Irrespective of popularity of strategic alliances, very many studies have pointed that they often fail. The failure rates have been ranging from 50% to 70%. It is not merely dissolution which causes concern, but dissolution damages reputation and brings in many operational problems and disagreements for both the partners.
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Examples of Danone with Wadias over the use of Tiger brand biscuits and With Wahaha Group in China are widely discussed. The important point here is as to why do strategic alliances fail? The possible reasons may be:
i. In the Pre:
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Takeoff period, the government approvals may be a problem. In the case of Bharti Airtel (India) – MTN (South Africa), international alliance effort died down even before takeoff because South African government was hell bound for dual listing of companies and government of India could not allow DLC as its existing laws did not permit it.
ii. Cross:
Cultural Differences -Cross-cultural values, if different, may cause misunderstanding between the partners. Cultures, which are vastly different, lead to greater difficulty in their interactions. The elements of national culture as given by Hofstede, viz., power distance, uncertainty avoidance, individualism, and masculinity may be different in different cultures and these differences make the cultures vary from each other.
It is not only national culture but organisational culture too makes the interactions and integration difficult. It is often difficult to run a joint venture with a family-run firm. The family-run firm often objects to adopt the partner’s management processes calling them unnecessary.
iii. Competitive Rivalry Never Dies Down:
Competitive rivalry cannot be completely eradicated. Although firms join together to overcome competition, but rivalry among them never dies down and this can be a destabilizing factor over time. Partners remain together as long as they do not overcome their own deficiencies, like know-how etc.
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Once they master over them, they contribute lesser than earlier and think of parting ways. In India, many of the MNCs have turned their erstwhile joint ventures into subsidiaries over time. What were the reasons to come together now become the reasons to destabilize the alliance. Three important points worth noting are:
a. If the alliance is between the direct competitors then the alliance would be more vulnerable than between indirect competitors, particularly competing in the same market. This is so because the goals of the two companies are likely to conflict. The case of Bajaj Auto and Piaggio of Italy and Wadias (Britannia) of India and Danone of France are pointers towards this logic.
b. If there is complementary between the partners there will be better chances of continuing, but lesser the complementarity more the vulnerability.
c. Joint ventures which exchange of technological know-how are more vulnerable compared with non-technological ventures.
iv. Exchange of technological know:
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How makes partnerships more vulnerable and may also be one of the reasons of dissolution of joint ventures. Dissimilarities in organisational structures and processes between the partners create problems in coordination, mutual understanding, and collaboration. Three kinds of situations creating problems are –
a. Dissimilarities in Breadth and Scope of management and organisation
b. Size of Organisation
c. Organisational Age