How to manage globalization?

Technology is the heart of the economic growth of companies and countries. Information and knowledge are the main assets of companies to generate wealth, displacing capital, work or energy. Thus, it is necessary to generate new scientifical knowledge applicable to the functionality of products and their manufacturing or marketing processes.

There is a great technological race against time. It is necessary to invest large sums in R&D departments, as well as to obtain economies of scale. However, there is a considerable increase in fixed costs, and a drastic reduction in the life cycle of products, which puts companies in a weak position.

There also has been a significant increase in technological complexity. Companies design and manufacture their products based on assembling components by sharing various technologies, helping to quickly achieve economies of scale and learning. Nevertheless, companies cannot have competitive advantages in all the technologies that make up their products.

It is also worth noting that today knowledge and technology are scattered around the world. Two options to acquire them:

• Disseminate its R&D laboratories all over the planet, is the so-called global technology generation.
• Seeking cooperation links and alliances, although each participant maintains their own identity, this is the phenomenon known as global technological collaboration.

Where to go, search and invest? – Geographic Markets

European Union:

It is a great opportunity to access one of the main world markets without barriers to trade between the 15 economies of Europe. Some difficulties companies usually come across: language, cultural, social and economic differences and the need for a large number of resources to compete, given the existing level of competition. Companies in most sectors have entered a game of acquisitions, mergers and alliances with each other.

Eastern Europe:

There is a liberalization process of their economies (many enter the European Union due to the lower GDP per capita compared). Western companies (especially from the EU) find it an attractive opportunity due to its low competition, but they should face up psychographic distance and also, a risky and expensive entry.

Southeast Asian:

Underdeveloped regions (like Shanghai) that have undergone an extraordinary increase in their industrialization, mainly based on specialized goods and technological products. The main problem is the difference between Eastern and Western culture.

China:

The economy with the greatest potential in the world, a communist country that is walking slowly but surely towards its liberalization. Areas of extremely high industrial and economic growth. They have adopted western products and technologies for years now. The main problem is also here the difference between Eastern and Western culture.

Information Technology.

To consolidate in the market, companies must reach a critical mass of users that allows them to increase their market and access economies of scale. If they do not reach that mass, they will be forced to seek alliances and collaborate. As in the real economy, inter-company collaboration and cooperation arise from the need to create and maintain virtual competitive advantages.

Strategic alliances and other cooperative agreements are a trend in the world economic and business scene. There is not just one reason to create strategic alliances and its use still has limitations like cultures or opportunism.

What is a strategic alliance?

Long-term relational exchanges with a high degree of formalization. Cooperation is the central element where each partner contributes to certain resources and capacities. They look for common (non-operational strategic) and particular objectives.

The number of strategic alliances is increasing; however, their failure rate is 50-60% due to their international nature.

Why is it important to choose the partner well?

The choice of the partner is essential to make good use of synergies, which translates to obtain results that go beyond the expectations of each company, as well as ensure higher quality and a longer relationship, and mitigate the difficulties of managing the cooperation.

Frequent mistakes when choosing a partner.

Many companies rush into their decision, due to competitive pressures, they misjudge potential partners by basing the decision solely on the size of the financial contribution.

Partner selection is often not a formal process because the potential partner is already known from previous contacts or informal relationships.

Criteria for choosing a partner.

Criteria related to the task (strategic fit):

The aim­ of any alliance is the achievement of strategic objectives. The first consideration is the need to search for a potential partner with a good strategic fit for the company. The task-related partner selection criteria are associated with the analysis of the partner’s strategic attributes.

1. The partner who has the compatibility of objectives (if the actions that the company must take to achieve its own objectives contribute or not to the achievement of the partner’s objectives). It is not necessary to have the same ones. It is also important to foresee because they can be modified over time and to ensure that there are no hidden objectives (gain control or acquisition). But one thing is quite clear: competitive goals mean opportunistic actions.
2. The partner who has the necessary resources and capabilities to fulfill the tasks. It depends on the alliance or the sector, but the key to success is complementarity. These resources and capacities can be technology, financial resources, personal experience, marketing, etcetera.
3. Analyze the strategic fit between partners (a greater complementarity and mutual dependence mean success). It is important to see how the partners need each other (the contribution must be valuable and sustainable over time).

Criteria related to partners (organizational fit)

While on the task-related criteria, the company should identify whether the potential partner has the necessary resources and capabilities, on the criteria related to partners, the company finds out if they will work well together.

Every company has innumerable organizational characteristics, but to find a partner, the company must identify the most important ones (it depends on the environment, the company, the sector, etcetera.)

1. Compatibility and trust between management teams. It requires compatibility of resources, processes and characters. There should be a feeling of mutual trust from the first moment.
2. Partners with compatible organizational and domestic cultures. The cultures don’t need to be similar, only compatible (there is added difficulty with international partners).
3. Previous relationships with the same partner. If it has not gone well, the best thing is to discard it as a potential partner; if it was a new one, the best option would be asking for references.

How to measure well the success of the strategic alliance?

In view of its duration (long-term means great results), property changes and survivorship (if one partner acquires the other one, it means success or failure?); but the best way to measure the success of a strategic alliance is analyzing the global performance satisfaction (the most common), the grade of achievement of the initial strategic objectives (common and private ones), and the net spillover effects (how the alliance has affected particularly to the non-common operations of the company).

Personal recommendation: Identify what you need from the partner, seek operational and cultural compatibility, invest time in finding the right partner, and get to know the partner well before allying.