, 425-455.
Bakker, R. M., & Knoben, J. (2014). Built to last or meant to end: Intertemporal choice in strategic alliance portfolios. Organization Science, 26, 256-276.
Barringer, B. R., & Harrison, J. S. (2000). Walking a tightrope: Creating value through inter-organizational relationships. Journal of Management, 26, 367-403.
Bengstsson, M., & Raza-Ullah, T. (2016). A systematic review of research on cooperation: Toward a multilevel understanding. Industrial Marketing Management, 57, 23-39.
Bleeke, J., & Ernst, D. (1991). The Way to Win in Cross-Border Alliances. Harvard Business Review, (November-December), 127-135.
Bleeke, J., & Ernst, D. (1993). Collaborating to Compete: Using Strategic Alliances and Acquisitions in the Global Market Place. New York: John Wiley & Sons.
Boersma, M. F., Buckley, P. J., & Ghauri, P. N. (2003). Trust in international joint venture relationships. Journal of Business Research, 56, 1031-1042.
Borys, B., & Jemison, D. B. (1989). Hybrid arrangements as strategic alliances: theoretical issues in organizational combinations. Academy of Management Review, 14, 234-249.
Bridgewater, S., & Egan, C. E. (2002). International Marketing Relationships. Basingstoke: Palgrave.
Chiambaretto, P., & Fernandez, A. S. (2016). The evolution of coopetitive and collaborative alliances in an alliance portfolio: The Air France case. Industrial Marketing Management, 57, 75-85.
Child, J., & Faulkner, D. (1998). Strategies of Cooperation: Managing alliances, networks, and joint ventures. Oxford: Oxford University Press.
Christoffersen, J. (2013). A review of antecedents of international strategic alliance performance: synthesised evidence and new directions for core constructs. International Journal of Management Reviews, 15, 66-85.
Collinson, S., Narula, R., & Rugman, A. M. (2020). International Business (8 ed.). Harlow: Pearson.
Contractor, F., & Lorange, P. (eds). (1988). Cooperative Strategies in International Business. Lexington MA.: Lexington Books.
Contractor, F. J. (2005). Alliance structure and process: Will the two research streams ever meet in alliance research? European Management Review, 2, 123-129.
Contractor, F. J., & Reuer, J. (2014). Structuring and governing alliances: New directions for research. Global Strategy Journal, 4, 241-256.
Contractor, F. J., & Woodley, J. A. (2015). How the alliance pie is split: Value appropriation by each partner in cross-border technology transfer alliances. Journal of World Business, 50, 535-547.
Cunningham, N. T., & Culligan, K. (1991). Competitiveness through networks of relationships in information technology product markets. London: Routledge.
Cyert, R. M., & March, J. G. (1963). A Behavioural Theory of the Firm. Englewood Cliffs, NJ.: Prentice Hall.
David, R. J., & Han, S. K. (2004). A systematic assessment of the empirical support for transaction cost economics. Strategic Management Journal, 25, 39-58.
Davis, J. P. (2016). The group dynamics of inter-organizational relationships: Collaborating with multiple partners in innovation ecosystems. Administrative Science Quarterly, 61(4), 621-661.
DePamphilis, D. (2017). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions (9 ed.). London: Academic Press.
Dorn, S., Schweiger, B., & Albers, S. (2016). Levels, phases, and themes of coopetition: A systematic literature review and research agenda. European Management Journal, 34, 484-500.
Doyle, P. (2008). Value-Based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value (2 ed.). Chichester: John Wiley & Sons.
Doz, Y. L. (1988). Value creation through technology collaboration. Aussenwirtschaft, 43, 175-190.
Doz, Y. L. (1992). The role of partnerships and alliances in the European industrial restructuring. London: MacMillan.
Doz, Y. L. (1996). The evolution of cooperation in strategic alliances: Initial conditions or learning processes? Strategic Management Journal, 17, 55-83.
