Cross-Border Alliances: A Study of Types, Success, and Challenges

This report provides a comprehensive analysis of cross-border alliances (CBAs), exploring their various types, including International Joint Ventures (IJVs) and International Mergers and Acquisitions (IM&A). It examines the benefits of CBAs, such as expanded customer bases and increased profitability, while also addressing the challenges involved, particularly in managing cultural diversity. The report uses the Harley Davidson Netherlands case as a practical example, illustrating the advantages and complexities of CBAs. It also discusses different approaches to managing CBAs, such as portfolio, blending, and new creation, and emphasizes the importance of understanding and respecting cultural differences to foster synergy between partners. The report concludes by highlighting key success components for effective cross-border alliances and provides valuable insights for organizations seeking to expand their businesses globally through strategic partnerships.

Cross – Border Alliances and the Success Components
Student Name:
Student ID:
University:
Date:
1

Executive Summary
In this age of high competition and innovation it is common for organizations to
create new business opportunities for themselves using cross border alliances. The benefit of
cross border alliance is in terms of the customer base of the partners involved in the alliance.
Post the association of the partners it opens up new opportunities for the joint organization
not only in terms of individual customer bases but also in cross selling thus making a highly
profitable organization. This report tries to study and highlight the various types of cross
border alliances and the challenges often faced during this activity.
The merits and demerits of the various cross border alliances like International Joint
Ventures (IJV) and International mergers and acquisitions (IM & A) are discussed in detail in
this report. Harley Davidson Netherlands has been selected as a use case to explain how cross
border alliance can be beneficial to both the partners. The use case also tries to highlight what
are the challenges that are involved in making teams blend with each other.
The managerial issues faced by the partner companies of the cross border alliance are
being highlighted with effective tools and techniques to identify and grow synergies amongst
the partner companies are explained. It is important to respect each other’s nationality,
religion, culture etc., hence techniques such as studying and researching the work cultures/
company cultures and devising a common company culture that suits both the partners in an
optimal way is explained as a part of this report.
2

Contents
Executive Summary...............................................................................................................................2
1. Introduction...................................................................................................................................4
2. Detailed Discussion on Concept of Cross – Border Alliances.......................................................5
2.1 Types of CBAs............................................................................................................................5
2.2 Approaches to Manage the Cross – Border Alliances (CBAs).....................................................6
2.3 Success Components of Cross – Border Alliances.......................................................................8
3. Conclusion...................................................................................................................................10
4. References...................................................................................................................................11
1. Introduction
3

With the exponential increase in globalization, now – a – days cross – border strategic
alliances have tend to become a significant tool for multi – national companies to use in order
to expand their businesses globally. It is also termed as cross – border mergers and
acquisitions (M&A). In other words, cross – border alliances are implemented by
organizations to effectively maintain as well as strengthen their position in the global market
place. Also, the cross – border alliances help organizations to effectively improve the
performance of their company by focusing on cost cutting or by considering a premium
position. Also, another reason for organizations to choose cross – border alliances is to
redirect the company as well as reinvent the existing business model. There are many failed
cross – border alliances because organizations fail to analyze systematically as to what the
organization is acquiring and what are the expected after effects of the merger and
acquisitions (Harvard business review on strategic alliances, 2003). There are three main
factors that are mainly considered by every organization opting for cross – border alliance
and they are defined as follows:
 Will the cross – border alliance be helpful for the organization to implement premium
prices?
 Will the cross – border alliance be helpful for the company to change or modify the
growth trajectory?
 Will be alliance be useful to lower the cost for organization by leveraging assets?
The typical cross – border alliances involves two or more organizations operating in
different locations and signs an agreement / contract to co – operate and work as partners in a
specific domain that will benefit the involved organizations (Lévesque and Murray, 2010). In
other words, the cross – border mergers and acquisitions or alliances are defined as the
partnerships that exist between two or more global organizations and aim to pursue mutual
benefits and interests by sharing the capabilities and resources. Majority of the time, the cross
– border alliances are considered to be very efficient and relatively fast way to expand their
businesses into new markets and implement latest trends and technologies. Now – a – days
the cross – border alliances have become a very common approach for organizations to
compete globally and expand their business verticals by signing deals that leads to cross –
border alliances. The CBAs (Cross – border alliances) are differently applicable for different
industries, for example, in the insurance domain, CBAs provide an effective means to shift to
new global markets. But, whereas in software technology industry, cross – border alliances
help in new product development as the alliance deal with global firms help them in the
4

