Licensing is a contractual arrangement whereby one company (the licensor) makes a legally
protected asset available to another company (the licensee) in exchange for royalties, license fees,
or some other form of compensation.2 The licensed asset may be a brand name, company name,
patent, trade secret, or product formulation. Licensing is widely used in the fashion industry.
Two key advantages are associated with licensing as a market entry mode. First, because the
licensee is typically a local business that will produce and market the goods on a local or regional
basis, licensing enables companies to circumvent tariffs, quotas, or similar export barriers
discussed in Chapter 8. Second, when appropriate, licensees are granted considerable autonomy
and are free to adapt the licensed goods to local tastes.
Licensing is associated with several disadvantages and opportunity costs. First, licensing
agreements offer limited market control. Because the licensor typically does not become
involved in the licensee’s marketing program, potential returns from marketing may be lost.
The second disadvantage is that the agreement may have a short life if the licensee develops its
own know-how and begins to innovate in the licensed product or technology area. In a worst-case
scenario (from the licensor’s point of view), licensees—especially those working with process
technologies—can develop into strong competitors in the local market and, eventually, into
industry leaders. This is because licensing, by its very nature, enables a company to “borrow”—
that is, leverage and exploit—another company’s resources. A case in point is Pilkington, which
has seen its leadership position in the glass industry erode as Glaverbel, Saint-Gobain, PPG, and
other competitors have achieved higher levels of production efficiency and lower costs.4
Companies may find that the upfront easy money obtained from licensing turns out to be a
very expensive source of revenue. To prevent a licensor-competitor from gaining unilateral
benefit, licensing agreements should provide for a cross-technology exchange among all parties.
At the absolute minimum, any company that plans to remain in business must ensure that its
license agreements include a provision for full cross-licensing (i.e., that the licensee shares
its developments with the licensor). Overall, the licensing strategy must ensure ongoing competitive
advantage. For example, license arrangements can create export market opportunities and
open the door to low-risk manufacturing relationships. They can also speed diffusion of new
products or technologies.
Special Licensing Arrangements
Companies that use contract manufacturing provide technical specifications to a subcontractor or
local manufacturer. The subcontractor then oversees production. Such arrangements offer several
advantages. The licensing firm can specialize in product design and marketing, while transferring
responsibility for ownership of manufacturing facilities to contractors and subcontractors. Other
advantages include limited commitment of financial and managerial resources and quick entry into
target countries, especially when the target market is too small to justify significant investment.5
One disadvantage, as already noted, is that companies may open themselves to public scrutiny and
criticism if workers in contract factories are poorly paid or labor in inhumane circumstances.
Timberland and other companies that source in low-wage countries are using image advertising to
communicate their corporate policies on sustainable business practices.
Franchising is another variation of licensing strategy. A franchise is a contract between a
parent company-franchiser and a franchisee that allows the franchisee to operate a business
developed by the franchiser in return for a fee and adherence to franchise-wide policies and
practices. Exhibit 9-3 shows an ad for Pollo Campero, a restaurant chain based in Central
America that is using franchising to expand operations in the United States.
Franchising has great appeal to local entrepreneurs anxious to learn and apply Western-style
marketing techniques. Franchising consultant William Le Sante suggests that would-be franchisers
ask the following questions before expanding overseas:
_ Will local consumers buy your product?
_ How tough is the local competition?
_ Does the government respect trademark and franchiser rights?
_ Can your profits be easily repatriated?
_ Can you buy all the supplies you need locally?
_ Is commercial space available and are rents affordable?
_ Are your local partners financially sound and do they understand the basics of
By addressing these issues, franchisers can gain a more realistic understanding of global
opportunities. In China, for example, regulations require foreign franchisers to directly own two
or more stores for a minimum of 1 year before franchisees can take over the business. Intellectual
property protection is also a concern in China.
The specialty retailing industry favors franchising as a market entry mode. For example,
The Body Shop has more than 2,500 stores in 60 countries; franchisees operate about 90 percent
of them. Franchising is also a cornerstone of global growth in the fast-food industry;
McDonald’s reliance on franchising to expand globally is a case in point. The fast-food giant has
a well-known global brand name and a business system that can be easily replicated in multiple
country markets. Crucially, McDonald’s headquarters has learned the wisdom of leveraging local
market knowledge by granting franchisees considerable leeway to tailor restaurant interior
designs and menu offerings to suit country-specific preferences and tastes (see Case 1-2).