Doz, Y. L., & Hamel, G. (1998). Alliance Advantage: The Art of Creating Value Through Partnering. Boston, MA: Harvard Business School Press.
Forsgren, M. (1989). Managing the Internationalisation Process: a Swedish Case. London: Routledge.
Forsgren, M., & Johanson, J. (1975). International foretagsekonomi. Stockholm: Norstedts.
Frynas, J. G., & Mellahi, K. (2014). Global Strategic Management (3 ed.). Oxford: Oxford University Press.
Gaughan, P. A. (2018). Mergers, Acquisitions, and Corporate Restructuring (7 ed.). London: John Wiley & Sons.
Ghosh, A., Ranganathan, R., & Rosenkopf, L. (2016). The impact of context and model choice on the determinants of strategic alliance formation: Evidence from a staged replication study. Strategic Management Journal, 37, 2224-2231.
Gomes, E., Barnes, B. R., & Mahmood, T. (2016). A 22-year review of strategic alliance research in the leading management journals. International Business Review, 25, 15-27.
Gulati, R., Sytch, M., & Mehrotra, P. (2008). Breaking up is never easy: Planning for exit in a strategic alliance. California Management Review, 50, 147-163.
Hakansson, H. (1982). International Marketing and Purchasing of Industrial Goods: An Interaction Approach. London: John Wiley.
Hamel, G., Doz, Y. L., & Prahalad, C. K. (1989). Collaborate with your competitors – and win. Harvard Business Review, (January-February).
Javillo, J. C. (1988). On Strategic Networks. Strategic Management Journal, 19.
Johanson, J., & Mattson, L. G. (1988). Interorganisational relations in industrial systems: a network approach as compared with a transaction cost approach. International Journal of Management and Organisation.
Johanson, J., & Vahlne, J. (1977). The internationalisation of the firm: a model of knowledge development on increasing foreign commitments. Journal of International Business Studies, (Spring-Summer), 23-32.
Johanson, J., & Wiedersheim-Paul, F. (1975). The internationalisation of the firm: four Swedish cases. Journal of Management Studies, October, 305-322.
Joshi, A. M., & Lahiri, N. (2015). Language friction and partner selection in cross-border R&D alliance formation. Journal of International Business Studies, 46(123-152).
Kanter, R. M. (1994). Collaborative Advantage: The Art of Alliances. Harvard Business Review, (July-August), 96-108.
Kauppila, O. P. (2015). Alliance management, capability and firm performance: Using resource-based theory to look inside the process black box. Long Range Planning, 48, 151-167.
Kay, J. (1993). Foundations of Corporate Success: How Business Strategies Add Value. Oxford: Oxford University Press.
Kotler, P. (2000). Marketing Management: Analysis, Planning, Implementation and Control (The Millennium Edition) (10 ed.). Englewood Cliffs, NJ: Prentice Hall International.
Kumar, R. (2014). Managing ambiguity in strategic alliances. California Management Review, 56(4), 82-102.
Levitt, B., & March, J. G. (1988). Organizational Learning. Annual Review of Sociology, 14, 319-340.
López-Duartea, C., González-Loureirob, M., Vidal-Suáreza, M. M., & González-Díazza, B. (2016). International strategic alliances and national culture: Mapping the field and developing a research agenda. Journal of World Business, 51, 511-524.
Lorange, P., & Roos, J. (1992). Strategic Alliances: Formation, Implementation and Evolution. Oxford: Blackwell.
Lui, S. S., & Ngo, H. Y. (2004). The role of trust and contractual safeguards on cooperation in non-equity alliances. Journal of Management, 30, 471-485.
Luo, Y. D., & Park, S. H. (2004). Multiparty cooperation and performance in international equity joint ventures. Journal of International Business Studies, 35, 142-160.
Majchrzak, A., Jarvenpaa, S. L., & Bagherzadeh, M. (2014). A review of inter-organizational collaboration dynamics. Journal of Management, 41, 1338-1360.
