Brief about Strategic Alliance failure

1. Doctorate of Business Administration (DBA)
Intake 3
Strategic Management
Strategic Alliance Failure
Prepared by: Supervisor:
Walid Saafan Prof. Dr. Adel M. Zayed
Aug., 2015

2. Strategic Management
Strategic Alliance Failure Page: 1 / 4
Walid Saafan – Aug., 2015
Contents
1 Introduction...........................................................................................................2
2 Analysis of the factors causing strategic alliance failure ........................................2
2.1 Redefinition of strategic alliance failure ..........................................................2
2.2 Nature of strategic alliance: Quasi-market or Quasi-hierarchy ........................2
2.3 Market-related factors causing strategic alliance failure .................................3
2.4 Hierarchy-related factors causing strategic alliance failure..............................3
2.5 External environment factors causing strategic alliance failure .......................4
3 References.............................................................................................................4

3. Strategic Management
Strategic Alliance Failure Page: 2 / 4
Walid Saafan – Aug., 2015
1 Introduction
Strategic alliances is increasing over time. The number of strategic alliances worldwide
exceeded 102 thousand cases by end of year 2000. On average each enterprise of the
top worldwide 500 has 60 major alliance that include many failure cases that derived
researchers to study that failed cases to learn the causes and provide
recommendations for successful future strategic alliance agreements.
The following table summarize the research findings for the failure rates of strategic
alliances:
Author (year) Sample size Failure rate
Tomhnson (1970) 70 50%
Frako (1971) 1100 24.1%
Killing (1983) 36 30%
Poter (1987) 300 50.3%
Beamish (1987) 66 45%
Kogut (1988) 149 46.3%
Hamgan (1988) 895 54.8%
Park&Russo (1996) 204 67.5%
2 Analysis of the factors causing strategic alliance failure
2.1 Redefinition of strategic alliance failure
Termination of Strategic Alliance does not mean failure. The termination is a valid exit
mechanism, the beginning of alliance should foretells dissolution.
Researchers consider the termination of strategic alliance as a result of failure, but
Alliances are successful when realize their given objectives and in this case the
termination of the Strategic Alliance should not be considered failure but success.
2.2 Nature of strategic alliance: Quasi-market or Quasi-hierarchy
Strategic alliances can hardly avoid inter-firm competitiveness, unsymmetrical
information and complexities of management inside the organization. Therefore,
characteristics about market and hierarchy factors can be responsible for alliance’s
failure.

4. Strategic Management
Strategic Alliance Failure Page: 3 / 4
Walid Saafan – Aug., 2015
2.3 Market-related factors causing strategic alliance failure
1. Inside competition of the alliance partners, that will motivate the partners to
pursue private interests at the expense of the other partner.
2. Contract Incompleteness, contracts are serving as cooperative foundation.
Incomplete contracts can probably promote opportunistic behavior in partner
enterprises and pose a threat for the existence of the alliance.
3. Unfair exchange of resources and distribution of benefits.
2.4 Hierarchy-related factors causing strategic alliance failure
The hierarchy has structures, cultures and coordination institution, and at the same
time it is influenced by the external environment changes.
The hierarchy-related factors related to these characteristics which causing the
strategic alliance failure are:
1. The alliance strategy is influenced by the strategies of the alliance partners. If
partners cannot reach an agreement with their strategies adjustment, the
alliance will hence face the risk of dissolution.
2. The agency problems in the alliance, Underlying causes for such problem is the
different objectives and attitudes towards risks held by parent enterprise and
alliance managers.
3. Equity alliance and non-equity alliance governance structure. Due to the high
rate of exit barrier and the great risk of tacit knowledge transferring to the
partner in the equity alliance, more and more firms tend to adopt more loosely-
organized non-equity alliance.
4. The alliance culture and institution, Managers and staff in the alliance are usually
from different parent companies. Cooperation between companies with
different cultures may be accompanied by serious conflicts and frictions, which,
in some extreme cases, may cause difficulties in mutual communication and
even crisis in mutual trust and eventually, failure of the alliance.
5. Internal communicative mechanism of strategic alliances, communication may
help partners get to know whether the other side obeys the contract and
whether it has opportunistic behaviors, which enhance sense of trust between
each other. Communication also helps to eliminate cultural differences,
misunderstandings and conflicts within the alliance, harmonize strategic
objectives between enterprises and ensure a healthy growth of the alliance.
Alliances lacking in communication will surely set foot on a way of dissolution

5. Strategic Management
Strategic Alliance Failure Page: 4 / 4
Walid Saafan – Aug., 2015
2.5 External environment factors causing strategic alliance failure
Failure of alliances is also influenced by changes and uncertainties of the outside
environment, which are external factors causing the failure. Such environmental
factors include changes of economic environment, such as decrease of raw material
supply and market demand; technological environment, like technological progress
and innovation and institutional environment, like interference from the government
and establishment of anti-monopoly law.
3 References
“Analyses of Strategic Alliance Failure: A Dynamic Model”, Hao Sheng-yue, Ren Xu,
School of Economics and Management, Beijing Jiaotong University.