Reference no: EM133959545

Question

Define (in your own words) what a strategic alliance is.

Why do companies enter into strategic alliances? Give an example of one. (Do not use one already mentioned in the DB, or in the textbook).

What are some advantages and disadvantages of strategic alliances?

Separately, read the "Focusing on Strategy" (below) and comment on the intentions of U.S. firms and Chinese firms

FOCUSING ON STRATEGY

Foreign Firms Seek Joint Ventures to Enter China's Emerging Market While Chinese Firms Seek Joint Ventures to Expand Internationally

Traditional joint ventures in China have been quite compelling for foreign firms. The foreign partners from more developed countries would usually provide capital, knowledge, and access to international markets and high-technology capabilities. Alternatively, the Chinese partners provided access to cheap labor, local regulatory and market knowledge, and improved access to increasing demand by the emerging middle class for branded as well as other products. Furthermore, the Chinese government often provided land, tax breaks, and an attractive welcome to encourage foreign direct investment into China. Although China protects many important industries such as financial services and automobile manufacturing through restrictive entry requirements, the future potential of the market as well as the availability of lower-cost production has created attractive market entry potential for companies.

For example, JP Morgan Chase formed a joint venture with a Chinese investment bank, First Capital Securities, which allows them to underwrite and sponsor deals in China's burgeoning securities market. First Capital is based in Shenzhen, and JP Morgan will hold 33 percent of the joint entity. Services provided by First Capital include asset management and mergers-and-acquisition advisory service, as well as service for IPOs and follow-on offerings. Goldman Sachs Group, USB AG, CLSA Asia-Specific Markets, and Morgan Stanley all are investment banks with joint ventures in China. Interestingly, Morgan Stanley put its investment-owned China International Corp. venture up for sale in 2009 in order to set up its own venture independent of a Chinese company. After Morgan Stanley formed its joint venture in 1995, the government put a 33 percent ownership ceiling on foreign owners of financial service firms. Credit Suisse AG and Deutsche Bank AG received approval to set up joint ventures in 2009, after the government had put in a two-year moratorium on new joint ventures to shield its domestic brokerage services from foreign competition. This shielding moratorium ended in December 2008.

The Chinese government is also increasing opportunities for the advancement of Chinese firms. For example, Nissan Motor Company, Daimler Benz, and Johnson Controls are seeking to set up cutting-edge electric-car technology manufacturing operations in China. Nissan is forming a joint venture with Dongfeng Motor Group to sell Nissan's Leaf electric cars in China. Also, Daimler AG and China's BYD have set up a 50-50 joint venture for developing an all-electric car for the Chinese market and for potential export abroad. BYD is one of China's leading battery producer and automakers, and the venture is scheduled to be headquartered in Shenzhen. However, the Chinese government wants to "compel" foreign firms to transfer lithium-ion battery know-how and other technology to these joint ventures. This is a specific goal of the Chinese government to leapfrog into new technologies so as to become a leader in selling cars in the global market, and not just be a producer. Currently, China is the top automobile producer in the world, primarily for export, but also because of the expanding domestic demand with the burgeoning middle class in China. But they want to compete in global markets with their own branded products. As such, local Chinese firms have been pursuing partnerships domestically and internationally to improve their own competitive market share in world markets outside China.

Interestingly, although many joint ventures and partnerships in China have been successful, Chinese firms are not as hungry as they once were for capital; and many are implementing improved technology that they have learned to develop from international partners or from their own experience abroad. Moreover, demand for foreign branded products has fallen as local competitors' products have improved and the availability of cheap labor has fallen; as such, Chinese firms are less interested in providing access to foreign partners.

Also, many of the rules for foreign partners have led to difficulties. For instance, Peugeot (cars), Rémy Martin (spirits), Foster's (beer), Fletcher Challenge (steel), News Corporation (media), and a number of telecommunication firms have found their joint ventures to be problematic because of complex and contradictory rules, and difficulty in appropriating profits and controlling their investments. Even firms with 51 percent ownership, such as Danone, a large French food producer, are not able to control their ventures given the local rules in China. However, Wahaha, a local Chinese partner with Danone, has been able to wrestle control of the joint venture with Danone.