ASSIGNMENT – 2

BUSINESS ENVIRONMENT
Submitted To : Prof. AJS Batra
Submitted By: Simranjeet kaur
2020991578

Ques:- 1

WHAT IS INTERNATIONAL STRATEGIC ALLIANCE? DISCUSS THE

CHARACTERISTICS AND TYPE OF STRATEGIC ALLIANCE?
International strategic alliance is typically defined as a collaborative arrangement between firms
headquartered in different countries. Partnering firms remain legally independent after the
formation of alliance and the alliance relationship is relatively enduring. International strategic
alliances can be categorized along multiple dimensions. First, based on the type of activities of
collaboration, international strategic alliances can be categorized into licensing, franchising,
management service, supply, research and development, manufacturing, marketing, and others.
An international strategic alliance can engage in one activity or a combination of activities.
Second, based on the number of partners involved, an international strategic alliance can be
bilateral or multilateral; the existing body of literature on international strategic alliances has
largely focused on bilateral alliances. Third, based on the nationalities involved, an international
strategic alliance can be broadly defined as a collaborative arrangement between firms one of
which is headquartered outside the country of alliance; therefore an international strategic
alliance can be categorized as home-home, home-host, or home-third country alliance. The
majority of existing studies are about international strategic alliances formed between a foreign
firm and a local firm (i.e., home-host). Fourth, based on the involvement of equity investment,
international strategic alliances can be categorized into non-equity-based and equity-based
alliances. Non-equity-based international strategic alliances are also called contract-based;
equity-based international strategic alliances are often referred to as international joint ventures.
While the intention is to be as comprehensive as possible, this bibliography cannot cover all
articles because of the multidisciplinary nature of the literature on international strategic
alliances and the enormous research output on this organizational form.

CRITERIA OF STRATEGIC ALLIANCE:

There are five general criteria that differentiate strategic alliances from conventional alliances.
An alliance meeting any one of these criteria is strategic and should be managed accordingly.

1. Critical to the success of a core business goal or objective.

2. Critical to the development or maintenance of a core competency or other source of

competitive advantage.

3. Blocks a competitive threat.

4. Creates or maintains strategic choices for the firm.

5. Mitigates a significant risk to the business.

The essential issue when developing a strategic alliance is to understand which of these criteria
the other party views as strategic. If either partner misunderstands the other’s expectation of the
alliance, it is likely to fall apart. For example, if one partner believes the other is looking for
revenue generation to achieve a core business goal, when in reality the objective is to keep a
strategic option open, the alliance is not likely to survive.

Alliance Characteristics:
Successful alliances are a result of a complex set of processes, cultural attributes, and
competencies. No matter which industry you’re in, the following alliance characteristics are
essential for the success of any alliance.

