Strategic Human Resource Management

Section Two

Strategic Alliances

Companies are increasing their use of strategic alliances with
foreign companies. Such alliances allow companies to combine
their distinctive competencies in order to gain an advantage in
producing or marketing a product. Frequently, U.S. companies
reduce their labor requirements by forming alliances with
foreign firms. However, the history of U.S. companies’
experiences with strategic alliances indicates that the
arrangement may be fraught with perils. According to David Lei
and John Slocum, alliances can be extremely dangerous for
companies that outsource manufacturing. The allure of low-cost
production, without the costs of investing in product
development and new manufacturing technologies, is
particularly seductive. Unfortunately, U.S. companies pursuing
this strategy have typically ended up being “deskilled” or
“hollowed out” in critical skill areas. Although in the short run
financial benefits of entering into an alliance may be
impressive, in the long run the alliance partner doing the
manufacturing typically becomes the dominant player in the
market. This occurs as a result of the U.S. partner’s diminished
manufacturing knowledge and the manufacturing partner’s
capture of knowledge of the other company’s core
competencies.^41