The strategic behaviour approach offered by the strategic management literature stresses the strategic motives of firms for engaging in international strategic alliances. In this approach international strategic alliances are formed to enhance their competitive position or market power in order to improve their overall profitability (Porter and Fuller 1986; Harrigan 1985; Contractor and Lorange 1988; Ohmae 1989). Whereas the transaction cost theory predicts that strategic alliances will be formed for minimizing costs, the strategic behaviour explanations rests on the assumption that firms transact by the mode which maximizes profits through improving a firm’s competitive position vis-à-vis its rivals (Kogut 1988).
Harrigan (1985) provides a comprehensive view of strategic motives and classifies
them into internal benefits associated mainly with cost reduction and the sharing
of resources; competitive benefits aimed at improving the firm’s strategic position
through forcing their industries structures to evolve in a favorable manner, pre empting competitors and developing defensive strategies in mature industries;
strategic benefits aimed at implementing changes in the firms; and strategic postures through access to new technology or diversification.
Porter and Fuller (1986) identified four classes of strategic benefits for alliance
formation. The first is gaining economies o f scale by concentrating the activity
within one entity to serve both firms. The second is gaining access to the
knowledge and ability to perform an activity where there are asymmetries between
firms. Thirdly strategic alliances are seen as an attractive mechanism for hedging
risk because neither partner bears the full risk and cost of the alliance activity. A
fourth class of benefits of alliances is shaping competition, because strategic
alliances can influence whom a firm competes with and the basis of competition.
Ohmae (1989), meanwhile, based the motives for alliance formation on the challenges of globalization. Ohmae (1989) suggested that international strategic alliances are an important means for firms to gain a foothold in the global
marketplace and thus become effective global competitors. Contractor and
Lorange, (1988) in addressing the conditions necessary for entering into a cooperative relationship, take the viewpoint of one partner and examine the contribution it makes to a given venture’s strategy. They cite several strategic motives necessary for alliance formation:
(i) risk reduction, through spreading the risk of a large project over more than one firm; enabling product diversification and thus reducing market risks associated with being reliant on only one product; enabling faster market entry and quicker establishment of presence in the market.
(ii) economies o f scale and/or rationalization. Costs are reduced by using the
produced in the more advantageous location by realizing economies of large-scale production.
(iii) technology exchanges. Strategic alliances may be formed to bring together
complimentary skills and talents and the exchange of patents and territories.
(iv) co-opting or blocking competition. Strategic alliances can be used as either
a defensive strategy to reduce competition or as an offensive strategy to increase costs and/or lower market share for a third company.
(v) overcoming government trade or investment barriers. Forming alliances with a local firm to accommodate host government policy to enter the market and thus satisfy the needs of the local market.
(vi) facilitating initial international expansion o f inexperienced firms.
Alliances facilitate entry to a foreign market for small and medium sized firms lacking in international experience.
(vii) Vertical quasi integration. Alliances can be a form of quasi-integration
with each partner contributing one or more different elements in the production and distribution chain (access to markets, technology, materials, labor, capital, distribution channels etc.).
However Glaister and Buckley (1996), in their study on the strategic motives for alliance formation by UK firms with partners from Western Europe, Japan and the USA, found that gaining a significant presence in a new market, enabling faster market entry, market penetration, shaping competition and maintaining market share were the most important motivating factors compared to motives o f risk reduction and economies of scale which were not particularly important. Thus
their research emphasizes the competitive motives of forming alliances used to
gain competitive advantage and global market share. Burgers et al (1993)
investigated strategic alliance activity in the global automotive industry and also found the desire to reduce demand and competitive uncertainty were two motives for alliance formation. Child and Faulkner (1998) however stated that all these strategic rationales for forming alliances shows compatibility and transparency of the strategic motives of the partners for forming alliances. They state that a lack of openness about the motives is likely to limit the chances of trust developing between the partners and may threaten the very survival of the partnership. They also note alliance partners need to cooperate in a way that they can work together effectively and have a sound basis on which mutual confidence can develop. For this to happen, each partner must have sufficient awareness of each other’s requirements to be able to work together effectively. This means that partners should be able to learn from each other’s cultural differences and be able to bring together their respective management systems, capitalizing on the strengths of each. This suggests a learning aspect to the formation of strategic alliances (Child and Faulkner 1998).
Kogut (1988) argued that both transaction cost theory and strategic behaviour theory should be treated as complementary rather than as substitutes. He further argues that the joint venture decision may stem from profit motivations and, in fact, may represent a more costly, though more profitable, alternative to other choices. Kogut (1988) states that there are two important differences in the implications of a transaction cost and strategic behaviour analysis. These are the identification of the motives to cooperate and the selection of partners.
2.3.1.3 Resource Dependency Theory
The resource dependency theory maintains that firms depend on other firms within their environment to acquire needed resources (Pfeffer and Nowak 1976). In this view no firm is self sufficient for all the required resources in order to compete effectively (Root 1988) and all firms must engage in an exchange relationship with other firms to survive (Levine and White 1961). Pfeffer and Nowak (1976) propose that alliances are formed to manage interorganizational dependence and suggest that patterns of alliance activity are systematically related to patterns of competition and to symbiotic interdependence confronted by organizations. As a result, organizations strive to reduce uncertainty in their interactions with other organizations in their environment. Thus strategic alliances may be a viable form of interorganizational structure to minimize uncertainty and gain access to the resources needed for survival. Heide (1994) proposed that the identification of dependence and uncertainty are key antecedent variables underlying the formation of strategic alliances. Thus the need to acquire resources creates dependencies between different organizations.
According Pfeffer and Salancik (1978) this scarcity of resources prompts firms to engage in strategic alliances in an attempt to exert power and control over firms,
which possess the required resources. Resource dependencies compel
organizations to construct interorganizational structures to reduce uncertainties (Pfeffer and Salancik 1978). However if firms are certain about each other’s actions and intentions, the concern for control of interdependencies would be minimal (Sheth and Parvatiyar 1992). Similarly, Child and Faulkner (1998) noted
that resource scarcity may encourage cooperation rather than competition, resulting in a relationship based on mutual support rather than domination.