Generally speaking, however, franchising is a market entry strategy that is typically executed
with less localization than licensing.
When companies do decide to license, they should sign agreements that anticipate more
extensive market participation in the future. Insofar as is possible, a company should keep
options and paths open for other forms of market participation. Many of these forms require
investment and give the investing company more control than is possible with licensing.
After companies gain experience outside the home country via exporting or licensing, the time
often comes when executives desire a more extensive form of participation. In particular, the
desire to have partial or full ownership of operations outside the home country can drive the
decision to invest. Foreign direct investment (FDI) figures reflect investment flows out of
the home country as companies invest in or acquire plants, equipment, or other assets. Foreign
direct investment allows companies to produce, sell, and compete locally in key markets.
Examples of FDI abound: Honda built a $550 million assembly plant in Greensburg, Indiana;
Hyundai invested $1 billion in a plant in Montgomery, Alabama; IKEA has spent nearly $2 billion
to open stores in Russia; and South Korea’s LG Electronics purchased a 58 percent stake in Zenith
Electronics (see Exhibit 9-4). Each of these represents foreign direct investment.
The final years of the twentieth century were a boom time for cross-border mergers and
acquisitions. At the end of 2000, cumulative foreign investment by U.S. companies totaled
$1.2 trillion. The top three target countries for U.S. investment were the United Kingdom,
Canada, and the Netherlands. Investment in the United States by foreign companies also totaled
$1.2 trillion; the United Kingdom, Japan, and the Netherlands were the top three sources of
investment.8 Investment in developing nations also grew rapidly in the 1990s. For example, as
noted in earlier chapters, investment interest in the BRIC nations is increasing, especially in the
automobile industry and other sectors critical to the countries’ economic development.
Foreign investments may take the form of minority or majority shares in joint ventures,
minority or majority equity stakes in another company, or outright acquisition. A company may
choose to use a combination of these entry strategies by acquiring one company, buying an
equity stake in another, and operating a joint venture with a third. In recent years, for example,
UPS has made numerous acquisitions in Europe and has also expanded its transportation hubs.
A joint venture with a local partner represents a more extensive form of participation in foreign
markets than either exporting or licensing. Strictly speaking, a joint venture is an entry strategy
for a single target country in which the partners share ownership of a newly created business
entity.9 This strategy is attractive for several reasons. First and foremost is the sharing of risk.
By pursuing a joint venture entry strategy, a company can limit its financial risk as well as its
exposure to political uncertainty. Second, a company can use the joint venture experience to learn
about a new market environment. If it succeeds in becoming an insider, it may later increase the
level of commitment and exposure. Third, joint ventures allow partners to achieve synergy by
combining different value chain strengths. One company might have in-depth knowledge of a
local market, an extensive distribution system, or access to low-cost labor or raw materials. Such
a company might link up with a foreign partner possessing well-known brands or cutting-edge
technology, manufacturing know-how, or advanced process applications. A company that
lacks sufficient capital resources might seek partners to jointly finance a project. Finally, a joint
venture may be the only way to enter a country or region if government bid award practices
routinely favor local companies, if import tariffs are high, or if laws prohibit foreign control but
permit joint ventures.
Many companies have experienced difficulties when attempting to enter the Japanese
market. Anheuser-Busch’s experience in Japan illustrates both the interactions of the entry
modes discussed so far and the advantages and disadvantages of the joint venture approach.
Access to distribution is critical to success in the Japanese market; Anheuser-Busch first entered
by means of a licensing agreement with Suntory, the smallest of Japan’s four top brewers.
