Cooperative Strategy Term Paper

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Cooperative Strategy

The criteria for successful Alliances in Emerging Country Economies

Economic shifts and globalization caused by the development of emerging economies and the recent financial crisis have affected various industries. Firms must adapt appropriately to the new standard where time to market is shortened even with their shrinking capital bases and growing global competition. At a period when alliances and partnerships are fundamental, particular emerging economies are subject to become critical partners. This paper seeks to give a theoretical foundation for analyzing the prevalence, the nature, and the location of global strategic alliances of firms in emerging economies. The focus will be on the criteria for alliances in these economies compared to alliances in developed countries. Propositions will be posted with respect to Small Medium Size Enterprises (SMEs).

Emerging economies previously used for contract manufacturing are evolving at a rapid speed. In a number of industries propelled by local government investment and priorities in response to increasing demands and burgeoning populations, emerging economies are poised to be not only lucrative but also essential business alliances to meet the prerequisites of the new global economy (Milner, 2010). Some of these nations cannot only provide developed partners lower cost operations but also infrastructure, skilled human resources, and knowledge for local cultures and regulatory environments. Additionally, these markets present local health problems that require innovative solutions (Peng, 2009).

Firms in developed economies are confronted with a new standard that requires them to reinvent their traditional market strategy and business model. Private and government insurers in developed economies have placed unprecedented pressure on companies as they face mounting healthcare costs, shrinking tax bases and aging population. To survive the challenges, they must respond efficiently to the changes in developed economies by supplying a range of innovative cheap products to providers in developed economies and leverage their successful goods through capturing demand from fast growing emerging economies. Industries along with firms are major players in the business world and now view emerging economies as an opportunity to acquire global competitive advantage through creating innovative precedents in how products are developed, promoted, distributed, and reimbursed.

Selection of a business partner is a crucial decision pertaining to a strategic alliance. With global strategic alliances, emerging market partners are a crucially vital international phenomenon to participate effectively in the new global economy; more research is required and knowledge is still in its infancy. The ultimate goal of this study is to present a picture of companies' alliance activities in emerging economies. This is achieved by focusing selection criteria that firms in developed countries use while choosing their foreign partners comparative to those used for partners in developing nations. This study will offer a baseline for eventual assessment of the evolution of industry alliances in the transition period.

Emerging Markets

While evolving from less economically developed countries and third world countries, the term emerging economies is currently used as a positive label suggesting the uplift, progress, and dynamism of some countries becoming noticed in the global business arena. In this context, the acronym BRIC (Brazil, Russia, India, and China), has regrouped countries that were anticipated to be the future members of economic big league. As more members continued to advance in terms of economic growth, population size, and openness to foreign investment, they joined the BRICs. Countries such as India and China have become two of the largest markets in the region (van, KA, (2008). Consequently, new members have emerged over the years, using quite different criteria. As a result, some countries have been viewed from different perspectives as emerging economies and as developed economies. Some of the countries in this category include China, Colombia, Brazil, Egypt, Hong Kong, Saudi Arabia, Turkey, Thailand, South Africa, Russia, Singapore, Poland, India, and Chile (Faulkner & Tallman, 2010).

In the business world, emerging economies are projected to give fifty percent of global market expansion in the next four years (Chang, 2013). Therefore, they represent highly significant markets for products and services. This is recognized by local governments in the most emerging economies. They support the start-up and expansion of local firms in response to the rapidly growing local needs for products and developing export products (Gupta & Wakayama, 2012).

Local Sectors in Emerging Countries

The expansion of local firms in emerging markets is the result of various factors among them:

I. Reinvestment of revenues obtained from contract research institutions performing trial related activities like developing new products, collecting and analyzing data for companies as service providers (Corbo, Krueger, & Ossa, 2010)

II. Original research carried out by local organizations to discover and develop innovative local goods

III. Government involvement

IV.

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Better physical and legal infrastructures

V. Exploitation of special niches

VI. Integration of local companies into global networks (Khosrowpour, 2009)

All these strategies will be later grouped into four strategies.

Government participation

Of course, governments of a number of emerging markets have recognized and heavily invested in firms and industries as a driving force for economic development and as an approach to fulfill their needs in various angles. For others, the development of industries is a result of policies and national priorities, coupled by public financial incentives for foreign investors such as tax advantages for special economic zones (Dalal-Clayton, Swiderska, Bass, & Aguilar, 2012). They have put massive investments in public research institutions in order to attract multinationals. For instance, the government of Singapore actively the recruitment of product scientists while Indian government accounts for technology transfer firms (Faulkner & Tallman, 2010). Typically, these firms started as outsourcing hubs for production and R&D, especially in generic products. Later, with new players and infrastructures, they developed experienced and qualified human resources. They also encouraged their students to return from Western universities, especially to form star-up ventures. China offers a supportive and stable institutional environment for global strategic alliances, which enables Chinese firms to embrace a longer term view of strategic alliances than is usual (Marinov & Marinova, 2012).

Improved financial, legal and physical infrastructures

Improved quality of work and intellectual property protection are vital in emerging economies if they are to be successful players in the global business arena. In this sense, some larger economies have already initiated important changes as seen in the case of China. Following its adherence to the World Trade Organization, China has consistently improved its intellectual property rights protection. However, it must convince the developed economies of the Western world (Njoroge, 2010). In 2010, the government of China enacted a regulatory firm and since then, it requires all manufacturing organizations to adhere to the international standards in ingredients and manufacturing. Recently, modified legislation demanded that innovation was to be new in both the local and global arena (Kreimer, 2010). As a sign of desire by the U.S. government to enhance the quality of products from China, in 2012, the U.S. product administration announced the launch of its Chinese branch office. Nevertheless, these transformations are not always easy to manage. For example, technology transfer mechanisms and policies are weak and must be restructured in India (Dolfsma, Duysters & Costa, 2009).

Targeting research niches

With improved regulatory bases and infrastructure, emerging markets must move up the value chain through massive financing of research niches to correspond to their traditional strength, to areas left by developed economies of through targeting local needs. Therefore, regions can develop industrial expertise and applications in areas coinciding with their resources (Wezel, 2010). For instance, Brazil's Amazon region has the largest majority of the rare genes in the world. This can develop industries slowly based on their economic potential. In exchange for access to such biodiversity, companies in developed markets ought to transfer technology and share benefits (Dalal-Clayton, Swiderska, Bass, & Aguilar, 2012). China has placed emphasized on traditional products to generic concepts. Other niches include areas where most western markets have been unable to invest due to political and other limitations like socio-cultural barriers. Other developing economies have focused their innovation on local needs. For instance, depending on technology transfer from overseas and combining local efforts and global cooperation on R&D, Vietnam has turned its research into business operations, transforming some scientists into great businesspersons (Miller, 2008).

Integrating into global networks

To support local firms develop R&D capabilities, some government policies have viably supported strategic alliances across borders with both academic and business communities. Such alliances have improved their competitive advantage. In fact, network factors have embedded in the alliances has facilitated diffusion of technology among alliance partners and improved technology capability at the firm level. Moreover, for small firms in emerging economies, forming strategic alliances with foreign multinational firms has become a superior approach for fostering good corporate governance in order to access technological and financial resources, than listing its shares on the stock exchange in Western markets (Faulkner & Tallman, 2010). Such opportunities for entrepreneurial corporations in emerging economies are likely to emerge because of the strategies that governments adopt in order to form a pool of competencies and skilled human resources, to plug into a global business networks. The companies are….....

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