process of manufacturing as well as distribution of software products (Owen and Yawson,
2011).
2. Detailed Discussion on Concept of Cross – Border Alliances
2.1 Types of CBAs
When considering the cross – border alliances for the implementation of business
strategies, organizations have various options. Limited partnerships and licensing agreements
represent the complex and least intense form of cross – border alliance. These elements are
basically governed via legal agreements and most often they need slight change or adjustment
in the regular processes and operations involved in the organizations. Cross – border alliances
(CBAs) of more complex forms include international mergers, international acquisitions and
international joint ventures (IJVs). These types of cross – border alliances have certain
interdependencies which cannot be handled only through legal agreements (Butler, 2007).
The organizations involved in complex forms of CBAs should learn to handle their processes
and operations in ways that take into consideration of differences as well as similarities
between partners. Also, it is very important to note that cultural plays a very important role in
cross – border alliances and there are several issues associated with this factor (Demirkan,
2015).
International Joint Ventures (IJVs) – In this type of cross – border alliance, two or
more organizations (parent) from different locations develop a legal entity which is exposed
to joint control of the two parent organizations. The newly established entity is generally
situated outside the actual country of any one of the parent organizations. Considering an
international merger, the two organizations operating in different locations / countries agree
upon effectively integrating their processes and operations as well as hold the responsibility
of sharing the control of the newly developed organization. Basically, in both the
international mergers and international joint ventures (IJVs), there is establishment of new
identity for the newly established legal entity (Harvard business review on strategic alliances,
2003). The best example for international joint venture is the Davidson – Harley BV which
created an equal share partnership. The main purpose of forming the IJV was to supply the
required amount of instrument panels to the Ford Company that was into the development of
world car concept. This cross – border alliance helped Harley Automative Company (in UK)
to meet all the requirements of Ford Company for its suppliers and helped the Davidson –
5

Textron (in US) to expand its business in Europe. This example of cross – border alliance has
been considered one of the successful partnerships in the history of automotive industries
(Harvard business review on strategic alliances, 2003).
IM and As – This stands for International Mergers and Acquisitions and in this type
of cross – border alliance, the organization that is headquartered in one country gets complete
control of the organization that is headquartered in different country. In the acquisition case,
the organization that is acquired ceases its existence as a legal organization or entity and the
organization which has acquired it takes complete control over its identity and operations
(Klaas Jagersma, 2005). Most of the acquisitions are smooth and friendly and enter into
bidding process voluntarily. But, there are certain instances where the organization becomes
the target of takeover strategy. The takeover acquisitions are generally observed when a bid
of unsolicited type is made for the firm that is giving poor performance. Though acquisitions,
takeovers and mergers are different processes, but in general all the three concepts involve
combing the processes as well as operations of the two organizations as mergers and
acquisitions (Lévesque and Murray, 2010).
2.2 Approaches to Manage the Cross – Border Alliances (CBAs)
There are several specific conditions present in a cross – border alliance which figure
out the limitations or challenges of effectively handling the cultural diversity which are meant
to be faced by alliance members. For instance, the number of entities as well as the number of
countries involved could be only two, if two domestic or local firms from two different
countries enter into an acquisition or a merger deal. On the other hand, the diversity can be
higher if either the firm involved in an acquisition or the merger has global processes and
operations, or if one of the companies has recently got into other acquisitions or mergers
(Meijerink, 2014).
Considering an international joint venture, there have to be minimum three firms
involved in the cross – border alliance, where two parents and the new venture are situated in
at least two different countries. In a complex scenario, the new joint venture is situated in a
third country and the circumstance where more than two parent organizations plan to
collaborate to give rise to a joint venture, then there are several challenges of handling
cultural diversity (Arieli, 2008). Now, considering the cross – border alliance of Harley –
Davidson, three different countries and three firms were involved – in the United States
6

Davidson – Textron was located, in the United Kingdom there was Harley and in the
Netherlands there was venture of Harley – Davidson (Owen and Yawson, 2011).
Irrespective of the number of countries and the companies involved in the cross –
border alliance, the approach of general management applied in cross – border alliances can
be segregated to fit into one of the four approaches. These four approaches effectively reflect
on the several ways to manage the cultural diversity that exists in any kind of cross – border
alliance (Owen and Yawson, 2011). Figure – 1 shows the four different approaches to
manage the cultural diversity in cross – border alliances and they are – portfolio, new
creation, blending and absorption.
Figure – 1 Effective approaches to manage the cultural diversity in cross – border alliances
 Portfolio Approach – In this type of approach, the managers in firms are involved in
the cross – border alliance and who retain a great autonomy deal. Though the cross –
border alliance develops economic and legal interdependencies, the management at
the top – level assumes that the firms involved in the alliance will tend to operate
more or less in the same way as they used to operate before the formation of the cross
– border alliance. In the portfolio approach, the cross – border alliance’s strategic
value does not require the integration of different organizational systems, and thus the
cultural diversity is effectively handled by maintaining the separated organizations
(Qiu, 2010). This type of scenario is often encountered when one organization
7

