Firms considering joint ventures with foreign companies have a new tool to gauge their chances for success or failure, thanks to research by School of Management professor Shilpa Lele-Pingle.
School of Management marketing professor Shilpa Lele-Pingle examined alliances between U.S. and foreign companies and developed a model to gauge such ventures' chances for success.
With Purdue University management professor Douglas Bowman, Lele-Pingle has examined alliances between U.S. and foreign companies in 43 countries. "Firms can't do everything themselves," she says, "so they look for partnerships with other firms, especially in the global arena." The pair found that partnerships formed with marketing in mindgaining access to a partner's experienced sales force or a new channel of distribution-are far more likely to survive than those created to gain access to manufacturing technologies or cost-effective materials and labor.
Lele-Pingle, who came to SU in July 1998 after earning a Ph.D. at Purdue University, became interested in the international aspects of doing business about 10 years ago, when she observed the influx of foreign firms as the economy grew in her native India. "Global partnerships, marketing relationships, how firms build and maintain relationshipsthese topics fascinate me," she says.
Her study with Bowman focused on two industries: chemical and allied products, and electric and electronic equipment. Firms in both industries tend to form partnerships, Lele-Pingle says, and comprehensive data were available on each. Lele-Pingle and Bowman looked at 11 years of data from such sources as the F&S Index of Corporate Change and Lexis-Nexis, which contain articles from several hundred foreign and domestic journals, magazines, and newspapers. "It was a laborious job," Lele-Pingle says. "There are no prepared databases for this. We had to wade through thousands of articles and analyze the contents."
One discovery: The risk of terminating a partnership is directly related to the age of the venture. "Initially there's a honeymoon period in which there's a lower risk the venture will break up," Lele-Pingle says. "Then comes a time when there's a high chance the venture will break up." As time passes, however, the chances of breakup are lower because the partners have developed trust and made substantial investments of time and money.
Such factors as cultural distance and political instability influence marketing and manufacturing partnerships, Lele-Pingle says. "We found that the more distant a country is from your culture, or the more unstable the political condition, the more likely it is that you're going to hold on to the partnership," she says. "You're not as confident that you have the knowledge to go it alone out there, so you will definitely try to retain a partner who does have that knowledge."
Firms with a marketing motivation rely heavily on their partners' local expertise and access to distribution networks. "If you get out of the venture, you don't have that access," Lele-Pingle says. "Essentially you haven't achieved your objective. The very nature of what you're seeking makes a difference in your role in the relationship."
On the other hand, a company that enters a partnership for its partner's manufacturing techniques could eventually learn what it wishes and no longer be tied to the relationship. In such cases, Lele-Pingle says, the firm sells out to its partner or the venture is terminated altogether.
From their research, Bowman and Lele-Pingle developed a model to calculate the probability of success or failure, given the motivation behind the partnership, the country's political risk, cultural distance, and the structure of the partnership. "These are things a manager can evaluate before committing to a partnership," Lele-Pingle says.
She finds the research aids her teaching, even in the core marketing course she offers. "I try to bring in the idea that you have to have a global perspective," Lele-Pingle says, "even if it's only basic marketing decisions."
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