Communities, Alliances, and Networks in Multinational Companies - Research Paper Example

COMMUNITIES, ALLIANCES AND NETWORKS IN MULTINATIONAL COMPANIES: Student Name: Student Id: Lecturer: Course: Assignment: Date of Submission: Table of Contents. Abstract…………………………………………………………………………..2 Introduction………………………………………………………………………2 Technical communities and Global Networks……………….…………………..3 Types of Alliances…………………………………………………………………5 Communities and networks………………………………………………………..6 Environment……………………………………………………………….……..9 Companies Rationale………………………………………………………………11 Methodology………………………………………………………………………11 Case Study ……………………………………………………………………....12 Survey Instruments ……………………………………………………………….14 Comparison of high and low allied companies……………………………………115 Alliance rationale ………………………………………………………………….16 Discussion and Conclusion………………………………………………………...19 Recommendation…………………………………………………………………..20 References ………………………………………………………………………..21 Abstract. Research carried out on major companies in Jordan indicates that cooperative strategies have the capacity to improve the performance by assisting the firms obtain access to the much needed resources, spread the perceived risks across several partners and to enter into the new market segments. Interviews with thirty seven medium size business managers indicate that even small businesses can also have advantage when they get to the cooperative networks. Highly-allied medium businesses seek alliances to access resources. Reports further reveal that highly allied enterprises growth is rapid unlike the less allied companies. Joint decision making and having mutual goals have been identified as the key strategies the success of these ventures. Data from the studies of the fundamental management success points out the importance of inter-organizational networks and alliances in establishing sound fair trade market and how these elements help firms increase their profits. Borrowing from the interviews conducted from the industry, an interpretive analysis can be drawn on the firms’ relationships and networks within the businesses and how they have successful management the fair trade. The major benefits of business networks are three, namely: Competitive developments, Intellectual developments and the ideological developments. a) Competitive developments –allows virtual integration where both investments are flexible on their projects and have the access to expand while positioning in the wider market. b) Intellectual developments- this element offers the opportunity for both parties to share intellectual capital bearing in mind the size and diversity of the network of the firms. c) Ideological developments-there is common interest and goal and like minded persons. Introduction. Being a little person is really hard, big boys who are bully rough you up all the time. Yet these little people have learnt to struggle together as a unit to be best bullies. The question is, why can’t small firms adopt their idea and make it a solution? Small businesses can be thwarted when they try to move forward with a bigger competitor in the markets environments which are price competitive. But only a handful of them have strategized in to the cooperatives to attain strength in within their network of organizations. This could be the case because most of the cooperatives have been presumed to come from very large and multinational organizations and there existed fear of unknown among the small firms to start thinking of getting into alliances and form business networks. The first organizations to break the ice and to bear the risk were (Peridis and D’ Souza) in 2008 then closely followed were (McDougall) in (2006) they clearly proved that alliance can work well for small corporations. Market penetrations and long term relationships between cooperatives have been sampled as ways through which organizations can conduct business relationship and acquire resources. (Williamson 2008). Productivity for many years has been identified as the instrument for national development because of the results it has on the social development and to the economy. It’s a common knowledge that companies that are very productive are associated with creativity, high quality working life, principles of market economics and individual initiative. Communities and networks. Community set ups within the networks is an essential matter in a couple of disciplines and domains. The subject is useful in identifying and solving global technological problems through optimization of wide infrastructures, it creates social relationship among communities and through networks community structure is revealed. Networks within the international integrations looks at the way people live within their network of friends, coworkers, neighbors, relatives in regard to their personal communities. It gives an opportunity to compare various communities of people around the globe. Significant differences between the third , second and first worlds impact on the opportunities and even some insecurity aspects that households and individual persons must handle, the resources they need to support their lives, and the scenario by which they can obtain these resources through network structures , institutions and markets. An ideal global community could be the group of people with same interest and a common goal. Its possible to be a group of people with similar values, it could be a group of people with identical religious or cultural backgrounds, can be persons with strange values; i.e. different religious backgrounds, cultural backgrounds, morals and beliefs. Persons making an international community could be living on various different geographical locations across the world. And with the kind of communication technology that is available today in the 21st century, it’s very simple and much easier to group people in this fashion. It could be two, one or even more villages coming together where they have chosen to unite and create one global village. These