Literature on international business is rich with acknowledgements and discussion on the positive significance of international strategic alliance. This paper seeks to undertake a detailed and objective analysis of international strategic alliances. In this undertaking, Jamba and Chinadotcom will be used as a model to guide the analysis so as to create a clear picture on the dynamics of the recent international strategic alliances. This will include analysis of the significance of the alliance and the management challenges of the international partnership.
An international strategic alliance is a mutually beneficial long-term agreement and relationship that develops and exists between two or more firms. The agreement and relationship is often founded on common goals and strategic need to achieve critical business plans as the companies remain independent. Such operational strategies are associated with increased return on equity, improved returns on investments, and generally higher rates of success. More companies in the recent years have considered strategic alliances as a competitive approach to market expansion, productivity and profitability. This international business strategy is being considered by the companies that are targeting growth, expansion and entry into new markets.
Background to the Strategic Alliance
Jamba and Chinadoctom are two companies that produce and distribute wireless products especially the wireless applications that are developed in-house. The strategic alliance between these two companies was considered as a strategy for market expansion. Both sides of the alliance considered the alliance as an opportunity to spread out operations. At the time of the partnership, the two companies were targeting expansion of product distribution platform. This targeted majorly expansion to Europe and the United States.
At the time of this strategic agreement, Jamba which is a European entertainment provider had intentions to expand its market to begin providing mobile data services in the markets in the Greater China. In order to achieve this goal cost effectively, Jamba capitalized on the presence of Chinadotcom in Hong Kong, the mainland and Taiwan. This alliance thus targeted majorly penetration into the new markets that already had key players. Nonetheless, the management of both companies already devised strategies for a soft landing with their products and services into the new markets.
The strategic alliance between Jamba’s technology platform and Chinadotcom’smobile application software development strength was considered a boost to product and services of both companies. For example, Jamba Inc. develops and distributes wallpaper programs for the mobile handsets, the single and Java-based wireless games, ringtones that are polyphonic as well as multimedia messaging technologies for the clients in Europe and the United States. The two companies considered the strategic alliances as a scheme or plot to dominate the new markets in Europe and United States.
Outcomes of Jamba Inc and Chinadotcom Strategic Alliance
The establishment of the strategic alliance between Jamba and Chinadotcom was informed by the general reasons that persuade managements to venture into such agreements. Primary to the reasons for the alliance was the common goal that both the companies needed especially in order to reach out to the new product markets in the Europe and U.S. Both the companies considered the alliance as an opportunity to share the cost involved in research and development of the products and services that meet the demands of the new markets. Promotion and pursuit in marketing of new products in the new market in Europe and US was generally considered to be cost effective rather than if Jamba was to penetrate the new market independently.
With globalization, competition in the business landscape is generally very stiff. Self –sufficiency is thus a great challenge to many businesses. Therefore, in an international business environment, companies and organizations prefer establishing strategic alliances. This was one of the prime targets of the management of both Chinadotcom and Jamba, Inc. The two companies sought to reach out to the new markets through product diversification strategy. In most cases this is not possible with a single entity.
Nonetheless, the strategic alliance between Chinadotcom and Jamba helped in achieving this goal and outcome targets. Tallman postulates that experience plays a key role in determining the outcomes of strategic alliances and foreign market penetration. Jamba Inc, a European wireless entertainments provider, exploited the experience and operation of Chinadotcom to expand its market to Hong Kong. This experience of the alliance partners often helps in reducing the time taken by the focal company to adapt to the new trade laws, policies and market orientation. In the case of Jamba and Chinadotcom, the experience helped in accumulation of knowledge that was useful in the mitigation of any hurdles that a business might encounter in a new business environment.
In discussing outcomes of strategic alliance, the experience that the two allying companies have with each other must be factored in. Jamba Inc and Chinadotcom had prior business partnerships especially because of the manner in which their line products and services were interrelated. Jamba capitalized on this relationship which generally informed Jamba Company of the capabilities of Chinadotcom in the new alliance. This helped to build the trust of the two firms in one another thus leading to successful market penetration.
Among the key outcomes of the strategic alliance between Chinadotcom and Jamba was the improvement in the product distribution channels in the Taiwan and Hong Kong markets. Just within two years after sealing the alliance and launching operations in US, Jamba and Chinadotcom expanded to become better players in distribution of mobile applications and software products and services. The return on investment for the products launched in Europe for example was amazing to consider. The companies pooled their resources and gained economies of scale in the European and wider Asian markets. Further, the cost of research and development, transport and communication, manufacturing, and distribution tremendously declined as a result of the alliance.