1. Strategic Fit – Every company periodically defines its goals and objectives and there is
always a strategy to achieve it. Not every alliance partner, no matter how attractive they
may appear, will be aligned as per your organization’s strategy. So, be extremely
selective in choosing your alliance partner. Ensure that the driving strategic forces for
both companies are complimentary. Both the partners can be looking at the same industry
segment but from a different perspective and with complementary strengths. This is
where shared vision, objectives and interests between alliance partners comes into play.
Creating a fit, feasibility and attractive matrix is one of the best ways to derive strategic
fit. Apart from strategic fit, the operational fit and cultural fit also plays a key role in
determining your alliance partner.
2. Value Creation – If two companies coming together cannot create compelling value for
their joint customers, then the very purpose of alliance is lost. For creating value, the two
allies should have more strength when combined than they would have independently.
We must clearly understand how value exchange is not value creation.
3. Joint mission – Each of the alliance partners will have their individual vision and mission
statements for their respective organizations. But to define the very purpose of the
alliance, and effectively communicate it to the rank and file, a joint mission statement is
needed. This will always act as the guiding point and support the joint planning sessions.
 Once the joint mission is carefully crafted, every activity in the alliance can be monitored
as per this mission and course correction can be done if needed. Having said that, the
mission must be flexible enough for accommodating changing market trends and
leveraging new business opportunities.
4. Collaborative Spirit – The two alliance partners must have a culture of collaboration and
they must be equally eager to engage with each other. Just one partner being more
enthusiastic about the alliance doesn’t help in building a successful alliance. Another
very important aspect is that both the partners should have an alliance manager, otherwise
it’s a one-sided effort. If the alliance manager from one partner company has to deal with
the sales team of another partner company, then the navigation for the alliance manager
would be difficult and the outcome of such peering level would not be desirable.
5. Trust and Reciprocity – Trust is something in which you can never over-invest in any
relationship. The more seeds of trust you sow, the stronger will the alliance grow. Along
with trust, comes transparency. Be as transparent as possible with your partner. It always
helps in the long run. The relationship between two partners must be reciprocal. The
alliance in which one partner is active and brings most of the leads, will eventually not
survive for long, because it’s a game of active and equal participation from both the
partners. Also, the operational risks and rewards must be fairly apportioned.
6. Governance – To ensure that the alliance performs and delivers the desired results as per
its mission statement, a system of checks and balances is required to manage the risks and
performance. This governance model must ensure that decision making as well as
escalation happens at the right time. Its objective is also to maintain operational
efficiency at multiple levels within both partnering organizations. Choosing the right
metrics to measure the performance of the alliance , is a key task of the governance
council.
7. Executive Sponsorship – A successful alliance will always need a senior executive who is
engaged and empowered to champion the alliance. Executive sponsors are ideally very
senior within the organization and can promote cross-functional collaboration. Mostly,
the role of an executive sponsor would also include to be the alliance spokesperson,
provide strategic guidance, assist organizational navigation and be the escalation point for
conflict resolution.
8. Keep it fresh – Alliances need continuous renewal so that they don’t lose their edge in the
market place. So, identify new opportunities while adjusting the needs of the existing
ones. As per market demands, the alliances must proactively evolve, to remain fresh,
vibrant and relevant.
9. Regardless of industry, when any alliance follows the above set of essential
characteristics, the chances of success are very high. Any alliance missing these
characteristics will likely be beset with problems. So, one can use the above checklist to
assess current and prospective alliances
Ques: - 2

WHAT ARE TRADE BARRIERS ? DISCUSS TARIFF AND NON-

TARIFF TRADE BARRIERS IN INTERNATIONAL BUSINESS AND ITS
TYPES??
Trade barriers are restrictions on international trade imposed by the government. They are
designed to impose additional costs or limits on imports and/or exports in order to protect
local industries. These additional costs or increased scarcity result in a higher price of
imported products and thereby make local goods and services more competitive (see also
comparative advantage and trade). There are three types of trade barriers: Tariffs, non-tariffs,
and quotas. We will look at all of them in more detail below.

Tariffs
Tariffs are taxes that are imposed by the government on imported goods or services. They are
sometimes also referred to as duties. Tariffs can be implemented to raise the cost of products
to consumers in order to make them as expensive or more expensive than local goods or
services (i.e. scientific tariffs). In many cases, tariffs are used to protect local industries that
could otherwise not compete with foreign producers (i.e. peril point tariffs). Of course, the
countries affected by those tariffs usually don’t like being economically disadvantaged,
which often leads them to impose their own tariffs to punish the other country (i.e. retaliatory
tariffs).

For example, let’s assume there are only two countries in the world that produce candy bars.
The United States and Japan. In the US, local candy bars currently sell at a price of USD
2.50. Meanwhile, candy bars from Japan only cost USD 2.00. Hence, people in the US buy
more Japanese candy, and local producers struggle. In response to this, the US government
decides to restrict imports of candy bars to promote local candy production. To do this, they
impose a tariff of USD 1.00 on every candy bar imported in the US. Because of this tariff,
the price of Japanese candy bars increases to USD 3.00, while US products still sell at USD
2.50. This makes local candy relatively cheaper and more attractive to consumers.