Although Budweiser had become Japan’s top-selling imported beer within a decade, Bud’s
market share in the early 1990s was still less than 2 percent. Anheuser-Busch then created a joint
venture with Kirin Brewery, the market leader. Anheuser-Busch’s 90 percent stake in the venture
entitled it to market and distribute beer produced in a Los Angeles brewery through Kirin’s
channels. Anheuser-Busch also had the option to use some of Kirin’s brewing capacity to brew
Bud locally. For its part, Kirin was well positioned to learn more about the global market for beer
from the world’s largest brewer. By the end of the decade, however, Bud’s market share hadn’t
increased and the venture was losing money. On January 1, 2000, Anheuser-Busch dissolved the
joint venture and eliminated most of the associated job positions in Japan; it reverted instead to a
licensing agreement with Kirin. The lesson for consumer products marketers considering market
entry in Japan is clear. It may make more sense to give control to a local partner via a licensing
agreement rather than make a major investment.10
The disadvantages of joint venturing can be significant. Joint venture partners must share
rewards as well as risks. The main disadvantage associated with joint ventures is that a company
incurs very significant costs associated with control and coordination issues that arise when
working with a partner. (However, in some instances country-specific restrictions limit the share
of capital help by foreign companies.)
A second disadvantage is the potential for conflict between partners. These often arise out of
cultural differences, as was the case in a failed $130 million joint venture between Corning Glass
and Vitro, Mexico’s largest industrial manufacturer. The venture’s Mexican managers sometimes
viewed the Americans as being too direct and aggressive; the Americans believed their partners
took too much time to make important decisions.11 Such conflicts can multiply when there are
several partners in the venture. Disagreements about third-country markets where partners face
each other as actual or potential competitors can lead to “divorce.” To avoid this, it is essential to
work out a plan for approaching third-country markets as part of the venture agreement.
A third issue, also noted in the discussion of licensing, is that a dynamic joint venture
partner can evolve into a stronger competitor. Many developing countries are very forthright in
this regard. Yuan Sutai, a member of China’s Ministry of Electronics Industry, told the Wall
Street Journal, “The purpose of any joint venture, or even a wholly-owned investment, is to allow
Chinese companies to learn from foreign companies. We want them to bring their technology to
the soil of the People’s Republic of China.”12 GM and South Korea’s Daewoo Group formed a
joint venture in 1978 to produce cars for the Korean market. By the mid-1990s, GM had helped
Daewoo improve its competitiveness as an auto producer, but Daewoo chairman Kim
Woo-Choong terminated the venture because its provisions prevented the export of cars bearing
the Daewoo name.13
As one global marketing expert warns, “In an alliance you have to learn skills of the partner,
rather than just see it as a way to get a product to sell while avoiding a big investment.” Yet,
compared with U.S. and European firms, Japanese and Korean firms seem to excel in their ability
to leverage new knowledge that comes out of a joint venture. For example, Toyota learned many
new things from its partnership with GM—about U.S. supply and transportation and managing
American workers—that have been subsequently applied at its Camry plant in Kentucky.
However, some American managers involved in the venture complained that the manufacturing
expertise they gained was not applied broadly throughout GM. An example of a successful
alliance is Ericsson’s cell phone alliance with Sony (see Exhibit 9-5).
Investment via Equity Stake or Full Ownership
The most extensive form of participation in global markets is investment that results in either an
equity stake or full ownership. An equity stake is simply an investment; if the investor owns fewer
than 50 percent of the shares, it is a minority stake; ownership of more than half the shares makes it
a majority. Full ownership, as the name implies, means the investor has 100 percent control. This
may be achieved by a start-up of new operations, known as greenfield investment, or by merger or
acquisition of an existing enterprise. For example, in 2008 the largest merger and acquisition (M&A)
deal in the pharmaceutical industry was Roche’s acquisition of Genentech for $43 billion. Prior to
the onset of the global financial crisis, the media and telecommunications industry sectors were
among the busiest for M&A worldwide. Ownership requires the greatest commitment of capital and
managerial effort and offers the fullest means of participating in a market. Companies may move
from licensing or joint venture strategies to ownership in order to achieve faster expansion in a
market, greater control, or higher profits. In 1991, for example, Ralston Purina ended a 20-year joint
venture with a Japanese company to start its own pet food subsidiary. Monsanto and Bayer AG, the
German pharmaceutical company, are two other companies that have also recently disbanded partnerships
in favor of wholly owned subsidiaries in Japan. Home Depot is using acquisition to expand in
China; the home improvement giant recently acquired the HomeWay chain (see Exhibit 9-6).
