As we all understand that alliance is cost effective and most attractive means to enhance performance of partner companies. So lets see through theories how global strategic alliance is strategically important in order to accelerating to mutual benefit. In this paper, we consider four main theories, which contribute to the understanding of the Global strategic alliances.
The transactions cost (Willamson, 1975). approach to strategic alliance is perhaps the most well developed in the area.According to this transaction cost holds an assumption that strategic alliances are formed in order to lower the transaction costs. Transaction costs are those which are incurred in arranging, managing and monitoring transaction across markets such as the cost of negotiation, drawing up contracts, managing the necessary logistics and monitoring accounts receivable (Williamson, 1985). This theory suggests that the ultimate goals of the firms is to choose the most efficient form while opportunistic behaviours exist among parties.
As environments become complex and uncertain, the transaction cost become prohibitive. The transaction cost perspective proves to be useful to analyse cost effect relationship as motives, but it often appears to be useful to analyse cost effect relationship as motives, but it often appears too abstract to capture individual behaviour (Child and Faulkner 1998). The cost of writing and enforcing of contracts is affected by five factors, asset specificity, uncertainity, information asymmetry, frequency of transactions and opportunities (Willamson 1975).Since the internationalisation of activities is an effective means of controlling transaction cost, internal development within the firm will be preferred when the transactions costs of an exchange are high and production costs are low.
By contrast, market exchanges will be preferred when production costs are high and transaction costs are low. Game theory has been used to model the independent decision making in various field, and it’s application especially in economics proves to be useful for understanding co-operative and competitive behaviours.It can also highlight the interdependency aspect of the alliance relationship (Stiles 2001). Game theory suggests that the essence of strategic competition is the interaction among players such that the decisions made by any one player are dependent on actual and anticipated decisions of other players. This concept permits the framing of strategic decisions and offers insight into competition and bargaining.
This system can predict the equilibrium outcomes of competitive situations and the consequences of strategic moves by any one player.The continuing tradeoff between cooperation and competition within alliances has led to their conceptualization as repeated games. The most frequently used game scenario is called “prisoner’s dilemma,” which involves two players who can either cooperate with each other or cheat. Depending on their choice of action, their payoffs will be different.
If two players cooperate with each other, they have a much greater payoff than if they both choose to cheat. If one of them cheats while the other one cooperates, however, then the cheating player receives the highest possible payoff while the cooperative player loses.Consequently, two self-interest maximizing players who are aware of their payoff structure will both cheat although they could be better off cooperating. The reason is because no player would knowingly risk cooperating when the chance exists that the other player would cheat. (Child and Faulkner ,1998). A resource-based view (RBV) (Child and Faulkner ,1998) of the firm suggests that the important determinants of competitive advantage are the resources possessed by the firm, deployed by the manager, and used and further developed by the organization. This view holds that there are key assets that give rise to competitive advantage.
This view conceives the firm as a unique bundle of heterogeneous resources, capabilities, and competencies. These resources and capabilities are the basis on which a firm’s sustainable advantage is built and are the primary determinant of profitability. Establishing a competitive advantage involves formulating and implementing a strategy that recognizes and exploits the unique features of each firm. Firm resources can include tangible resources such as financial and physical resources, intangible resources such as technology, reputation, and culture, and human resources (including specialized skills and knowledge).The basic premise of RBV is that a sound business strategy should be based on firm resources, competences, and capabilities, which yield a competitive advantage over rivals.
Establishing a competitive advantage through the development and deployment of resources and capabilities has become a primary goal for strategy formulation. Prahalad and Hamel called such capabilities “core competences,” which are fundamental to a firm’s performance and strategy and have to make a disproportionate contribution to ultimate customer value or to the efficiency with which that value is delivered and provide a basis for entering new markets.* Organizational learning is defined from a variety of perspectives. In simple terms, however, it refers to “the process by which the organizational knowledge base is developed and shaped” (Shrivastava 1981, p. 15). Alliances facilitate organizational learning and are “relatively enduring interfirm cooperative arrangements, involving flows and linkages that utilize resources and/or governance structures from autonomous organizations, for the joint accomplishment of individual goals linked to the corporate mission of each sponsoring firm” (Parkhe 1993, p.794).
Alliances are vehicles of opportunity: “the formal structure of an alliance creates a laboratory for learning” (Inkpen 1998, p. 224). Alliance partnerships grow over time, and learning occurs throughout the evolutionary process. However, the dynamics of learning and partner interactions continuously change over the course of time. Initial motivating conditions for exploring partnerships generate adaptive learning capacities in firms, and these lead to greater responsive abilities to meet new conditions encountered at each phase (Doz 1996).
Learning capacities accumulated over time permit more efficient and diverse learning as partnerships progress. Partners use various mechanisms to learn individually and mutually as alliances evolve. These include scanning, vicarious means, and a variety of experiential methods, in addition to learning acquired during the birth of the alliance. The following paragraphs give a brief outline of the interactive dynamics inherent in alliance evolution.