Internal Business - Partnership

Essay by nelpilayUniversity, Master's June 2004

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Question: -

For what reasons might MNEs cooperate with each other? What barriers are there to successful cooperation?

'In a complex, uncertain world filled with dangerous opponents, it is best not to go it alone', (Ohmae, 1989). As globalisation leads the world forward, national boundaries diminish and competition increases from less industrialised nations it becomes more and more difficult for firms to maintain their market shares. To define competencies, and to exploit the advantages from combined knowledge is one of many drivers for cooperation between firms.

Firms co-operate in many ways, such as licensing, franchises, turnkey projects, joint ventures, strategic alliances and equity alliances (Daniels & Radebaugh, 2001). This can help firms generate greater revenues, acquire new resources, expand into unknown markets and minimise competitive risk.

Within the context of this essay I shall consider the theories that attempt to explain why cooperation and alliances occur. I shall then look into the methods of cooperation and the barriers that are present to successful agreements.

As the argument develops I shall also look at examples of cooperations that have occurred to give an additional insight into existing and previous alliances.

To begin, Williamson (1975) suggested that firms might choose alternative arrangements that minimise the sum or cost of production and transaction cost. Transaction cost economics was developed by Williamson (1975), and Kogut (1988) states that 'transaction costs refer to the expenses incurred for writing and enforcing contracts, for haggling over terms and contingent claims, for deviating from optimal kinds of investment in order to increase dependence on party or stabilise a relationship, and for administering a transaction', (Kogut, 1988:320). Therefore this theory suggests that alliances are created to obtain a minimum cost relationship. Building apon this, Horaguchi and Toyne (1990) state 'the strategy to form an alliance is not just reactive,