A new pattern of corporate alliances is emerging around the world, creating unprecedented challenges and opportunities for U.S. companies and U.S. government policy. To be competitive, U.S. corporations must join "networks of international coalitions" and learn how to manage them. Otherwise, erosion of our markets-both international and domestic-could further threaten our world influence and standard of living.
While corporate alliances are not new, their pattern has changed significantly in the past few years. The number of corporate marriages is accelerating, with more than 1,000 such arrangements springing up between U.S. and European firms alone in the past two years. They are found especially in high-technology and information-technology industries, such as office equipment, electronics, automobiles and banking. Previously, industry leaders such as IBM, General Motors, Europe's N.V Philips and Japan's Nippon Telegraph & Telephone marched to the macho "go it alone" tune. But there is no company now large enough to be truly competitive globally on its own, so the giants are joining forces with many other companies, often including major competitors, in various niches of their product lines.
Why is this happening? Dramatic changes in the external business environment have accelerated the need for global strategic alliances. The world has gone beyond interdependence to an international market in many sectors operating within one global financial system. Yet the protectionist and nationalistic policies of many governments threaten the global market. In response, corporations are using alliances to help head off or jump over protectionist barriers (e.g., the many new Japanese investments in the U.S.).
Converging technologies require companies to integrate a full line of products, rather than, as in the past, selling one stand-alone machine. The Xerox copier, for example, is now part of an integrated office-information system that processes documents from creation to transmission, including storage and retrieval as well as reproduction. No company can cover the complete line competitively without help from other companies.
The increased power of these new alliances is putting even greater pressure on corporations to join, since a company outside the network is barred from selling into it. To become truly competitive, U.S. corporations have two urgent new requirements. First, they must quickly join the right team-or network of alliances. It is no longer enough to pick the right partner. Now companies must assess the networks of each prospective partner for their competitiveness. Second, companies must develop sufficient numbers of senior managers who combine a knowledge of their own companies with the ability to work with foreign partners who have different goals, values, customs and languages.
SOURCE: Daniel A. Sharp, "Combat Protectionism with Global Alliances," The Wall Street Journal, June 1, 1987, 22. Reprinted with permission of The Wall Street Journal © 1988 Dow Jones & Co., Inc. All rights reserved.
Whether the trend toward alliances helps or hurts U.S. competitiveness is a controversial issue. Robert Reich of Harvard argues that we are giving away our technology, particularly to the Japanese, who will use it to dominate us in industries in which we were once the leaders, such as aeronautics, just as they have done in microcircuits. Mr. Reich and others argue that the U.S. must maintain its strength in such industries-not only for reasons of national security, but also for the economic health of the industries themselves, which depend on domestic U.S. markets for a major part of their revenue.
Mr. Reich's critics counter that by being more competitive globally through strategic alliances, U.S.-based companies are actually preserving jobs in the U.S. and contributing to increased competitiveness at home. One recent study appears to show that U.S. corporations, measured globally rather than just in terms of local U.S. production, are competitive. In any event, without such alliances the international strength of many U.S. companies might rapidly decline.
And there are broader possible advantages to transnational corporate links:
Countries can be brought closer together by combining business and financial institutions. This can help build confidence to overcome our trade fights with Japan and Europe and lay a much needed foundation for the new U.S. role in shared management of the world economy.
Corporations can help preserve an open trading system by jointly lobbying their multiple host governments against protectionism. Corporate alliances often facilitate finding components at lower cost, in Asia and Latin America, for example. U.S. companies can thus become more efficient short-term and can invest more to improve competitiveness of other aspects of their business.
By joining with foreign companies, U.S. firms can acquire global marketing and extra technological expertise.
If U.S. companies are to be able to participate fully in this new game, some
U.S. government impediments to such cooperation may have to be removed. Antitrust laws are already being interpreted more gently. However, new industrial associations are under development in the U.S. that will test that antitrust flexibility as they move into co-production and other forms of cooperation. New laws permitting such actions may be necessary. And tax laws may have to be revised to facilitate U.S. personnel working overseas in their new partnerships, and [to define] how to tax these transnational entities.
National security issues also arise. The U.S. government does not want to support foreign companies or become dependent upon them for its defense technology. The Defense Department already views this as an issue .... Yet Defense is farming out strategic defense initiative contracts to our allies, including Japan.
Inevitably, national governments, beholden to their domestic electorates, will continue to think along the vertical dimension of the nation state when making decisions about taxation, antitrust, industrial, economic and other policies to protect the national interest. However, new economic realities force corporations increasingly to think and act along horizontal, global dimensions. Narrow-minded nationalist loyalties may be eroded as both shareholding and corporate alliances become increasingly global.
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