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	International Strategic Alliances: Should Your Company Enter One? Frappucino: brainchild of an alliance between Starbucks and Pepsico. Ready Pac Produce Salads: created by Ready Pac Produce and Scaline, a French company. AWD 12-281 (prescription drug for sinuses): discovered by GlaxoSmithKline and Germany’s Elbion. The explosion in international business activity during the last few decades has been accompanied by an increase in the formation of strategic alliances- a practice which has not only lowered firms’operational costs but has also led to lucrative discoveries in several fields such as the pharmaceutical industry. International strategic alliances are cooperative, inter-firm agreements which utilize the resources from organizations in two or more countries in order to profit from individual firms’assets. Though there are several benefits to entering a strategic alliance, there are unfortunately drawbacks as well. However, before examining the problems strategic alliances face, it would be wise to examine the advantages of such collaborations in order to understand why firms would agree to give up some control over their operations. One of the driving forces behind the formation of strategic alliances is the fact that such partnerships allow companies to pool together their resources and gain economies of scale. In addition, such enterprises reduce liability in risky ventures and promote each firm’s stability by allowing them to access new markets, customers, and technology. Moreover, strategic alliances allow promising firms to gain credibility. In most alliances, firms seek established partners to strengthen their reputations and in doing so, they not only gain resources but name-brand recognition as well. Finally, companies choose to enter a strategic alliance in order to gain access to another firm’s knowledge or ability to perform certain activities. The knowledge not only helps on the domestic front; it may also facilitate entry into international markets. By expanding internationally, successful companies can thus capture more market share and earn additional revenue. Despite these advantages, there are several potential pitfalls to watch out for. Control and compatibility are the two biggest problems facing any alliance, but there are strategies one can implement in order to minimize or even preclude such problems. Instability between two companies is often aggravated by unplanned equity changes or major reorganizations within a company. The issue of shareholder control is another factor which can cause instability and eventually dissolve an alliance. Decision-making control as a function of ownership is without a doubt, a contentious issue, and if it is not properly addressed, failure will be inevitable. What is important to remember with regards to dissolved alliances however, is that a short lifespan does not necessarily indicate failure or success. All relationships between firms face challenges that threaten to change or terminate the basis for cooperation. However, the terminations may sometimes be executed in the best interest of both parties. Compatibility with an alliance partner or compatibility with the culture from which an alliance partner comes is often cited as critical to an alliance’s success. Organizational fit, strategic symmetry, resource compatibility, and alliance task-based factors are all important indicators of an alliance’s success. Picking the right partner then, is clearly crucial, as is understanding and being able to function in a different culture. In order to form a successful alliance, the first step is to choose a partner who is well-suited to the firm seeking to initiate the alliance. Characteristics such as similarity of company goals and the availability of multiple resources which can be mutually shared are just a few benchmarks against which to measure strength. Considering this question fully should lead to other questions such as: What kind of market should the potential partner come from? Should the partner have fairly similar or different operations? How strong is the potential partner? What kind of assets does the company have? What kind of weaknesses? Do company visions complement each other? What kind of approach should be taken when first dealing with a potential partner? How does one initiate the process of entering an international alliance? Who will prepare the financing and how will it be executed? How will the terms of the alliance be finalized and put into effect? Selecting a partner is however, only half the battle. Once the partner is selected, companies must then build trust amongst themselves and show strong results. Managing conflicts and partner expectations as well as sharing information are additional strategies which could keep relationships from failing. Above all, being flexible vis-a-vis mutual issues is necessary for a healthy partnership. Without compromises, partners will find it difficult to achieve the results they want to see and relationships will become tense and strained. International strategic alliances clearly have advantages, but firms must be certain that they truly comprehend how entering one will affect company operations. Since international strategic alliances are not the only way to capture market share, each company should exercise caution before devising a strategy to expand internationally. Those who choose to take on the challenge of entering an international alliance will however, find the process to be exciting and rewarding. Each company is unique and the strengths and weaknesses which each bring to the alliance will provide opportunities for growth and incentives to improve. Jay Casale Virtual Strategies, Inc. jcasale@vsidc.com DISCLAIMER – The contents of this article are intended to provide pertinent inform-ation for Beyond Virginia subscribers interested or already involved in international trade. While every effort is made to convey accurate and timely information, the contents of this article are not intended as specific advice to its readers. Our intent is solely to convey information.