By Syed Atif Hussain

In the 21st century, the challenges go beyond facing global competition, meeting client expectations or demands for integrated solutions to their needs, adjusting to shortened product life cycles, coping with increased specialization of skills and capabilities, or adapting to the internet and anytime/anywhere communication. technologies, to name five worldwide phenomena. They have to do with the business models that underpin operations in both the private and public sectors, and which now encounter severe social and environmental limits.

Henceforth, organizations must proactively work with others to achieve system changes. In the 1970s, the driver of strategic alliances was the product and its performance: alliances aimed to procure the best raw materials at the lowest prices, deploy the latest technology, and stretch market penetration across borders. In the 1980s, the motive was to strengthen positions in the sector or market of activity, using alliances to develop economies of scale and of scope.

In the 1990s, the lifting of barriers to market entry and the opening of borders between sectors brought a focus on capabilities: it was no longer enough to defend ones positionto stay ahead of the competition, innovations that give recurrent competitive advantage had become de rigueur.

The generic motive, to a greater extent than in the 1990s, is to sustain long-term competitive advantage in a fastchanging. world, for example, by reducing costs through economies of scale or more knowledge, boosting research and development efforts, increasing access to new technology, entering new markets, breathing life into slowing or stagnant markets, reducing cycle times, improving quality, or inhibiting competitors.

A strategic alliance is when two or more businesses join together for a set period of time. The businesses, usually, are not in direct competition, but have similar products or services that are directed toward the same target audience. Alliance means "cooperation between groups that produces better results that can be gained from a transaction. Because competitive markets keep improving what you can get from transactions, an alliance must stay ahead of the market by making continuous advances."

Strategic alliances that bring organizations together promise unique opportunities for partners. The reality is often otherwise. Successful strategic alliances manage the partnership, not just the agreement, for collaborative advantage. Above all, they also pay attention to learning priorities in alliance evolution. ------Knowledge Economy

Alliances can be structured in various ways, depending on their purpose. Non-equity strategic alliances, Equity strategic alliances, joint ventures. Cartels, cooperatives, subcontracting (outsourcing), franchising, distribution relationships, research and development consortiums, industrial standards groups, action sets, innovation networks, clusters, letters of intent, memorandums of understanding, partnership frameworks, etc. Some are short-lived; others are the prelude to a merger.

Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. Non-equity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage. Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries. Sometimes formed between company and a foreign government, or among companies and governments.

In the new economy, strategic alliances enable business to gain competitive advantage through access to a partner's resources, including markets, technologies, capital and people. Teaming up with others adds complementary resources and capabilities, enabling participants to grow and expand more quickly and efficiently. Especially fast-growing companies rely heavily on alliances to extend their technical and operational resources. In the process, they save time and boost productivity by not having to develop their own, from scratch. They are thus freed to concentrate on innovation and their core business.

Many fast-growth technology companies use strategic alliances to benefit from more-established channels of distribution, marketing, or brand reputation of bigger, better-known players. However, more-traditional businesses tend to enter alliances for reasons such as geographic expansion, cost reduction, manufacturing, and other supply-chain synergies. As global markets open up and competition grows, midsize companies need to be increasingly creative about how and with whom they align themselves to go to the market.

Before entering into a strategic alliance, enough thought is to be placed behind the structure of the relationship and the details of how it will be managed.
1.

Define expected outcomes from the relationship for all the parties in the strategic alliance.

2.

Define and document the elements provided by each party, and the benefits a successful alliance brings to each.
Identify the results that will cause the alliance to be most beneficial for your business and define the structure and operating issues that need to be addressed to achieve these results

3.

Protect your company's intellectual property rights through legal agreements and restrictions when transferring proprietary information. Define the basics of how you will operate Be certain that the company cultures are compatible, and the parties can operate with an acceptable level of trust.

The voluntary nature of partnerships: The partners have clear and common goals based on mutual benefit.

Common interest: Partnerships is what enables many companies to make continuous improvements. By sharing with others, you can direct your resources and capabilities to projects you consider most important.
Synergy : the concept of value added or the total being greater than the sum of its individual parts. The mutual dependency: that arises from sharing risks, responsibilities, resources, competencies and benefits. Explicit commitment or agreement on the part of the participants.

Working together: In the most strategic partnerships, the partners work together at all levels and stages, from the design and governance of the initiative to implementation and evaluation. Complementary support: Focus your firm's resources on what you do best and what creates sustainable competitive advantage and tap to the resources of others for the rest. To decide why, when and how to partner with others for complementary resources, weight the small amount of cost savings that doing non-core-competence tasks might bring against the distraction and investment that will be required to stay up to date over time.

Shared competencies and resources partnerships are a mechanism to leverage different types of resources and competencies, including, but not only, money. Effective communication: Communication between strategic business partners should be regular, open, transparent, with accountable structures for joint decision making and conflict resolution. Respect and trust. Trust between organizations is at the core of today's complex and rapidly changing knowledge economy. It is one of the most efficient mechanisms for governing innovative business partnerships. With trust as a foundation, the companies can share their know-how to achieve synergy.

Strategic alliances and the proverbial winwin situations they promise frequently meet with difficulties(that can result in the termination of the alliance). Typical factors include poor communications, incompatible objectives, inability to share risks, opportunism, (perceived) low performance and flexibility, control and ownership arrangements, lack of trust, and conflict. These rifle across the decision to form an alliance, the selection of the partner, the choice of the governance structure for the alliance, the dynamic evolution of the alliance as the partnership spans time, the performance of the alliance, and the consequences for the partners

The rules are to

Focus less on defining the business plan and more on how the partners will work together;
Develop metrics pegged not only to alliance Goals but also to alliance progress; Leverage differences to create value, rather than attempt to eliminate them; go beyond formal governance structures To encourage collaborative behavior; and spend as much time on managing. Internal stakeholders as on managing the relationship with the partner.