acquires another with the aim to diversify into another region or another business and
then let the acquired firm to function as an autonomous subsidiary relatively.
 Blending Approach – This type of approach is applicable when the managers at top –
level expect the organizations (two or more) involved in the cross – border alliance to
merge or come together into an entirely new organization which retains the best
aspects of partners of alliance. This approach or scenario intends to effectively
manage the cultural diversity via integration, with parties of each culture getting
adapted to the culture of other party. This approach can be applied in a merger or a
joint venture or an acquisition. This approach is mainly used in mergers and
acquisitions which occur in an industry between organizations that complement
strengths of each other and manage to offset the weaknesses of each other (Xia,
2011).
 New Creation Approach – This scenario is encountered when the alliance partners
agree to establish a new firm that is entirely different from each of the original firms.
This approach is mainly applicable for joint ventures, especially when the new joint
venture is situated in another country other than the countries of the parent
organizations. Also, it is possible to initiate the mergers for the purpose of
establishing a new firm, although it is not very common. A significant indication that
merger is tending to establish a new creation is that the new firm gets an entirely new
name (Stroup, 2016).
 Absorption Approach – Lastly in some alliances of acquisition type, the buyer intends
to get complete control over the target firm. The firm that is targeted here can be very
attractive for the buyer company because of certain valuable assets and also due to
certain business reasons, the target firm is not able to operate on its own. In such a
circumstance, it is expected that the target firm will not have its own identity and
adopt the practices of management of acquiring firm. In other words, it is expected
that the acquired firm effectively assimilate into the acquirer firm (Stroup, 2016).
2.3 Success Components of Cross – Border Alliances
Effective structuring the cross – border alliance is a big challenge faced by the
organizations and the organizations which have succeeded in developing effective cross –
border alliance follow the similar patterns in which the alliances are structured. In this section
of the report, the various success components of cross – border alliances have been described
in detail.
8

 Developing a collaborative type of business plan with the prospective organization
partners in order to establish enthusiasm before the negotiation of issues related to
ownership, management control as well as the financial contributions. Rather than
considering it to be a separate task, the structure of the alliance must be an effective
end product of developing a business plan in detail. Commitment at the top – level is
very important to overcome the hurdles of tough negotiation as the alliance deal
reaches the closure stage (Li, Wei and Liu, 2010). Considering the negotiations faced
by cross – border alliances, which can last up to 12 months, there are certain chances
that the partners tend to fail to reach an agreement, and in that case, the back – up
strategies must be acquired in parallel with the alliance negotiations.
 The second most important success factor is to construct an alliance firm with strong
capabilities of conflict – management. It is very important for the alliance firms to
build capabilities that are critical for managing problems coming in the early stages
and enabling the alliance between firms to evolve with time. Majority of the cross –
border alliances have been extremely successful in realizing the financial and strategic
alliance objectives, when there was equal division in the ownership. Successful cross
– border alliances have strong boards that are capable of segregating them from the
conflicts that rise between the parents (Sun et al., 2012).
 Yet another successful component of an effective cross – border alliance is that the
strategy must always have an explicit view on whether the aim is to sell or buy
specific position in an alliance for a long period – or to develop a truly independent
business which will evolve individually for the parent firms. Organizations must make
a decision at the outset, if they want to be a seller or the buyer of a specific
partnership and accordingly shape their method to managing and structuring it
accordingly (Arikan and Shenkar, 2013).
 Another factor that leads to success of the cross – border alliance is that the
organizations must understand that majority of the qualities needed from the
managers involved in a cross – border alliance are slightly different from the ones that
are expected in the parent company. It is very important that the managers involved in
the alliance have to be impartial and should be committed to a single brand or a
company. The alliance managers must be capable of carrying out things with high
pressure and also tolerate top management pressure. Thus, it is quite clear that the
managers role in cross – border alliance must require greater sensitivity. The
9