two villages may be existing in different locations on the planet. They could be a nation, a city or a town. A global community may be NGOs, a group of Africans, or could be investments in several states in Africa, who have considered coming together and uniting with some other investments or groups in located in Asia, Middle east or anywhere else in the globe. As a unit they are able to grow through and as a global community and be healthy and strong. The global symbiotic relationship existing between or among nations within the global community networks normally has trade and commerce as the key strategy for the relationship and also includes other aspects depending on how the two communities have agreed. The key objective is to have a greater sense of humanity and the interest of groups considered. The relationship formed help in creating a process of peaceful development which is more equitable, more inclusive and a stronger and stable global economy. The criteria of becoming a member of global community is that you can be ; a person, an institution, a business, an NGO, an international organization, city, town or a province, a nation or a state, any of the illustrated groups can form a global community. The establishment of global communities started to exist way back in the early age at the verge of 2rd millennium during the era of new age civilization. The United Arabs Emirates has a kind of relationship that is economically symbiotic. Besides this other modes for establishing the relationships could be social, geographical, business-like, religious, economic, personal and political may be created all over the globe between nations, communities, and even between people themselves. These relationships are commonly symbiotic which implies the interest for group is covered and there is mutual benefit to all the groups at large. They are based on solid principles of the unconditional support for the well being of each group and a honest and genuine group concern this overrides the huge leap in the behavior of human being. The formed charter is to promote values to ensure goals the community are achieved. In order to realize the goals, the international community needs to establish mutual respect, ethics, accountability, responsibility, caring for the other, equity, respect for life and fundamental liberties. Other than the a above discussed modes of global communities, some may base their relationship on issues such the environment, earth rights, justice, peace, women rights and the entire spectrum of possible global relationships. It is for a reason that multinational technical communities have developed as central players in the global economy and simultaneous in the world production networks are on the increase taking places of multinational firms with their stand-alone global business. Ernst and Kim, 2005). Communities of that have immigrants who are skilled and have the technical experience and have connection in other larger markets have strategically positioned them in the market through diversifying their product supplies both at domestic markets and the global markets Transnational communities therefore play a vital and complementary role in the global network strategy. The people who go for overseas studies like in Kuwait are highly skilled and have acquired technical needed in the developing mother countries to facilitate growth in their economy especial in the industrial sectors. .Moreover they enhance the relationships between the suppliers and the network flagships, especially when they are found in areas with diverse business culture and languages. Transnational communities cushion risks for the developing regions when they are in network by giving them access to equity finances at the initial stages of the investment. Examples of multinational firms that have successfully adopted this strategy are; Compeq and Acer which are the leading Taiwan’s Pc supplies obtained their contracts initially from Chinese for IBM-compatible PCs. Types of Alliances Contacts/Joint Programs This is where a formal agreement between or among organizations that operate as a unit in implementation and planning of particular projec(s). In most cases they are commonly used to spread the risks, improve technology, escape duplication of efforts and access resources. Joint Ventures. This is formed from two or more completely different companies join together to form one parent company. It is considered for control, permanency, for resources and when access to the market is hindered. Minority Equity Investment. When an organization is seeking access for some source capital, distribution of the products and customers this is the ideal form of cooperation because the other party does not control the business interests. Licensing Agreements. This is where a patented property rights is transferred from the party that owns the rights to the party that wants to use the property right.(licensee). Its commonly used in the developed markets where old technologies are required, where certain resources are required to manufacture new products or when a company wants to focus on some limited fundamental projects. High Level Alliance Variables. Looking at the number of choices for alliances one thing that is certain is that most of small companies have not considered adopting these forms of business models. The first aim of the study is to compare the features of the companies that are heavily involved in the cooperative alliances and with the companies that do not form alliances and stick to the traditional way of conduction their businesses. And to obtain the variables that are connected with alliance formations. Environment. Alliances occur mostly when there is a rapid change in the technology and during when the obsolescence risk is major.