If government restrictions prevent majority or 100 percent ownership by foreign companies,
the investing company will have to settle for a minority equity stake. In Russia, for example, the
government restricts foreign ownership in joint ventures to a 49 percent stake. A minority equity
stake may also suit a company’s business interests. For example, Samsung was content to
purchase a 40 percent stake in computer maker AST. As Samsung manager Michael Yang noted,
“We thought 100 percent would be very risky, because any time you have a switch of ownership,
that creates a lot of uncertainty among the employees.”14
In other instances, the investing company may start with a minority stake and then increase
its share. In 1991, Volkswagen AG made its first investment in the Czech auto industry by
purchasing a 31 percent share in Skoda. By 1995, Volkswagen had increased its equity stake to
70 percent (the government of the Czech Republic owns the rest). Today the Czech automaker is
evolving from a regional company to a global one, with sales in 100 countries and more than
$5 billion in annual revenues.15 Similarly, Ford purchased a 25 percent stake in Mazda in 1979;
in 1996 Ford spent another $408 million to raise its stake to 33.4 percent. However, in contrast to
the Volkswagen/Skoda alliance, Ford has been forced to scale back its investment. By the end of
2010, the economic crisis prompted Ford to reduce its holdings to 3.5 percent.
Large-scale direct expansion by means of establishing new facilities can be expensive and
require a major commitment of managerial time and energy. However, political or other environmental
factors sometimes dictate this approach. For example, Japan’s Fuji Photo Film Company
invested hundreds of millions of dollars in the United States after the U.S. government ruled that Fuji
was guilty of dumping (i.e., selling photographic paper at substantially lower prices than in Japan).
As an alternative to greenfield investment in new facilities, acquisition is an instantaneous—and
sometimes less expensive—approach to market entry or expansion. Although full ownership can
yield the additional advantage of avoiding communication and conflict of interest problems that
may arise with a joint venture or coproduction partner, acquisitions still present the demanding and
challenging task of integrating the acquired company into the worldwide organization and
Tables 9-2, 9-3, and 9-4 provide a sense of how companies in the automotive industry utilize
a variety of market entry options discussed previously, including equity stakes, investments to
establish new operations, and acquisition. Table 9-2 shows that GM favors minority stakes in
non-U.S. automakers; from 1998 through 2000, the company spent $4.7 billion on such deals.
Ford spent twice as much on acquisitions. Despite the fact that GM losses from the deals resulted
in substantial write-offs, the strategy reflects management’s skepticism about making big
mergers work. As former GM chairman and CEO Rick Wagoner said, “We could have bought
100 percent of somebody, but that probably wouldn’t have been a good use of capital.”
Meanwhile, the company’s investments in minority stakes have paid off: The company enjoys
scale-related savings in purchasing, it has gained access to diesel technology, and Saab produced
a new model in record time with the help of Subaru.16 Following its bankruptcy filing in 2009,
GM divested itself of several noncore businesses and brands, including Saab.
What is the driving force behind many of these acquisitions? It is globalization. In cases
like Gerber, management realizes that the path to globalization cannot be undertaken independently.
Management at Helene Curtis Industries came to a similar realization and agreed to be
acquired by Unilever. Ronald J. Gidwitz, president and CEO, said, “It was very clear to us that
Helene Curtis did not have the capacity to project itself in emerging markets around the world.
As markets get larger, that forces the smaller players to take action.”17 Still, management’s
decision to invest abroad sometimes clashes with investors’ short-term profitability goals—or
with the wishes of members of the target organization (see Exhibit 9-7).