managers must be very clear about the cultural variances and the diverse objectives
(Lee, Lee and Lee, 2013).
3. Conclusion
It is quite common to have cross border alliances in today’s global organizations to
stay in business and face cut throat competition. The difficult stage during this cross border
alliances is to have absolute understanding and agreement on goals and roles of each party
involved in the cross border alliance. If this understanding is not clear among the partners
then it causes severe misunderstanding which can end up in not achieving the intended goals.
It is a very common practice in mergers and acquisitions to try and start build synergies
between the teams of partners involved in the cross border alliance after signing the deal, but
survey data suggests that it is much better and effective to plan and check feasibility of the
how both teams can work together before signing the deal. Both the partners can agree on
what the market trend is and agree upon a plan to leverage that market trend. It is extremely
important to have clear specific goals for each of the partners. Although this might not be a
cause of conflict amongst the partners, it is better to have specific goals so that both the
partners are accountable and they can make the cross border alliance a profitable success.
The success rate of the cross border alliance has increased over the years. According
to a report from Boston consulting group the best thousand firms make 12% of their income
from new cross border alliances. From a managerial point of view cross border alliances are
not the most ideal situations. But companies need to adapt to new techniques such as cross
border alliance to stay relevant in the industry. To make the alliance successful it is very
important to ensure that each of the partner respect each other’s national and working
cultures. It is important to understand the value of effective communication in which the
synergies amongst the teams need to be identified and strengthened upon before deciding
share amongst partners. Following these guidelines will ensure successful and fruitful cross
border alliance thus helping achieve the collective goal of botht the partners involved in the
cross border alliance.
10

4. References
Arieli, T. (2008). Cross-Border Enterprises in Conflict Management: An Evaluation of Israel-
Palestinian Cross-Border Interaction Opportunities of 1998-2000. SSRN Electronic
Journal.
Arikan, I. and Shenkar, O. (2013). National Animosity and Cross-Border Alliances. Academy
of Management Journal, 56(6), pp.1516-1544.
Becchetti, L. and Kobeissi, N. (2009). Role of Governance and Institutional Environment in
Affecting Cross Border M&As, Alliances and Project Financing: Evidence from
Emerging Markets. SSRN Electronic Journal.
Bodnaruk, A., Manconi, A. and Massa, M. (2016). Cross-border alliances and risk
management. Journal of International Economics, 102, pp.22-49.
Butler, C. (2007). Cross-border strategic alliances: co-operation between firms from the
United Arab Emirates and international partners. Strategic Change, 16(7), pp.351-359.
Demirkan, I. (2015). Resource diversity in cross-border joint ventures and performance
implications. International Journal of Strategic Business Alliances, 4(4), p.221.
Harvard business review on strategic alliances. (2003). New York: McGraw-Hill.
Klaas Jagersma, P. (2005). Cross‐border alliances: advice from the executive suite. Journal of
Business Strategy, 26(1), pp.41-50.
Lee, J., Lee, B. and Lee, W. (2013). Country-of-origin fit's effect on consumer product
evaluation in cross-border strategic brand alliance. Journal of Business Research, 66(3),
pp.354-363.
Lévesque, C. and Murray, G. (2010). Trade union cross-border alliances within MNCs:
disentangling union dynamics at the local, national and international levels. Industrial
Relations Journal, 41(4), pp.312-332.
11

Li, Y., Wei, Z. and Liu, Y. (2010). Strategic Orientations, Knowledge Acquisition, and Firm
Performance: The Perspective of the Vendor in Cross-Border Outsourcing. Journal of
Management Studies, 47(8), pp.1457-1482.
Meijerink, S. (2014). Crossing Borders, Creating and Managing Cross-Border Regional
Alliances: Practical Handbook to the Crossing Borders Theory. Journal of Borderlands
Studies, 29(4), pp.525-525.
Owen, S. and Yawson, A. (2011). Information Frictions in Cross-Border Strategic Alliances.
SSRN Electronic Journal.
Qiu, L. (2010). Cross-border mergers and strategic alliances. European Economic Review,
54(6), pp.818-831.
Stroup, C. (2016). International deal experience and cross-border acquisitions. Economic
Inquiry, 55(1), pp.73-97.
Sun, S., Peng, M., Ren, B. and Yan, D. (2012). A comparative ownership advantage
framework for cross-border M&As: The rise of Chinese and Indian MNEs. Journal of
World Business, 47(1), pp.4-16.
Xia, J. (2011). Mutual dependence, partner substitutability, and repeated partnership: the
survival of cross-border alliances. Strategic Management Journal, 32(3), pp.229-253.
12