How to minimize the risks of International Strategic Alliances

There are three main success factors that plays a role in International Strategic Alliances. They are Partner Choice, Alliance Composition and Managing the alliance.


Partner Choice

An effective partner helps the firm achieve its strategic goals, which can be market
access, sharing of costs and risks, or gaining access to critical core competencies. In other words, the partner must have capabilities that the firm lacks and that it values.

A good partner also shares the firm's vision for the purpose of the alliance. A final aspect of a good partner, is one that would be unlikely to try to opportunistically exploit the alliance for its own ends; to rob the firm of its technological know-how while giving away little in return.

The suggestions listed above can be achieved by basing the selection decision on information obtained from former employees, investment bankers or other firms that entered an alliance with the potential partner previously.

Alliances and partner selection are of critical importance and inexperienced organisations often fail to pay enough attention to this, concentrating on their objectives and rationales instead of building a mutually beneficial partnership based on understanding of each other.

Alliance Composition

The alliance should be structured so that the firm's risks of giving too much away to the partner are reduced to an acceptable level. By implementing the following principles in the alliance, the desired outcome could be achieved:
 Alliances should make it difficult or impossible to transfer technology that was not meant to be transferred.
 Contractual safeguards can be written into an alliance agreement to guard against the risk of opportunism by a partner.
 Both parties can agree in advance to substitute skills and technologies, ensuring a chance for equitable gain.
 The risk of opportunism can be reduced, if the firm extracts a significant credible commitment from its partner in advance. For example, investment in a 50/50 Joint Venture constitutes a significant investment in people, equipment and facilities and motivates the partner to make the alliance work.

Managing the Alliance

The main factor that promotes successful partnerships, is to maximize the benefits from
the alliance. One of the most prominent issues when dealing with a foreign partner, is cultural differences. Many differences in management style are attributable to cultural differences, and managers need to make allowances for these in dealing with their partner. There is also believed to be two other contributing factors to the successful managing of the alliance, building trust between partners and learning from partners.