Alliances between global rivals and host-country factors – Article Review

Review of the Article

The article by Tieying, Mohan & Albert, (2013), looks at the relationship which exists between the intensity of competition and the possibility of two rival firms forming a business alliance. The article main aim is to establish that the intensity of global competition and the host country context may lead to the firm becoming partners in any of their host countries. The research questions are “does the host country contextual factors and matters drive MNE to form alliance? And does global competition intensity drive MNE to form alliances?” The local competitive context in which the two rivals are in determines the decision to partner. The authors conclude that the host country context and intensity of global competition are vital in forming alliances between rivals.  The authors also prove that competition and cooperation are two separate constructs in firms with a complex relationship (Tieying, Mohan & Albert, 2013).

Discussion

The article offers significant insight into the international business. For the rival firms to form any type of alliance, the determinants are the level of global competition and the host country contextual factors.  Global competitive intensity is positively related to competing firms forming alliances. When the global competition intensity is high, there are high chances of alliances between rival companies. This is moderated by the host country contextual factors. By relating to the international business theory, the host country contextual factors can either be in favor or against alliance formation. One of the international businesses theories that support this view is national competitive advantage of industries. The theory looks at the four aspects hence it’s referred to as diamond theory. The country context is related to factors endowment, domestic demand, firm strategy structure and rivalry and the supporting industries in the country. According to the article, the host country context relates to competition intensity, restrictions in place, relative cultural distance and the attached mutual importance of the host country by the firms. This correlates with the diamond theory in business expansion. The two competing rival firms will only form an alliance in the host country if the country enables them to increase their market power and profitability. If the host country is favorable, the firms have the ability to have access to complementary resources (Li & Rugman, 2008).

Government restrictions have a negative impact on the relationship between rival firms global competitive intensity and chances of them forming an alliance in the host country.  Restrictions may be due to protection of the host country industries. This is supported by the Mercantilism theory. The government may have restrictions which favors domestic firms making it hard for foreign firm to establish themselves there. This has been carried out in present business world through protectionism. Each country has a unique regulatory system. There are also matters of the level of competition that is exhibited in the host country. If there is intense competition, the foreign firm may opt to form an alliance (Darity & Davis, 2005).

The importance of the host country to firm also plays a part in determining the alliance formation. The firms look at their position in the host country and decide whether to compete or cooperate.  Firm may opt not to form an alliance if they feel that the host country is an important market for them. If failure to form alliance may lead to market erosion, the company may be forced to cooperate to avoid loss of an opportunity (Ghemawat, 2007).

Multinational enterprises are more likely to form alliances with global rivals who are closer to the host country culture. This is in a bid to reduce any friction that may occur in relation to culture. Having cultural frictions can further make the alliance more complicated. Through this type of relationship where one firm is close to the host country’s culture, there are mutual benefits. The firms are able to create domestic demand in the host country. This enables them to enjoy competitive advantage according to the diamond theory of international business. The case study has explored rival alliances in the international business arena appropriately through context theory and global competition. It’s important to note that rival alliances occur where then firms perceive they will mutually benefit and reap maximum profits (Asmussen, 2009).

Conclusion and Application

International business theories give an important insight in the international trade. I have learned that for a multinational firm to invest in a host country, they have to understand the international business theory that the country applies. The modern international business theories are very vital in today’s business. The theories determine the country contextual factors and are the foundation to the international trade. The article gives insight into diamond theory which focuses on the attributes of the host country. The four aspects of the diamond are related to the host country context. Through international business theories, it is possible to determine the possibility of an alliance.

References

Asmussen, C.G. (2009). Local, Regional, or Global? Quantifying MNE Geographic  Scope.

Journal of International Business Studies, 40, 1192 – 1250.

Darity, W.  & Davis, L.S. 2005. Growth, Trade and Uneven Development. Cambridge

Journal of Economics 29(1): 141–70.

Ghemawat, P. (2007).  Redefining Global Strategy: Crossing Borders in a World Where

Differences Still Matter. Harvard: Harvard Business School Press.

Li, J. & Rugman, A.M. (2008). Real Options and The Theory of Foreign Direct Investment.

International Business Review, 16, 687-712.

Tieying Y., Mohan S. & Albert, A. C. (2013), Competing globally, allying locally: Alliances

between global rivals and host-country factors, Journal of International Business Studies, 44, 117–137