Thursday, January 5, 2012

International Business

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Strategic alliances were partnerships created by Daewoo and General motors, to better pursue their mutual goals by combining their resources. Both companies invested $100 million each, managerial expertise on the day to day running by Daewoo with the managerial and technical advise from General Motors with both managerial and technical advise from General Motors with both companies supplying technology as well as their existing destructive competitive advantages to achieve a mutually rewarding association. These alliances often called co-operative strategies are transitions mechanisms that proper the partner’s strategy forward in a turbulent environment faster than would be possible for each company alone. Alliances may comprise full global partnerships, often joint ventures as seen in this case study, in which these companies will retain their national identity, develop a common long tern strategy aimed at world leadership.


General Motor’s primary motive was to obtain access to inexpensive labour, which would allow General Motors to produce a low cost car for the North American market.


Other motives by General Motors


· To share the costs and risks of research and development of a motor product and processes in the low cost car manufacturing


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· To reduce political risks whilst making in roads into a new market


· To avoid import barriers, bienasing requirements and any other protectionist legislation


· To take advantage of synergies


· Facilitate the transfer of complimentary skills


· Working capital


Daewoo primary motive was to access new technology as well as an entry into the North American onto market


· Facilitate the transfer of complementary skills


· Market development and expansion with growth to the local economy


· Improve on technical and managerial expertise


· Share costs and risks of research and development


· Expand areas of core competency


· To avoid import barriers, hierarchy requirements and other protections legislation


· Joint research and development


· Gain access to quality standards of General Motors


· Organisation learning


· Avoid creating distribution channels as Daewoo could use General Motors


SUMMARY


The different motivations played a role in the dissolution of the alliance but not the primary role. South Korea’s loss of by doubling wage rate after strikes. Cost advantages in addition to the inability to produce a quality car with poor braking and electrical system were major factors on General Motor’s perspective. Although German wages were higher, the productivity rate was also much higher which resulted in lower labour costs whilst in Korea performance level is lower with high wages. From Daewoo’s perspective had more to do with the limited role in the alliance was given by General Motor’s overall global strategy? This also states that the General Motors executions treated Daewoo’s chairman shabbily and arrogantly. General Motors also tried to prohibit ate Daewoo from expanding the market after negotiating to sell 7000 cars in Europe and ultimately agreeing to limit the sale to 000 cars with no further deals. Daewoo also developed a new second vehicle, which General Motors refused to sell in United States.


QUESTION


Did the relative bargaining power of General Motors and Daewoo change over the lifetime of the alliance? If so, do you think this helped contribute to the dissolution of the alliance? How?


In this case study, it can be noted that differing motivations between the parties were clearly an important factor for the failed strategy. The cultural differences, management and marketing styles, were also contributing factors to their down fall. In a highly competitive environment, alliances present a factor and less risky route to globalisation. Many alliances fail or end up in a takeover in which one partner swallows the other. All too often, cross border alliances have differently I collaborating effectively capitally in competitively sensitive areas, creating mistreat and secrecy, which then undermine the purpose of the alliance. The difficulty that they are dealing with is the dual nature of strategic alliance, the benefits of co-operation versus the dangers of introducing new competition through sharing their knowledge and technological skills about their mutual product or the manufacturing process.


Daewoo relative bargaining power-changed whey they could no longer deliver on a low cost basis due to their doubling wages after a strike with their productivity rate note increasing. Added to this high cost, the quality of the vehicles deteriorated which led to the benefit to General Motors decreasing. When Daewoo could no longer deliver these benefits, it did not have much bargaining power to obtain the market access they desired. This also contributed to General Motor’s loss of interest in this alliance.


Daewoo were also loosing interest with General Motors due to the following


· Lack of superior engineering skills not provided by General Motors


· Limiting the sales to 000 cats and refusing any further sales in the US market


· Refusal to market a new second ear developed by Daewoo for United States market.


· Poor marketing efforts by General Motors for Daewoo vehicles


· Failure to agree on expanding the manufacturing facilities of the joint venture


· Culture differences and management conflict.


Daewoo became frustrated with General Motors and when the ultimatum was made, Daewoo decided to end this marriage and by out General Motors.


General Motors was facing international and domestic competition, although no deadline, they had a shorter time together whilst Daewoo had a longer time longer with more bargaining power. The bargaining power between the parties in the strategic alliance is dependant on value of each offer, comparable alternatives and each party’s time horizon.


QUESTION


What recommendations could you make towards General Motors and Daewoo reducing the chances of the alliance dissolving?


· Create a joint alliance strategy before finalising an agreement


· The development of common motivation and objectives of the alliance


· If the objectives of the alliance have its own objectives, separate from the individual partners, these should serve as the basis of continuous operations, which will obviate casting blame on each other for the failures.


· Distribution channels and models operation should be spelt out in the agreement


· When considering the selection of a partnership, the partners must be able to achieve common goals, share in the firms vision and mission for the purpose of the alliance for partly its own ends. Partner selection is critical to success, and requires significant investment in researching the skills and traits of potential partners.


· These firms should structure their alliance so as to avoid unintended transfers of know-how. This can be achieved by walling-off sensitive technologies, by writing contractual safeguards into alliance agreements, by agreeing in advance to engage in reciprocal swaps of technologies know how, and by seeking, credible commitments from alliance partners.


· The key of any alliance working is building trust and informal communication networks between partners including taking proactive steps to learn from alliance partners. The relief that the resulting friendships help build trust facilitate harmonious relations between the two firms.


· Overall strategic alliances tend to have a quite a high failure rate due to unrealistic expectations and conflicts between partners. However, an alliance if domestic terminated it may not have necessary failed, some perfectly acceptable alliance can serve mutual interests for short periods of time where both parties benefit, and end when the benefit no longer exceed the costs.


· General Motors could hence its technology, which may deter Daewoo from developing its own, possibly superior technology, which may be able to establish its technology as the dominant design in the motor industry. In turn, this may ensure a steady steam of royalty payment.


· Sharing of technology, management and technical expertise and understanding cultural difference by both parties. Agreeing to swap valuable skills and technologies


· Effective marketing strategy for the joint venture for expansion initiatives other than the US market viz. European market and Eastern Europe countries


· Total Quality Management programmes with customer market orientated and performance driven initiatives


· Risk assessment monitoring potential economic and social factors should have been conducted by both parties. This objective could have achieved by a due diligence process.


· Evaluate each compound core competencies and capabilities and address difficulties


· Culture strengths and weaknesses (value, beliefs and practises) of both parties should have been undertaken.


· Co-develop opportunities to the needs of the alliance


· Evaluate and adjust the alliance to serve both companies on a ….


· In order for a strategy to work effectively, there must be a good fit between the company’s structure, systems and operating processes


· Performance management system between parties � management by objective


· Lack of worker participation and labour agreements by Daewoo. To strengthen the relationship, Daewoo could have taken advantage by acquiring particular skills from General motors to bolster their firms competitive positions


· In terms of the alliance, more emphasis should be placed on strategic management partnership rather than only focusing on a strategic equity partnership


· Clearly defined roles between the strategic partners


BIBLIOGRAPHY


1. www.transtates.edu/faculty/


. www.allianceanalyst.com


. Bennt Razor International Barnes � Second Edition � Pitman Publishing � 1


4. Hill W.L. Charles � International Business � Third Edition � McGraw = Hill Irvin � 00.


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