Several of the advantages of joint ventures also apply to ownership, including access to
markets and avoidance of tariff or quota barriers. Like joint ventures, ownership also permits
important technology experience transfers and provides a company with access to new manufacturing
techniques. For example, The Stanley Works, a toolmaker with headquarters in New
Britain, Connecticut, has acquired more than a dozen companies. Among them is Taiwan’s
National Hand Tool/Chiro Company, a socket wrench manufacturer and developer of a “coldforming”
process that speeds up production and reduces waste. Stanley is now using that
technology in the manufacture of other tools. Former chairman Richard H. Ayers presided over
the acquisitions and envisioned such global cross-fertilization and “blended technology” as a key
benefit of globalization.19 In 1998, former GE executive John Trani succeeded Ayers as CEO;
Trani brought considerable experience with international acquisitions, and his selection was
widely viewed as evidence that Stanley intended to boost global sales even more.
The alternatives discussed here—licensing, joint ventures, minority or majority equity
stake, and ownership—are points along a continuum of alternative strategies for global market
entry and expansion. The overall design of a company’s global strategy may call for combinations
of exporting–importing, licensing, joint ventures, and ownership among different
operating units. Avon Products uses both acquisition and joint ventures to enter developing
markets. A company’s strategy preference may change over time. For example, Borden Inc.
ended licensing and joint venture arrangements for branded food products in Japan and set up
its own production, distribution, and marketing capabilities for dairy products. Meanwhile, in
nonfood products, Borden has maintained joint venture relationships with Japanese partners
in flexible packaging and foundry materials.
Competitors within a given industry may pursue different strategies. For example, Cummins
Engine and Caterpillar both face very high costs—in the $300 to $400 million range—for developing
new diesel engines suited to new applications. However, the two companies vary in their
strategic approaches to the world market for engines. Cummins management looks favorably on
collaboration; also, the company’s relatively modest $6 billion in annual revenues presents financial
limitations. Thus, Cummins prefers joint ventures. The biggest joint venture between an
American company and a Russian company linked Cummins with the KamAZ truck company in
Tatarstan. The joint venture allowed the Russians to implement new manufacturing technologies
while providing Cummins with access to the Russian market. Cummins also has joint ventures
in Japan, Finland, and Italy. Management at Caterpillar, by contrast, prefers the higher degree of
control that comes with full ownership. The company has spent more than $2 billion on
purchases of Germany’s MaK, British engine maker Perkins, and others. Management believes
that it is often less expensive to buy existing firms than to develop new applications independently.
Also, Caterpillar is concerned about safeguarding proprietary knowledge that is basic to
manufacturing in its core construction equipment business.
Global Strategic Partnerships
In Chapter 8 and the first half of this chapter, we surveyed the range of options—exporting,
licensing, joint ventures, and ownership—traditionally used by companies wishing either to
enter global markets for the first time or to expand their activities beyond present levels.
However, recent changes in the political, economic, sociocultural, and technological environments
of the global firm have combined to change the relative importance of those strategies.
Trade barriers have fallen, markets have globalized, consumer needs and wants have converged,
product life cycles have shortened, and new communications technologies and trends have
emerged. Although these developments provide unprecedented market opportunities, they have
strong strategic implications for the global organization and new challenges for the global
marketer. Such strategies will undoubtedly incorporate—or may even be structured around—a
variety of collaborations. Once thought of only as joint ventures with the more dominant party
reaping most of the benefits (or losses) of the partnership, cross-border alliances are taking on
surprising new configurations and even more surprising players.
Why would any firm—global or otherwise—seek to collaborate with another firm, be it
local or foreign? For example, despite commanding a 37 percent share of the global cellular
handset market, Nokia once announced that it would make the source code for its proprietary
Series 60 software available to competing handset manufacturers such as Siemens AG. Why
did Nokia’s top executives decide to collaborate, thereby putting the company’s competitive
advantage with software development (and healthy profit margins) at risk? As noted, a
“perfect storm” of converging environmental forces is rendering traditional competitive strategies
Today’s competitive environment is characterized by unprecedented degrees of turbulence,
dynamism, and unpredictability; global firms must respond and adapt quickly. To
succeed in global markets, firms can no longer rely exclusively on the technological superiority
or core competence that brought them past success. In the twenty-first century, firms must
look toward new strategies that will enhance environmental responsiveness. In particular,
they must pursue “entrepreneurial globalization” by developing flexible organizational
capabilities, innovating continuously, and revising global strategies accordingly.”21 In the
second half of this chapter, we will focus on global strategic partnerships. In addition, we will
examine the Japanese keiretsu and various other types of cooperation strategies that global
firms are using today.
firms are using today.