(Garland and Farmer 2005). Because the much needed inter-organization relationship structure is already established through, the channels for communication, learning processes and may be trust, the response to change is fast. These relationships though are very fragile and can be quickly be dissolved when the environment again changes faster than was expected not as in the case of sole ownership and even when the performance of the partner goes down. In a rapidly changing market environment, small companies adhere to network strategy. Company Resources. An organization must have control over some strategic resources such as the technology, property of rights or brand e.g. (Ocean Pacific), networks distributions example (Lewis Galoob Toys), access to information or skills for management that offer some ground for bargaining with the other companies. Small companies should mass enough resources in order to attract possible partners. Research Propositions. The argument from this research suggests that small companies that are severely experiencing environmental threats would consider some form of strategic alliances. Research further proposes that small companies that have an item they have control over in the cooperation would be actively involved in the alliances. An example is when they have a patent that the partner requires yet they control it. Outcomes from Highly Allied Firms. The second part of the research concentrated on the effectiveness of the networks of the small companies. Benefits. The merits of the alliances include access to new market segments and technology.(Osborn and Baughn ( 2006), reduction in the cost of doing business, industry production is streamlined , growth requires less managers, risk is spread across high number of business projects ( Roos and Lorange 2006). Other subsidiary advantages include enhanced processing of information and learning that come as a result of the involvement in the alliances. For example the nightmare of trying to understand a new supplier, policies, procedures and practices are lowered through long term contracts. Alliances formed between competitors always benefit from acquiring new skills and technology. Methodology. Senior managers of multinational companies in Jordan were interviewed by students who are enrolled in Business Management Course in Perth University, Australia. The structured interview format that was used was in form of a questionnaire. Before embarking on the exercise, the students were first trained on the administration of the questionnaire. The mangers were contacted by email and telephone and requested to participate, and the time for the interviews were therefore established. Only a handful of the managers who were contacted declined to be interviewed citing various reasons. Case Study. The sample composed of 125 Jordanian multinational companies. Though the sample appear to have been restricted to one particular geographical location, effects and impacts of external factors were controlled and they include cost of labor, taxes and others. The condition for sampling the companies was:, the company must have been in business operation for at least five years, should have at least 500 staff members, and must have gross sales of $5 Million and over. Out of 125 companies, only 21 showed that they were highly involved in the cooperative alliances. This was obtained by asking the respondents to show on the graph to which level of activities of the company were done by alliances and the 21 companies were found to fall in this category of highly-allied organizations. The sample included five construction firms, three service companies, four distributors and retailers, seven manufacturing companies, two construction and trucking industries. These companies on average had between 500 to 2000 employees with a mean of 856 employees. The companies were averagely 15 years old. Three had been in operation for between 5-10 years; ten have in the business for between 10-20 years, six have been in operation for between 20-50 years and the remaining two have been in the business for between 50-100 years. Survey Instrument. When assessing the degree of change, there was a scale that was been used and it was marked one to five. If any significant change has taken place in the industry, the strategies they have in place and the general market environment. Also asked were the number of new products that have been introduced into the market and the number of new entrants’ i.e. new businesses within their portfolio. Appropriate analysis was deployed the assess how networking would fit within the company’s overall strategy. The first three questions had the competitive strategies for example ‘penetrating new markets by you’ The respondents were asked to what degree they rely on the current option to guarantee success in their company. Results. COMPARISON OF HIGH AND LOW ALLIANCE OF JORDANIAN MULTINATIONAL COMPANIES. High Alliance Means Low Alliance Means t-value Firm Characteristics No of Patents 47 23 2.22* Environmental Characteristics No. of new competitors (5 yrs) 82 26 1.05 No. of new foreign competitors 7 0.08 1.63 No. of industry product changes 1.57 5 -1.64 No. of changes-gen env. 2.5 2.3 0.33 No. of changes industry 3.5 2.4 1.61 Strategies Exporting 1.5 1.8 -1.74 Contracting out 2.5 1.8 1.73 Compete on image 3.9 3.6 0.47 Compete on service 4 4.1 -0.14 Compete on price 2.6 3.4 -1.69 Compete on technology 3.2 4.1 1.42 Compete on quality 4.1 3.2 -0.12 Enter new markets by self 4.3 2.2 2.48 Enters new markets by domestic alliances 1.2 1.7 1.3 Enter new market., by foreign alliances 2.3 2.9 -1.48 Develop new product! by self 3.4 2.4 1.14 Develop new products by domestic alliances 2.3 2.4 -0.82 Develop new products by foreign alliances 1.2 1.4 -0.82 Foreign equity investment 1.3 1.5 -0.61 Domestic equity investment 1.3 1.2 0.25 Changes in Strategy Product, 0.83 0.53 1 Production processes 1 0.65 2.07 Product line 0.94 0.65 1.32 Total strategy change 1.5 0.88 1.4 Planning: and Decision Process Formality strategic planning 1.6 1.5 0.57 Concern with risk assessment 3.1 3.3 0.62 Goal formation 3.4 3.9 -3.87 Selecting distinctive Competencies 3.7 3.1 