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02/13/92

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Familiarity breeds alliances, say Stanford business school researchers

STANFORD - Business executives are counseled by experts to form international strategic alliances as a way of competing successfully in today's far-flung global economy. Yet when the executives who actually sit down to work out alliances are asked, they say they prefer partners who are located fairly close to home.

Executives from the United States, Europe and other parts of the world expressed the greatest interest in forming alliances with firms from their own geographic areas. Two Stanford Business School faculty members, David Montgomery, Robert A. Magowan Professor of Marketing, and Allen Weiss, assistant professor of marketing, surveyed 184 senior executives. When asked their assessment of the most important characteristics of strategic alliances, executives put home area of the partner at the top of the list.

The researchers suggested that by preferring alliances with companies closer to home, executives may want to avoid cross-cultural misunderstanding and communication problems, or they may simply find it easier to identify potential partners in nearby geographical regions and to coordinate business agreements, such as production scheduling or inventory management.

When they did look beyond their own regions, Montgomery and Weiss found, executives from the United States and other countries outside of Europe preferred European partners. This may be both because of familiarity in dealing with Europeans and because of opportunities raised by the opening up of Eastern Europe. Japanese partners were most attractive to executives of U.S. firms who said they were very interested in global expansion.

Executives listed the amount of equity their firm held in an alliance as their second most important criterion, with the greatest number calling for equal equity for their firm. This preference, said Montgomery and Weiss, probably means executives are interested in partnerships, rather than majority control that also would expose them to the greatest risk.

Their firm's contribution - primarily in the form of marketing and distribution - was ranked third, followed by the importance of the partner's contribution, the level of competitiveness of the partner and, finally, the time frame of the alliance.

"As suspected, U.S. managers prefer shorter-term relationships than their non-U.S. counterparts," said Montgomery and Weiss.

While the majority of the sample preferred agreements covering four to seven years, U.S. executives were far more likely to prefer four years or less.

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