The Costs and Risks of International Strategic Alliance
In analyzing the development of strategic alliances, the cost and risk implications must be explored. The alliance between Chinadotcom and Jamba had risk implications especially because the two firms were not financial equals. Jamba Inc was more financially stable than its partner Chinadotcom. This implied that in the alliance and establishment of the Hong Kong market operations, Chinadotcom had to loose part of its operational control in the home market and the new markets that they set to expand to. Control of proprietary information and technology also greatly got affected with the new alliance.
In some cases, international strategic alliances may result into clashing of corporate cultures. This cost was however overcome in the strategic alliance involving Jamba and Chinadotcom. However, the partnership had strategic implications on Chinadotcom. Although return on investment and benefits of economies of scale were realized, Chinadotcom was deprived of future opportunities for expansion in the Taiwan and Hong Kong market. The market was within the first three years dominated by wireless applications and developed multimedia messaging services that were introduced by its ally, Jamba. However, this alliance also boosted Chinadotcom’s opportunity to expand its operations and introduce products in the broad market that was created in Europe and US.
Challenges in the Strategic Alliance between Jamba and Chinadotcom
Cultural and Language Barriers
Chinadotcom and Jamba had little challenges with language and cultural background. Although Jamba Inc generally has a European background while Chinadotcom was predominantly Asian, English became the corporate language for the alliance. The cultural barrier that the two companies struggled with was in interests. Chinadotcom put the interest of its employees ahead of those of its shareholder. On the other hand, Jamba Inc operates to benefit its shareholders. This difference in interests became a struggle at the formative stages of the strategic alliance and caused conflicts in investment and dividend policies of the two companies.
Decision making structures also had to be harmonized since Chinadotcom’s approaches to decision making process was longer as compared to its European-based shareholder Jamba Inc. However, the management of this alliance worked on the flexibility and compatibility of the cultural and language differences. This process took quite sometime implying that before the alliance became operational and effective. This however gave the management opportunity to really invest in the establishment of supportive operational structures.
Unclear Goals and Objectives
At the preliminary stages of the international strategic alliance between Jamba and Chinadotcom, the main objective was expansion to the Hong Kong and Taiwan as target markets of operation. However, Chinadotcom considered the alliance as an opportunity to gain from the financial strength of its shareholder and use this to champion its own interest including reaching out to the European and US markets. This difference in objectives became a contention between the two companies from the onset of the arrangements for international strategic alliances.
Coordination Problems and Lost Agility
Alliance firms often face stiff competition from the business rivals especially because of the problems that are associated with poor coordination. This became the fate of the alliance between Jamba and Chinadotcom especially in the Taiwan market. The market competitors that operated in mobile data services and mobile applications and software exploited the poor coordination to whisk the consumer attitudes away from the alliance that was already gaining root in Taiwan.
Differences in the Management Styles
Any form of an international strategic alliance requires the allying firms to adapt to a new management style. The failure to build consensus on a new style of management often becomes a barrier running successful alliances. At the onset of the strategic alliance between Jamba and Chinadotcom, the partners had differences in management style that really dragged the effectiveness of the operations of the alliance especially in the new markets.
Within the first two years, a sense of mistrust troubled the alliance. Jamba imposed its financial strength on its partner to sway the market more towards its products and services. At this point there was generally an uneasy relationship between the two allying partners. The management was generally biased and leaned more towards initiatives and strategic plans that favored Jamba products and services and not Chinadotcom especially in the Taiwan market. It appeared as takeover of Chinadotcom by Jamba Inc. Therefore, strategic alliance must take into account the need to have a harmonious management style that promotes the strategic interests of all the allying firms.
Summary and Conclusion
International strategic alliances have evolved to become companies’ strategies for expansion and penetration into new markets. This was the common goal of both Jamba and Chinadotcom. The alliance had the strategic goal of penetrating Taiwan, Hong Kong and US markets. However, strategic alliances come with challenges that the management must be able to address before the benefits of such alliances can be realized. The management must be very committed to the objectives and success of the alliance. The roles and goals of every partner must be clearly drawn from the foundation stages of the alliance. It is important to consider maintenance of mutual and healthy relationships without one firm overshadowing the other to promote its own market interests. Overall, strategic alliances are generally successful with proper planning and selection of partners.