2.42 Use of resources 3.6 3.8 -0.76 Strategy implementation 3.5 3.3 1.07 *p=0.05 **p=0.01 ***p=0.001 Variables Differentiating High and Low Alliance in Jordanian Companies. Variables differentiating between high and low alliance companies are illustrated in the table below. A Discriminant coefficient that is most significant at 0.001 was formulated. It accurately classified 85 percent of the treatments into low and high alliances. The most significant variances observed were; in the number of property rights (patents) each firm had, price war competition, exports, technology competition, venturing new market segments by self, goal formulation, the sum of changes in strategy and how the factor in distinctive competence in their strategies. Variable Discriminant Coefficient. Number of patents .580 Number of changes in the industry environment .456 Exporting strategy .424 Competes on price .473 Competes on technology .507 Enters new market by self .580 Total strategy changes .548 Goal formation in decision process -1.300 Selecting distinctive competencies .119 The merits of alliances fall mainly in three key areas. 1. To acquire resources of the partner, increase their market sizes and to reduce the capital required for growth. Acquiring technology, scale their economies, access partners skills also had high ratings but all these scenarios can be compounded to propose that the reason as to why they from networks is to acquire resources of the other partner. ALLIANCE RATIANALE OF HIGLY ALLIED COMPANIES. Results. Reasons for using alliances. 1=not important 5=very important mean To obtain technology 3.75 To reduce capital demand for growth 3.85 To obtain partners skill 3.24 To be familiar with the market 3.17 Expand products market 3.30 To obtain low cost production 3.82 Achieve scale economies 2.91 Share risks with partners 3.00 Reduce labor cost 3.72 Counter political restrictions 3.97 Get cheaper raw materials 4.1 Discussion and Conclusion. Data from the results obtained show that forming networks and alliances are effective in business performances and reflect higher returns and growth. Though the profit margins achieved do not get to the expectation levels, managers have a feeling that alliances and business networks are very useful by way of securing capital to be reinvested for long-term growth objective, securing technology and other important market skills. Most of the highly allied investments concentrated their strategy around obtaining raw materials cheaply to develop their products. Companies also form alliance mainly to counter political restrictions because of the nature of the political autonomy practiced by the government of Jordan to not favor most of their business forcing them to seek for alliances with other companies with liberal and democratic governments such as the United States and even some European countries. and improve on it and this gives them leverage of the competitive change and high standards that the market perceives. Though as people would perceive that companies form alliances to acquire economic scale, the study found out the contrary, in fact it comes as the last strategy why Multinational companies would form alliances. Price war competition is has been heavily witnessed in companies that are less allied and this is viewed as a tactic of counterattacking the new products that are being introduced into the market territories. Because of the small number of companies that are highly allied this conclusion can only the tentative. In fact less than 15 per cent of the 125 companies that were interviewed have implemented this strategy hence rendering the statistical technique that was used quite unreliable. I therefore propose further studies and research on much bigger co operations to refine this finding and extend the information. Recommendations. Getting an ideal if not the right partner in strategic networks and alliances is vital as in finding the right partner in marriage. (Ohmac 2007). Though in most cases the key asset parties consider while forming alliances are the resources of the partner, attention should paid on how the company is going to benefit on getting cheap raw materials by either setting up their plants in locations of the source of raw material as this the overall strategy for achieving results and success by reduction the production costs that is normally the critical part of the investment. Due to the political nature of most of the counties surrounding Jordan, they should focus on forming alliances with companies outside this block to counter the risks associated with theses fragile governments. Among strategic elements to look into from your partner are; the styles of management, company’s value, and the general strategy of the partner as this will reduces chances of conflicts within the business alliance. Companies considering getting into alliances must do it cautiously. The study outlined the below as the fundamental strategies in forming alliances and investment networks by the business communities and therefore can be tentatively be used as the standards when businesses are forming alliances and networks. Study the deal critically Partner skills Quick familiarization with the market. Obtaining technology Reducing capital demand Cheap raw material Share risk Political restrictions Expand market Scale economies Reduce labor cost Low cost production References. 1. Weiss, E .and Hughes, (2007), “Simple rules for making alliances work”, Harvard Business Review, 75: 102-137 2. H, Chesbrough.W. (2008), “Why companies should have open business models”, Sloan Management Review, 48: 22-28; 3. H, Chesbrough.W. (2007): Open business models: How to thrive in the new innovation landscape, Boston, MA: Harvard Business School 4. S.C. Wheelwright and Hayes, R.H. (2006). Restoring Our Competitive Edge. New York: 5.John C. Wiley & Sons Publishers 6. Kraar. L. 2005. Your rivals can be your allies. 2nd , ED. 7. Harvard Business Review (February-April) 68:143-164. Read More