Contemporary Issues, Part 4

Question 1: Define what is meant by a strategic alliance. Describe how a strategic alliance differs from a joint venture, and discuss the benefits of international strategic alliances.

Answer 1: A strategic alliance is a form of partnership among two or more companies which seek to build a market advantage over their common competitors while retaining their identities as independent companies. Unlike a joint venture, however, a strategic alliance involves no equity stake or sharing of risks by the participants. Among the benefits accruing to partners in a strategic alliance: (a) These arrangements provide their participants with new access to markets, funding, distribution channels, manufacturing capability, and technical expertise; (b) strategic alliances allow each individual participant to concentrate on those activities in which it has particular expertise; and (c) the sharing of expenses and risk provides each participant with significantly lower exposure to catastrophic loss in the case of difficulties or failure.

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Question 2: Explain what is meant by foreign direct investment and a foreign subsidiary. Describe how these arrangements benefit their participants.

Answer 2: Foreign direct investment (FDI) refers to the practice of buying property and businesses incorporated in foreign countries. And the most common type of FDI is what is known as a foreign subsidiary, in which a domestic company (known as the parent company) directly owns a company in a foreign country (called the subsidiary). In an FDI, the parent company provides direct investment of buildings, machinery, and equipment in the subsidiary, in contrast to what is called a portfolio investment, which is often termed an indirect investment. An FDI can take a number of different forms, from the outright purchase of a foreign firm to the construction of a production facility or participation in a joint venture or strategic alliance with a foreign entity. The parent company gains new markets and marketing channels and often cheaper production facilities, in addition to the technical expertise and skills it gains from the subsidiary. The subsidiary may receive, in addition to the capital invested by the parent company, new technologies and management skills, which can lead to its own economic expansion.

Question 3: Discuss the sociological forces affecting trade in global markets.

Answer 3: First, we may define the study of sociology as including the scientific examination of the cultures which have developed among a discrete and identifiable group of people, often circumscribed by a geographical area such as a country or a tribe, including such structures as values, beliefs, rules, and institutions. In seeking to conduct business operations in foreign countries or in cooperation with foreign cultures, it is crucial for businesses to be aware of these differences in culture in order to effectively maximize their business potential and avoid inadvertently behaving in a manner which might be considered insensitive or offensive to another culture. Language is a very important consideration, as literal translations of common phrases can often translate into silly, nonsensical, or even offensive formulations in another language. Religion is another one of the cultural factors which must be taken into consideration when doing business with a foreign country, and many examples can be found where even very enlightened companies have committed cultural gaffes which have proved injurious to their business operations in foreign countries.

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