254 Part 2: Strategic Actions: Strategy Formulation
manufacturing plants in 2008. The Chinese state-owned tobacco monopoly, as part of
the agreement, also receives PMI’s help through a joint venture in distributing its own
brands in select foreign markets. The Chinese cigarettes have also been distributed in
other countries such as the Czech Republic and Poland.^75
Another potential benefit of licensing as an entry mode is the possibility of earning
greater returns from product innovations by selling the firm’s innovations in interna-
tional markets as well as in the domestic market.^76 Firms can obtain a larger market for
their innovative new products, which helps them to pay off the R&D costs to develop
them and to earn a faster return on the innovations than if they only sell them in
domestic markets. This is done with little risk and without additional investment costs.
Licensing also has disadvantages. For example, after a firm licenses its product or
brand to another party, it has little control over selling and distribution. Developing
licensing agreements that protect the interests of both parties, while supporting the rela-
tionship embedded within an agreement, helps prevent this potential disadvantage.^77 In
addition, licensing provides the least potential returns because returns must be shared
between the licensor and the licensee. Another disadvantage is that the international
firm may learn the technology of the party with whom it formed an agreement and then
produce and sell a similar competitive product after the licensing agreement expires.
In a classic example, Komatsu first licensed much of its technology from International
Harvester, Bucyrus-Erie, and Cummins Engine to compete against Caterpillar in the
earthmoving equipment business. Komatsu then dropped these licenses and developed
its own products using the technology it gained from the U.S. companies.^78 Because
of potential disadvantages, the parties to a licensing arrangement should finalize an
agreement only after they are convinced that both parties’ best interests are protected.8-4c Strategic Alliances
Increasingly popular as an entry mode among firms using international strategies,^79
a strategic alliance finds a firm collaborating with another company in a different
setting in order to enter one or more international markets.^80 Firms share the risks and
the resources required to enter international markets when using strategic alliances.^81
Moreover, because partners bring their unique resources together for the purpose of
working collaboratively, strategic alliances can facilitate developing new capabilities
and possibly core competencies that may contribute to the firm’s strategic competitive-
ness.^82 Indeed, developing and learning how to use new capabilities and/or competencies
(particularly those related to technology) is often a key purpose for which firms use stra-
tegic alliances as an entry mode.^83 Firms should be aware that establishing trust between
partners is critical for developing and managing technology-based capabilities while
using strategic alliances.^84
French-based Limagrain is the fourth largest seed company in the world through its
subsidiary Vilmorin & Cie. An international agricultural cooperative group specializing
in field seeds, vegetable seeds, and cereal products, part of Limagrain’s strategy calls for it
to continue to enter and compete in additional international markets. Limagrain is using
strategic alliances as an entry mode. In 2011, the firm formed a strategic alliance with the
Brazilian seed company Sementes Guerra in Brazil. The joint venture is named Limagrain
Guerra do Brasil. Corn is the focus of the joint venture between these companies. Guerra
is a family-owned company engaged in seed research; the production of corn, wheat, and
soybeans; and the distribution of those products to farmers in Brazil and neighboring
countries. Limagrain also had an earlier, successful joint venture with KWS in the United
States. This venture, called AgReliant Genetics, focused primarily on corn and soybeans.^85
Not all alliances formed for the purpose of entering international markets are
successful.^86 Incompatible partners and conflict between the partners are primary reasons