That rationale is the intent to learnespecially knowledge that is tacit, collective, and imbedded; Strategic alliances open up opportunities for organizations to gain knowledge and leverage strengths with partners. Competencies change, their goals are redefined and the potential for learning also changes. Five areas for learning as strategic alliances evolve in phases: (i) environment, (ii) task, (iii) process, (iv) skills, and (v) goals

Central to each phase are systems, mechanisms, processes, and behaviors that build and improve practice in ongoing fashion by consciously and continually devising and developing the means to draw learning and translate that into evolving action for mutual benefit. Successful strategic alliances are highly evolutionary and grow in interactive cycles of learning, reevaluation, and readjustment. They do so at different levels, e.g., individual, group, and organization. Such are the attributes of learning organizations

Phase 1 involves recognition by an organization of another as a feasible alliance partner. Phase 2 covers a search and trial period during which the purpose of the partnership is established. Phase 3 is the stage at which partners increase mutual interdependence and grow the benefits that accrue to both. Phase 4 sees mutual pledges to the maintenance of the alliance and continued interdependence. The primary factors that will condition progress in each phase are (i) the degree of protection that partners give to their knowledge, (ii) the climate of trust between partners, (iii) the tacitness of knowledge, and (iv) the existence of previous ties between partners

Alliances provide an appealing way to accelerate entry and reduce the risks and costs of going it alone. The US company Aetna Insurance, for example, recently announced a joint venture with Sul America Seguros, Brazils largest insurance company. Aetna is reportedly investing $300 million, with a possible $90 million more to follow, for a 49 percent stake in the joint venture.

The aim of the Brazilian based alliance is to accelerate growth and introduce new products in health, life, and personal insurance and pensions. Aetna contributes expertise in products, information technology, and servicing, while Sul Am.rica brings local knowledge, an extensive distribution network and sales system, and its leading market position

Yet the popularity of alliances between emerging market and global companies, and their apparent win -win character, can mask their difficulty. They are hard to pull of and often highly unstable much more so than alliances between companies from similar economic and cultural backgrounds. Many have failed to meet expectations or have required extensive restructuring. Indeed, in recent years, numerous high-profile joint ventures in Asia and Latin America have been dissolved, restructured, or bought out by one of the partners.

First, most global companies are considerably larger than their emerging market partners, and possess deeper pockets and, often, broader capabilities.

How sustainable will an alliance be, given the partners ambitions and strengths? And how should the strategy and tactics they adopt reflect the distinct challenges of alliances between global and emerging market companies?

Alliances tend to follow the pattern set by the deregulation of an industry and the opening of national markets. As regulations change, so do the options available to multinationals and local companies, with the result that alliance structures established under one set of rules can quickly become obsolete under another. Pressure to restructure or dissolve partnerships may ensue.

Emerging markets typically go through four evolutionary stages: nascent, frenzied, turbulent, and mature.
Two factors influence the sustainability and likely direction of an alliance: Each partners aspirations that is, the will to control the venture and relative contributions

Does the global partner desire full control in the long run? (If it does, the alliance is likely to wind up in acquisition or dissolution.) Does it want a permanent alliance in which the local partner provides specific elements of the business system, as with Caterpillars long-standing relationships with its local distribution and service partners

Is the emerging market players focus on the home market, or does it harbor global ambitions? If it does, and it wants to compete on its own against the multinational, conflict will be inevitable. Ultimately, though, the evolution of an alliance will be driven by each partner strengths and weaknesses, and by the relative importance of its contribution

Usually, the global company contributes intangibles, such as technology, brands, and skills, that grow in importance over time. The local partners contributions, on the other hand, are more likely to be local market know how.

Relationships with regulators, distribution, and possibly manufacturing assets that may fade in importance as its partner becomes more knowledgeable about the market, or as deregulation undermines (sometimes overnight) the value of privileged relationships or licenses.

The first is that trod by successful long-term alliances such as Samsung-Corning, established in 1973 as a 50-50 joint venture to make CRT (cathode-ray tube) glass for the Korean electronics market. Samsung needed a technology partner to pursue its strategy of integrating vertically into electronics components and materials; Corning wanted to expand in Asia

The second path involves a power shift toward the global partner, often followed by a buyout. The third path sees a shift of power towards the emerging market partner. Local partners do sometimes build their bargaining muscle, increase their ownership stake, buy out their global partners, or exit the alliance to form other partnerships

The second path involves a power shift toward the global partner, often followed by a buyout. The third path sees a shift of power towards the emerging market partner. Local partners do sometimes build their bargaining muscle, increase their ownership stake, buy out their global partners, or exit the alliance to form other partnerships.

The fourth path is competition between partners, followed by dissolution or acquisition of the venture by one of them. A 50-50 joint venture between GM and Daewoo to manufacture cars in Korea lost money until Daewoo acquired it outright. The partners had incompatible strategies: GM wanted a low-cost source for a limited range of small cars; Daewoo aspired to become a broadline global auto manufacturer. Conflict and collision often result when the partners fail to agree on whether the joint venture or the parent companies will compete in related product areas or in other countries

Success is measured not by duration, but by whether objectives have been met. Take the joint venture between GE and Apar to make light bulbs for the Indian market. The arrangement was dissolved after only three years, yet GE emerged from it a leader in the Indian lighting industry, and Apar was handsomely remunerated