The Nature of Global Strategic Partnerships
The terminology used to describe the new forms of cooperation strategies varies widely. The
terms strategic alliances, strategic international alliances, and global strategic partnerships
(GSPs) are frequently used to refer to linkages between companies from different countries
to jointly pursue a common goal. This terminology can cover a broad spectrum of interfirm
agreements, including joint ventures. However, the strategic alliances discussed here exhibit
three characteristics (see Figure 9-2):22
1. The participants remain independent subsequent to the formation of the alliance.
2. The participants share the benefits of the alliance as well as control over the performance
of assigned tasks.
3. The participants make ongoing contributions in technology, products, and other key
According to estimates, the number of strategic alliances has been growing at a rate of 20 to
30 percent since the mid-1980s. The upward trend for GSPs comes, in part, at the expense of
traditional cross-border mergers and acquisitions. Since the mid-1990s, a key force driving
partnership formation is the realization that globalization and the Internet will require new
intercorporate configurations (see Exhibit 9-
. Table 9-5 lists examples of GSPs.
Like traditional joint ventures, GSPs have some disadvantages. Partners share control over
assigned tasks, a situation that creates management challenges. Also, strengthening a competitor
from another country can present a number of risks.
First, high product development costs in the face of resource constraints may force a
company to seek one or more partners; this was part of the rationale for Sony’s partnership with
Samsung to produce flat-panel TV screens. Second, the technology requirements of many
contemporary products mean that an individual company may lack the skills, capital, or knowhow
to go it alone.23 Third, partnerships may be the best means of securing access to national
and regional markets. Fourth, partnerships provide important learning opportunities; in fact, one
expert regards GSPs as a “race to learn.” Professor Gary Hamel of the London Business School
has observed that the partner that proves to be the fastest learner can ultimately dominate the
As noted earlier, GSPs differ significantly from the market entry modes discussed in the
first half of the chapter. Because licensing agreements do not call for continuous transfer of
technology or skills among partners, such agreements are not strategic alliances.24 Traditional
joint ventures are basically alliances focusing on a single national market or a specific problem.
The Chinese joint venture described previously between GM and Shanghai Automotive fits this
description; the basic goal is to make cars for the Chinese market. A true global strategic partnership
is different; it is distinguished by five attributes.25 S-LCD, Sony’s strategic alliance with
Samsung, offers a good illustration of each attribute.26
1. Two or more companies develop a joint long-term strategy aimed at achieving world
leadership by pursuing cost leadership, differentiation, or a combination of the two.
Samsung and Sony are jockeying with each other for leadership in the global
television market. One key to profitability in the flat-panel TV market is being the
cost leader in panel production. S-LCD is a $2 billion joint venture to produce
60,000 panels per month.
2. The relationship is reciprocal. Each partner possesses specific strengths that it shares with
the other; learning must take place on both sides. Samsung is a leader in the manufacturing
technologies used to create flat-panel TVs. Sony excels at parlaying advanced technology
into world-class consumer products; its engineers specialize in optimizing TV picture
quality. Jang Insik, Samsung’s chief executive, says, “If we learn from Sony, it will help
us in advancing our technology.”
3. The partners’ vision and efforts are truly global, extending beyond home countries and the
home regions to the rest of the world. Sony and Samsung are both global companies that
market global brands throughout the world
4. The relationship is organized along horizontal, not vertical, lines. Continual transfer of
resources laterally between partners is required, with technology sharing and resource
pooling representing norms. Jang and Sony’s Hiroshi Murayama speak by telephone on a
daily basis; they also meet face-to-face each month to discuss panel making.
5. When competing in markets excluded from the partnership, the participants retain their
national and ideological identities. Samsung markets a line of high-definition televisions
that use digital light processing (DLP) technology. Sony does not produce DLP sets.
When developing a DVD player and home theater sound system to match the TV, a team
headed by head TV designer Yunje Kang worked closely with the audio/video division.
