280 Part 2: Strategic Actions: Strategy Formulation
associated with being a successful com-
petitor in today’s business environment
is the fact that SAIC also has a joint ven-
ture with Volkswagen AG. Among other
products, the SAIC-VW joint venture
manufacturers the Tiguan sport-utility
model, which is the number one for-
eign-brand SUV being sold in China.^12
Because it can’t be codified, tacit
knowledge, which is increasingly critical
to firms’ efforts to develop competitive
advantages, is learned through experi-
ences such as those taking place when
people from partner firms work together
in a joint venture.^13 Overall, a joint ven-
ture may be the optimal type of cooper-
ative arrangement when firms need to
combine their resources to create a competi-
tive advantage that is substantially different from any they possess individually and when
the partners intend to compete in highly uncertain environments.
An equity strategic alliance is an alliance in which two or more firms own different
percentages of a company that they have formed by combining some of their resources to
create a competitive advantage. Many foreign direct investments in China by multinational
corporations are completed through equity strategic alliances. For example, Boston Scientific
has formed an alliance with Frankenman Medical Equipment Company, a firm with head-
quarters in Suzhou, China. Boston Scientific will become a shareholder of Frankenman and
will also provide “services and expertise to Frankenman to support its continued growth,
development pipeline, and manufacturing capabilities.” This alliance will combine Boston
Scientific’s capabilities related to less invasive endoscopic technologies with Frankenman’s
local market expertise.^14 Likewise, many Chinese firms, particularly those that are state
owned, use equity alliances to engage in outward foreign direct investment.^15
Firms sometimes form equity alliances in order to refocus their strategy as a means
of creating a competitive advantage. This appears to be the case with the alliance Johnson
Controls recently developed with Yanfeng Automotive Trim Systems Co., Ltd. Called
Yanfeng Automotive Interiors, the alliance will produce and sell cockpit systems, floor
consoles, and instrument panels in India, Japan, China, Europe, and the United States.
Johnson has a 30 percent stake in the partnership, while Yanfeng holds a 70 percent inter-
est. This relationship finds Johnson spinning off its automotive-interiors business to the
alliance. Analysts viewed the forming of this partnership as a move by Johnson to focus
on its higher-margin, non-auto businesses such as “York heating and air-conditioning
equipment for commercial buildings.”^16
A nonequity strategic alliance is an alliance in which two or more firms develop a
contractual relationship to share some of their resources to create a competitive advantage.^17
In this type of alliance, firms do not establish a separate independent company and there-
fore do not take equity positions. For this reason, nonequity strategic alliances are less
formal, demand fewer partner commitments than do joint ventures and equity strategic
alliances, and generally do not foster an intimate relationship between partners; nonetheless,
research evidence indicates that they can create value for the involved firms.^18 The relative
informality and lower commitment levels characterizing nonequity strategic alliances
make them unsuitable for complex projects where success requires partners to be able to
effectively transfer tacit knowledge to each other.^19 Licensing agreements, distribution
agreements, and supply contracts are examples of nonequity strategic alliances.An equity strategic
alliance is an alliance in
which two or more firms
own different percentages
of the company they have
formed by combining some
of their resources to create a
competitive advantage.
A nonequity strategic
alliance is an alliance in
which two or more firms
develop a contractual
relationship to share some
of their resources to create a
competitive advantage.
This is a photo of the Shanghai GM facility where the work of the firms’
joint venture takes place.Shanghai GM.PNG