International Alliances

A strategic international alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective. Strategic alliances have grown in importance over the last few decades as a competitive strategy in global marketing management. SIAs are sought as a way to shore up weaknesses and increase competitive strengths. Firms enter into strategic international alliances for several reasons: opportunities for rapid expansion into new markets, access to new technology, more efficient production and innovation, reduced marketing costs, strategic competitive moves, and access to additional sources of products and capital. Finally, evidence suggests that SIAs often contribute nicely to profits.

Perhaps the most visible SIAs are now in the airlines industry. American Airlines, Cathay Pacific, British airways, Canadian Airlines.  Aer Lingus, and Quantas are partners in the one world alliance, which integrates schedules and mileage programs. These kinds of strategic international alliances imply that there is a common objective; that one partner’s weakness is offset by the other’s strengths; that reaching the objective alone would be too costly, take too much time, or be too risky and that together their respective strengths make possible what otherwise would be unattainable. For example, during the recent turmoil in the global airline industry, Star Alliance began moving in the direction of buying aircraft with a new strategic innovation.  In short, an SIA is a synergistic relationship established to achieve a common goal in which both parties benefit.

An SIA with multiple objectives involves CItoh (Japan), Tyson Foods (United States) and Provemex (Mexico). It is an alliance that processes Japanese style yakitori (bits of marinated and grilled chicken on a bamboo stick) for export to Japan and other Asian countries.  Each company had a goal and made a contribution to the alliance. C-Ithoh’s goal was to find a lower cost supply of yakitori; because it is so labour intensive it was becoming increasingly costly and non-competitive to produce in Japan. C-Itoh’s contribution was an access to its distribution system and markets throughout Japan and Asia. Tyson’s goal was new markets for its dark chicken meat, a by-product of demand for mostly white meat in the US market. Tyson exported some of its excess dark meat to Asia and knew that C-Itoh wanted to expand its supplier base. But Tyson faced the same high labour costs as C-Itoh. Provemex, the link that made it all work, had as its goal expansion beyond raising and slaughtering chickens into higher value added products for international markets. Porvemex’s contribution was to provide highly cost competitive labour.

Through the alliance, they all benefited. Provemex acquired the knowhow to bone the dark meat used in yakitori and was able to vertically integrate its operations and secure a foothold in a lucrative export market.

Tyson earned more from the sale of surplus chicken legs than was previously possible and gained an increased share of the Asian market. C-Itoh had a steady supply of competitively priced yakitori for its vast distribution and marketing network. This is a collaborative relationship: Three companies with individual strengths created a successful alliance in which each contributed and each gained.

Many companies are also entering SIAs to be in a strategic position to be competitive and to benefit from the expected growth in the single European market.

Although the cereal business uses cheap commodities as its raw materials, it is both capital and marketing intensive; sales volume must be high before profits begin to develop. Only recently has Kellogg earned significant profits in Europe. For General Mills to reach its goal alone would have required a manufacturing base and a massive sales force. Further, Kellogg’s stranglehold on supermarkets would have been difficult for an unknown to breach easily. The solution was a joint venture with Nestle. Nestle had everything General Mills lacked – a well-known brand name, a network of plants, and a powerful distribution system – except for the one thing that General Mills could provide: strong cereal brands.

The deal was mutually beneficial General Mills provided the knowledge in cereal technology, including some of its proprietary manufacturing equipment, its stable of proven brands, and its knack for pitching  these products to consumers. Nestle provided its name on the box access to retailers and production capacity that could be converted to making General Mills cereals. In time, cereal Partners Worldwide intend to extend their marketing efforts beyond Europe. In Asia, Africa, and Latin America, Cereal Partners Worldwide will have an important advantage over the competition because Nestle is a dominant food producer.

As international strategic alliances have grown in importance, more emphasis has been placed on a systematic approach to forming them. Of course, in international business there are no guarantees.