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Internal Business Partnership Essay

3102 words - 13 pages

Question: -For what reasons might MNEs cooperate with each other? What barriers are there to successful cooperation?'In a complex, uncertain world filled with dangerous opponents, it is best not to go it alone', (Ohmae, 1989). As globalisation leads the world forward, national boundaries diminish and competition increases from less industrialised nations it becomes more and more difficult for firms to maintain their market shares. To define competencies, and to exploit the advantages from combined knowledge is one of many drivers for cooperation between firms.Firms co-operate in many ways, such as licensing, franchises, turnkey projects, joint ventures, strategic alliances and equity ...view middle of the document...

Building apon this, Horaguchi and Toyne (1990) state 'the strategy to form an alliance is not just reactive, it is also proactive in that it creates new products, new markets, new organisations, new management techniques, and new technology', (Horaguchi & Toyne, 1990: 491). On the other hand Harrigan (1985) takes a broad view of the motives of strategic alliance formation, where internal benefits, competitive benefits and strategic benefits are all grouped together.Porter (1986) in comparison, states that the formation of a strategic alliance depends on the five forces; the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, and rivalry amongst firms. Thus, firms may form collaborations and agreements if any of the five forces push against the firm. Porter (1985) also links the five forces with the three generic strategies; cost leadership, product differentiation and focus. Kogut (1988) mentions that alliances are formed under the competitive strategies approach as a defensive mechanism in order to hedge against strategic uncertainty (Kogut, 1988). These theories provide us with reasons why firms may collaborate together, we must now put this into practice and consider the methods used by multinational enterprises.Daniels & Radebaugh (2001) outline the reasons why firms may co-operate with each other, these motives shall all be discussed using examples with maintaining the focus of the multinational enterprise.To begin with, MNE's may cooperate together to benefit from spreading their costs or reducing their costs. For example contracting out tasks that take place in a firm can be more economically feasible then the firm actually undertaking the task in-house. This is because the sub-contractor may have excess capacity and therefore maybe able to produce the goods cheaper as the fixed overheads have already been met which creates a lower average cost (Daniels & Radebaugh, 2001). Initiation time could also be faster for the contracted firm, allowing them to produce the finished product sooner. An important limitation of this form of cooperation is that negotiating, transfer of technology, systems and maintenance of business relations can be expensive to the firm in the longer term. Considering this, many MNE firms cooperate at this level, such as that of General Motors receiving many part or fully made products from other multinational firms (Hill, 2000).A second form of cooperation between MNE's is that of specialising in competencies. A Company will focus on the advantageous resources that will best meet the competencies at any particular point in time, but MNE's continuously review their strengths and targets. This generates or brings forward those advantages that the firm decides not to purse, these are then licensed or collaborated with other firms to follow-through for the MNE. An example of this is where Coca-Cola licences its brand name to another firm to...

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