Meier, M. (2011). Knowledge management in strategic alliances: A review of empirical evidence. International Journal of Management Reviews, 13, 1-23.
Miles, R. E., & Snow, C. C. (1986). Organizations: new concepts for new forms. California Management Review, 28, 62-73.
Mintzberg, H. (1988). Generic Strategies: Toward a Comprehensive Framework. Advances in Strategic Management, 5, 1-67.
Nalebuff, B. J., & Brandenburger, A., M. (2002). Co-opetition. London: Profile Books.
Niesten, E., & Jolink, A. (2015). The impact of alliance management capabilities on alliance attributes and performance: A literature review. International Journal of Management Reviews, 17, 69-100.
Ohmae, K. (1989). The Global Logic of Strategic Alliances. Harvard Business Review, (March-April).
Ozmel, U., & Guler, I. (2015). Small fish, big fish: The performance effects of the relative standing in partners’ affiliate portfolios. Strategic Management Journal, 36, 2039-2057.
Palmatier, R. W., Dant, R. R., & Grewal, D. (2007). A comparative longitudinal analysis of theoretical perspectives of inter-organizational relationship performance. Journal of Marketing, 71, 172-194.
Patzelt, H., & Shepherd, D. A. (2008). The decision to persist with underperforming alliances: The role of trust and control. Journal of Management Studies, 45, 1217-1243.
Perlmutter, H. V., & Heenan, D. A. (1986). Cooperate to compete globally. Harvard Business Review, (March-April).
Pfeffer, J. (1978). Organizational Design. Arlington Heights, ILL: AHM.
Pfeffer, J., & Nowak, P. (1976). Joint ventures and inter-organizational interdependence. Administrative Science Quarterly, 21, 398-418.
Pisano, G., & Verganti, R. (2008). Which kind of collaboration is right for you? Harvard Business Review, 86(12), 78-86.
Platt, E., & Fontanella-Khan. (2018, 22 March). Global M&A sprints past $1tn mark in record time after series of megadeals. Financial Times, p. 13.
Platt, E., & Massoudi, A. (2018, 1 May). Bonanza day of deals hits $120bn as pace of M&A breaks records. Financial Times, p. 1.
Porter, M. E., ed. (1986). Competition in Global Industries. Boston, MA: Harvard Business School Press.
Porter, M. E. (1987). From competitive strategy to cooperative strategy. Harvard Business Review, 65, 43-59.
Prahalad, C. K., & Hamel, G. (1990). The Core Competencies of the Organisation. Harvard Business Review, (May-June), 79-81.
Rahman, N., & Korn, H. J. (2014). Alliance longevity: Examining relational and operational antecedents. Long Range Planning, 47, 245-261.
Rai, R. K. (2016). A co-opetition-based approach to value creation in interfirm alliances: Construction of a measure and examination of its psychometric properties. Journal of Management, 42, 1663-1699.
Rao, A., & Schmidt, S. M. (1998). A behavioural perspective on negotiating international alliances. Journal of International Business Studies, 29, 665-693.
Reuer, J. J., Klijn, E., & Lioukas, C. S. (2014). Board involvement in international joint ventures. Strategic Management Journal, 35, 1626-1644.
Root, F. R. (1987). Entry Strategies for International Markets. Lexington, MA: Lexington Books.
Schilke, O., & Goerzen, A. (2010). Alliance management capability: An investigation of the constructs and its measurement. Journal of Management, 36, 1192-1219.
Thorelli, H. B. (1986). Networks: between markets and hierarchies. Strategic Management Journal, 7, 37-51.
Tjemkes, B., Vos, P., & Burgers, K. (2017). Strategic Alliance Management (2 ed.). London: Routledge.
Williamson, O. E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.

 


Please click/tap your browser ‘Back’ button to return to the location navigated from. Alternatively, click/tap the ‘Bookshelf & Typewriter’ graphic below to navigate to the Outside Fortress Europe: The Book (2e) page.

All content © Colin Edward Egan, 2022