Non-Tariffs
Non-tariffs are barriers that restrict trade through measures other than the direct imposition of
tariffs. This may include measures such as quality and content requirements for imported
goods or subsidies to local producers. By establishing quality and content requirements the
government can restrict imports because only products can be imported that meet certain
criteria. More often than not, these criteria are set to benefit local producers. In addition to
that, the government can grant subsidies, i.e. direct financial assistance to local producers in
order to keep the price of their goods and services competitive.
 Let’s revisit our example from above. Apart from imposing a tariff on imported candy, the
US government could restrict trade by passing a law that requires all candy bars sold within
the US to contain at least 50% locally produced sugar. This prevents many Japanese
producers from selling their candy in the US and those who decide to comply with the new
regulations will face higher costs of production. As a result, the price of Japanese candy
increases and US producers become more competitive. Alternatively, the US government
could directly support local companies by paying them USD 0.50 for each candy bar they
produce. This allows local producers to sell their candy bars at USD 2.00 instead of USD
2.50 and match the price of Japanese candy.

Quotas
Quotas are restrictions that limit the quantity or monetary value of specific goods or services
that can be imported over a certain period of time. The idea behind this is to reduce the
quantity of competitive products in local markets which increases the demand for local goods
and services. This is usually done by handing out government-issued licenses that allow
companies or consumers to import a certain quantity of a good or service. Although
technically speaking, quotas are non-tariff measures, they take quite a different approach than
the other measures discussed above. Instead of just making it more difficult or costly to
import goods, quotas actually limit the number of products that can be traded. There is no
way for foreign producers to circumvent such a quota. The most restrictive type of quota is
an embargo, i.e. an entire ban of trade and/or commercial activity concerning a specified
good or service.

For example, the US government could decide to limit the number of candy bars that can be
imported from Japan to 100,000 every year. Once those bars are sold, there are only US products
available for the rest of the period, even though they may be more expensive than their Japanese
counterparts. A more extreme version of this would be for the US government to ban all imports
and exports of candy bars, which eliminates foreign competition altogether.

TYPES OF TARIFF TRADE BARRIERS:

Licenses
A license is granted to a business by the government and allows the business to import a certain
type of good into the country. For example, there could be a restriction on imported cheese, and
licenses would be granted to certain companies allowing them to act as importers. This creates a
restriction on competition and increases prices faced by consumers.

Import Quotas
An import quota is a restriction placed on the amount of a particular good that can be imported.
This sort of barrier is often associated with the issuance of licenses. For example, a country may
place a quota on the volume of imported citrus fruit that is allowed.
Voluntary Export Restraints (VER)
This type of trade barrier is "voluntary" in that it is created by the exporting country rather than
the importing one. A voluntary export restraint (VER) is usually levied at the behest of the
importing country and could be accompanied by a reciprocal VER. For example, Brazil could
place a VER on the exportation of sugar to Canada, based on a request by Canada. Canada
could then place a VER on the exportation of coal to Brazil. This increases the price of both
coal and sugar but protects the domestic industries.

Local Content Requirement

Instead of placing a quota on the number of goods that can be imported, the government can
require that a certain percentage of a good be made domestically. The restriction can be a
percentage of the good itself or a percentage of the value of the good. For example, a restriction
on the import of computers might say that 25% of the pieces used to make the computer are
made domestically, or can say that 15% of the value of the good must come from domestically
produced components.

TYPES OF NON- TARIFF TRADE BARRIERS :

Licenses

Countries may use licenses to limit imported goods to specific businesses. If a business is
granted a trade license, it is permitted to import goods that would otherwise be restricted for
trade in the country.

Quotas

Countries often issue quotas for importing and exporting both goods and services. With quotas,
countries agree on specified limits for products and services allowed for importation to a
country. In most cases, there are no restrictions on importing these goods and services until a
country reaches its quota, which it can set for a specific timeframe. Additionally, quotas are
often used in international trade licensing agreements.

Embargoes

Embargoes are when a country–or several countries–officially ban the trade of specified goods
and services with another country. Governments may take this measure to support their specific
political or economic goals.

Sanctions

Countries impose sanctions on other countries to limit their trade activity. Sanctions can include
increased administrative actions–or additional customs and trade procedures–that slow or limit a
country’s ability to trade.

Voluntary Export Restraints

Exporting countries sometimes use voluntary export restraints. Voluntary export restraints set
limits on the number of goods and services a country can export to specified countries. These
restraints are typically based on availability and political alliances.