At Samsung, managers with responsibility for consumer electronics and computer
products report to digital media chief Gee-sung Choi. All the designers work side-by-side
on open floors. As noted in a recent company profile, “the walls between business units
are literally nonexistent.”27 By contrast, in recent years Sony has been plagued by a
time-consuming, consensus-driven communication approach between divisions that have
operated largely autonomously.
Assuming that a proposed alliance has these five attributes, it is necessary to consider six basic
factors deemed to have significant impact on the success of GSPs: mission, strategy, governance,
culture, organization, and management:28
1. Mission. Successful GSPs create win-win situations, where participants pursue objectives
on the basis of mutual need or advantage.
2. Strategy. A company may establish separate GSPs with different partners; strategy must be
thought out up front to avoid conflicts.
3. Governance. Discussion and consensus must be the norms. Partners must be viewed as
4. Culture. Personal chemistry is important, as is the successful development of a shared set
of values. The failure of a partnership between Great Britain’s General Electric Company
and Siemens AG was blamed in part on the fact that the former was run by financeoriented
executives, the latter by engineers.
5. Organization. Innovative structures and designs may be needed to offset the complexity of
6. Management. GSPs invariably involve a different type of decision making. Potentially
divisive issues must be identified in advance and clear, unitary lines of authority
established that will result in commitment by all partners.
Companies forming GSPs must keep these factors in mind. Moreover, the following four
principles will guide successful collaborators. First, despite the fact that partners are pursuing
mutual goals in some areas, partners must remember that they are competitors in others.
Second, harmony is not the most important measure of success—some conflict is to be
expected. Third, all employees, engineers, and managers must understand where cooperation
ends and competitive compromise begins. Finally, as noted earlier, learning from partners is
The issue of learning deserves special attention. As one team of researchers notes,
The challenge is to share enough skills to create advantage vis-à-vis companies outside the
alliance while preventing a wholesale transfer of core skills to the partner. This is a very
thin line to walk. Companies must carefully select what skills and technologies they pass
to their partners. They must develop safeguards against unintended, informal transfers of
information. The goal is to limit the transparency of their operations.30
The “relationship enterprise” is another possible stage of evolution of the strategic
alliance. In a relationship enterprise, groupings of firms in different industries and countries
will be held together by common goals that encourage them to act as a single firm.
Market Expansion Strategies
Companies must decide whether to expand by seeking new markets in existing countries or,
alternatively, by seeking new country markets for already identified and served market
segments.52 These two dimensions in combination produce four market expansion strategy
options, as shown in Table 9-6. Strategy 1, country and market concentration, involves targeting
a limited number of customer segments in a few countries. This is typically a starting point
for most companies. It matches company resources and market investment needs. Unless a
company is large and endowed with ample resources, this strategy may be the only realistic
way to begin.
In strategy 2, country concentration and market diversification, a company serves many
markets in a few countries. This strategy was implemented by many European companies that
remained in Europe and sought growth by expanding into new markets. It is also the approach of the
American companies that decide to diversify in the U.S. market as opposed to going international
with existing products or creating new global products. According to the U.S. Department
of Commerce, the majority of U.S. companies that export limit their sales to five or fewer markets.
This means that U.S. companies typically pursue strategy 1 or 2.
Strategy 3, country diversification and market concentration, is the classic global
strategy whereby a company seeks out the world market for a product. The appeal of this
strategy is that by serving the world customer a company can achieve a greater accumulated
volume and lower costs than any competitor and therefore have an unassailable competitive
advantage. This is the strategy of the well-managed business that serves a distinct need and
Strategy 4, country and market diversification, is the corporate strategy of a global,
multibusiness company such as Matsushita. Overall, Matsushita is multicountry in scope,
and its various business units and groups serve multiple segments. Thus, at the level of corporate
strategy, Matsushita may be said to be pursuing strategy 4. At the operating business
level, however, managers of individual units must focus on the needs of the world customer in
their particular global market. In Table 9-6, this is strategy 3—country diversification and
market concentration. An increasing number of companies all over the world are beginning
to see the importance of market share not only in the home or domestic market but also in
the world market. Success in overseas markets can boost a company’s total volume and lower
its cost position.