An empirical case study of strategic alliances in Malaysia

This study is premised on the assumption that cooperative partnerships or strategic alliances will become the dominant structure for business in future decades (Drucker, 1989). This is evident in the phenomenal growth in the establishment of alliances the world over despite high failure rates. The high failure rate not withstanding, both domestic and international alliances are critically important to firm success (Glaister and Buckley, 1999). Currently, the top 500 global business firms average 60 major strategic alliances each (Dyer et al., 2001). Results also indicate that more than 80% of surveyed top level managers view strategic alliances as a primary growth vehicle and expect alliances to account for 25% of their company's market value by 2005 (Schifrin, 2001). The simultaneous developments that go under the name of globalization make alliances or entente necessary. Entente, the striking of an alliance, is a responsible part of every good strategist's repertoire (Ohmae, 2001). In a world of imperfect options, they are often the fastest, least risky and most profitable way to go global; and properly managed alliances are among the best mechanisms that companies have found to bring strategy to bear on these challenges. Although the use of alliances reduces entry risks, managing these alliances entails difficulties. Moreover, this entry strategy has some peculiarities of its own, especially when there are significant cultural differences between the partners. Under these circumstances, partner selection and initial steps toward managing the new relationship become critical factors for successful entry. At the partnership creation stage, the balance between the contributions each company will bring to the partnership and the difficulties they will face in managing their relationship need to be considered. As the relationship unfolds, social processes gain importance. The level of inter partner trust or 'perceived likelihood of the other not behaving in a self interested manner' (Madhok, 1995, p.120) influences the performance of the partnership (Gill and Butler, 1996). Whilst research in the West has attempted to focus on such failings, few researchers have attempted to understand the state of alliances in developing country contexts and alliance partner selection. Malaysia is a successful developing economy with a distinct institutional environment. This thesis explores (1) the criteria used by Malaysian firms to select their partner, both task related and partner related criteria; (2) the contributions that Malaysian firms and their foreign counterparts bring to the partnership; and (3) management of the inter partner relationship, including the difficulties encountered, how the relationship management varies with the characteristics of the Malaysian partner, and the resulting effects on the process of trust building. The study's results suggest that Malaysia's stable and supportive institutional environment has helped Malaysian firms take a longer term view of alliance partner selection, focusing more on the potential partner's intangible assets along with technological and managerial capabilities rather than merely transaction cost concerns. The study also finds that Malaysian firms, when entering into strategic alliances, do not consider every option, that is, they use filters to reduce the potential choice. Thus the range of possible alliance partners is restricted in many ways, some of these being unconsciously employed. Furthermore, it is clear that, while Malaysian firms consider margins, ratios and percentages, relationships have a pre-eminent role in strategic alliances and that relationships are poised between ends and means to ends. It can therefore be surmised that the overall selection process in Malaysia is fundamentally shaped by the manner in which potential alliance partners are initially identified. Case study evidence from a sample of Malaysian firms seems to bear this out. This study therefore contributes to knowledge about the influence of the institutional environment on alliance partner selection decisions for firms domiciled in developing countries. The study utilized phenomenology as its research paradigm, along with the case study method. These methods were found to be highly relevant for conducting exploratory research into strategic alliances because of the need to generate holistic data and for such data to be interpreted within context. Finally, Malaysia's economic performance to date has been impressive and the outlook for continued high growth rates is good. As Malaysia embarks on the next stage of development, the complementarities between the Malaysian firms and foreign economies will provide even greater opportunities for greater economic integration. The managerial implications for business managers are highlighted. Thus, the formation of strategic alliances to achieve or maintain a competitive advantage and enhance the firm's performance is an important issue warranting further study (Arino, 2001).