Page 106 - Introduction to Business

80 PART 1 The Nature of Contemporary Business

Motors of Korea (Hyundai sells cars in Asia, Europe, and the United States). Ford
has joint ventures with Mazda of Japan, Volvo of Sweden, and Kia of South Korea.
General Motors has joint ventures in South Korea and China. The ultimate objec-
tive of most of these joint ventures is to use joint production and sales distribu-
tion networks to generate increased revenue (also market share) and profits.
Coca-Cola, for example, has 31 bottling plants and two concentrate manufactur-
ing plants with three separate joint venture partners in China alone. With about
$1.1 billion invested in China, Coca-Cola employs some 20,000 workers there and
has been profitable for the past eight years.
strategic alliances Marriages of Although similar to joint ventures in many ways, strategic alliances differ from
convenience between two or more joint ventures in one major characteristic: they involve nonequity arrangements.
firms that do not involve the creation of Strategic alliances do not involve the creation of a separate entity with joint owner-
a separate entity with joint ownership
(nonequity arrangements) and in which ship. They are marriages of convenience between two or more firms that stand to
the firms stand to gain through gain through cooperation with each other for specific reasons and for a given
cooperation with each other for specific period of time. Thus one could consider strategic alliances to be cooperative ven-
purposes and for a given period of time
tures rather than joint ventures.
Since strategic alliances are based on cooperative arrangements, there are
numerous ways that firms from different countries can cooperate to form them. For
example, companies in different parts of the world may cooperate in the field of
biotechnology with one focusing on genetically modified rice and the other focus-
ing on genetically modified corn or wheat. These companies could pool their
research findings to help each other. Similarly, companies could form strategic
alliances in production, where each partner manufactures a specific component in
which it has comparative advantage and later swaps those components with the
other partners (e.g., automobile manufacturers). Firms could also form strategic
alliances in marketing when each alliance partner has a niche market. A good
example is the Star Alliance system (www.star-alliance.com) in the airline industry.
Star Alliance members can code-share flights (e.g., Lufthansa Flight 11 could be
designated as United Flight 2011); this enables each member airline to make reser-
vations on the other’s flight. It helps passengers in a couple of ways. First, passen-
gers traveling between two cities (in different countries) could complete some of
their flight segments using United Airlines and the remaining segments using
Lufthansa Airlines. Although United might not have flights to the final destination,
Lufthansa will. Second, passengers who are members of United’s frequent flyer pro-
gram will receive mileage credit for the Lufthansa segments as well. The same
applies to passengers who are members of Lufthansa’s frequent flyer program.
Members of the Star Alliance stand to gain as well, since they will be able to better
utilize their seating capacity. Strategic alliance in the airline industry is aimed at
maximizing capacity utilization of all flights with the ultimate goal of keeping
member airlines profitable. A challenge facing strategic alliances is the fact that any
member could prematurely quit the alliance, producing a negative impact on some
or all of the other partners. Choosing the right partner with whom to cooperate is a
key to the success of strategic alliances.

Multinational Enterprises

multinational enterprises Firms that Multinational enterprises (MNEs) are firms that have a home base in one country,
have a home base in one country, but but own and control plants (factories) or other businesses overseas. General Elec-
own and control plants (factories) or tric (United States), IBM (United States), Microsoft (United States), Sony (Japan),
other businesses in one or more foreign
countries BMW (Germany), Shell (United Kingdom–Netherlands), and BP (United Kingdom)
are some of the hundreds of large MNEs that are based in one country but own and
operate plants in other countries.

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