Accelerating international expansion through global alliances: a typology of cooperative strategies

Abstract

Firms with low levels of internationalization may feel the need to speed up their international development in order to be able to compete with multinational enterprises (MNEs) of bigger size and wider scope. Global alliances are a means to achieve such an accelerated process, not only because they allow firms to gain access to several markets at the same time, but also because they make it possible to enhance their own international competitiveness through the use of their partners’ resources. This paper provides a detailed illustration of the competitive uses of global alliances as a means to accelerate the international expansion of the firm. Using evidence from 11 case studies on Spanish firms, we build a typology of four cooperative strategies. One of these strategies is based on local alliances, whereas the remaining three are based on global alliances. The paper presents a detailed case study of the firm which best fits each strategy found in global alliances. The implications of each strategy for alliance management, together with the possible evolution of each of them, are also discussed.

Introduction

According to the idea formerly suggested by authors from the University of Uppsala (Johanson & Wiedersheim-Paul, 1975; Johanson & Vahlne, 1977) the internationalization process of a firm has traditionally followed a gradual pattern, namely, it ends to expand abroad starting from those countries more similar to its own one in terms of socio-cultural distance. Such an expansion takes the following stages: no regular exports, exporting through local agents, sales subsidiary and production and marketing subsidiary. The logic behind that sequence is that the resource commitment with foreign markets increases with the knowledge about those markets and the experience in doing business abroad. Thus, as pointed out by the aforementioned theory, knowledge concerning local markets and management of foreign operations is a key factor which will definitely condition both the speed at which the process of international expansion will occur, and the sequence of countries that will be approached. Yet, it should be noted that by using alliances firms can avoid the need to accumulate their own experience and in this way they can take part in an internationalization process which differs significantly from the traditional one.

Firms can set up alliances with local partners—the so-called local alliances—in order to speed up their entry into a new single market. A typical local alliance is formed by a multinational enterprises (MNEs) and a local partner with the aim of combining the former’s technology and products with the local knowledge and resources provided by the local firm. From the point of view of the MNE, these local alliances have above all an exploitation aim: the MNEs main objective is to exploit its proprietary assets in the foreign market, therefore, it just looks for a local partner in order to get the so much needed help to achieve such an objective (Buckley & Casson, 1976; Hennart, 1982, Teece, 1997). Thus, for example, Anderson and Gatignon (1986) show 17 entry modes, most of them strategic alliances like licensing, franchising and joint ventures, through which firms can enter a new market. Taking into account the specific context of the target market, without forgetting the expanding firm’s own characteristics, these authors propose a framework to identify the entry mode which allows the most suitable combination of control, risk and flexibility. Nowadays there is a considerable amount of empirical research directed to identify the most appropriate entry mode for a particular new country—see Buckley and Casson (1998) for a review.

It should be pointed out, however, that firms can alternatively choose other types of alliances to speed up their internationalization process. These alliances can take two forms: firstly, engaging into multicountry alliances, firms can simultaneously gain access to several foreign markets. The internationalization process based on these alliances is not only quicker, but also cheaper than going abroad through wholly owned subsidiaries (Dunning, 1995, Ohmae, 1989), in so far as partners can benefit from the complementarity of their international distribution networks, or rather invest jointly in new countries. Secondly, firms can also use alliances to improve their international competitiveness. Strategic alliances are not mere foreign market entry modes. According to Contractor and Lorange (1988), firms can also benefit from strategic alliances through cost reductions (economies of scale), blocking competition, having access to new technologies, learning new abilities and risk reduction. Alliances may thus be a means to reach critical resources that will ultimately allow the firm to improve its international competitiveness (Hagedoorn & Schakenraad, 1994; Hamel, Doz & Prahalad, 1989; Lei & Slocum, 1992; Lei, Slocum & Pitts, 1997; Yoshino & Rangan, 1995). Alliances pursuing these objectives tend to be more balanced than the local ones, as they involve the pooling of the key capabilities of the different partners, which are usually actual or potential competitors (Dussauge & Garrette, 1999).⁴ Consequently, firms forming international alliances may not only look for an international exploitation of their competencies, but also for an exploration of new ways of improving them⁵ (Madhok, 1997; Kogut and Zander, 1993, Kogut and Zander, 1995).

For the purposes of this study, we will use the label “global alliances” for the two kinds of alliances different from the local ones. Thus, global alliances are those formed by firms which aim at coordinating their actions in several markets and/or at gaining access to competencies that can be exploited in different international markets. Some well known examples of these alliances are the relationships between KLM and Northwest Airlines, or Ford and Mazda. We are going to focus our analysis on global alliances. On the one hand, local alliances have been analyzed in-depth in the literature either from the MNEs perspective (Stopford & Wells, 1972; Tomlinson, 1970) or from the local firm’s one (Kotable et al., 2000). On the other hand, if compared to local alliances, global ones can lead to a more effective acceleration of the internationalization of the firm. This is due to the fact that global alliances cover wider geographical areas and/or allow the partners to enhance their core capabilities.

In the literature on global alliances one can discover how research efforts have been oriented to identifying the best way of managing them, mainly in those aspects related to learning practices—for example, Hamel et al. (1989), Hamel (1991), Lei and Slocum, 1991, Lei and Slocum, 1992, Khanna et al. (1998), and Doz and Hamel (1998). Several researchers have also analyzed how the coordination of the set of alliances participated by a firm may influence the evolution of the structure of globalized industries, via the formation of strategic blocks (Nohria & Garcı́a-Pont, 1991) or constellations (Gomes-Casseres, 1994, Gomes-Casseres, 1996). These are networks of allied firms that compete against other networks. The most recent research on this topic is now focusing on how cooperative and competitive relationships between firms in the same industry may lead to the formation of these blocks (Garcı́a-Pont & Nohria, 1999; Gimeno & Jeong, 2001). However, not all firms may share the same interest in stabilizing and integrating their set of alliances, for instance, Doz and Hamel (1998) show how firms can benefit in different circumstances from having integrated, independent or semi-integrated alliances.

In spite of the vast amount of literature dealing with global alliances, there remains an aspect that is poorly documented, namely, the different uses that firms can make of this type of alliances in order to accelerate their international expansion. Although global alliances are especially useful for firms with a low degree of internationalization that face the challenge of global competition, there is a lack of empirical research dealing with how these firms can achieve a fast internationalization through global alliances. To bridge this gap, the present paper is aimed at providing a detailed illustration of the different uses of global alliances in order to accelerate the international expansion of the firm. Specifically, we analyze the collaborative experiences in international expansion of 11 multinational Spanish firms, showing the different cooperative strategies a firm may follow to accelerate its international expansion and how these strategies may vary as time goes by. We attach special interest to the use of data from Spanish firms because of two main reasons. Firstly, the change from economic isolation to integration in the European Union pushed many Spanish firms into a quick reaction via alliances. Secondly, the greater ability that Spanish companies have for dealing with Latin America has led to the creation of a large number of global alliances within a Latin American scope. In particular, Spanish firms have collaborated with Latin American partners and/or European or U.S. partners that “use” Spanish companies as a bridge to enter Latin America.

To show all these aspects the paper displays the following structure. It starts with a brief section summarizing the methods used in our research study. Next, we present the cooperative strategies based on the use of global alliances, with a case study illustrating the main features of each one. After discussing our findings, we present a summary of the main implications of this study.