In the past couple decades, inter-firm cooperation has become an important mechanism of business development, market access, and technology transfer. The private sector has increasingly used various kinds of cooperative agreements – “strategic partnerships” – such as joint ventures, technology exchange agreements, co-production, and joint research and development. These partnerships have created mutual dependence and shared decision-making among multiple independent parties in the private sector – transcending borders. The growth of strategic partnerships has created an expectation of accelerated growth in developing countries through easier and faster access to markets, technologies, and learning opportunities. To that point: do strategic partnerships drive globalization, or does globalization promote strategic partnerships?
The question is like that of the “chicken and the egg,” and does not have a clear answer with one acting as the definitive catalyst. Instead, both globalization and strategic partnerships build off each other, cyclically influencing and reinforcing the other.
The rise of globalization has been an important development in the international economic environment that serves as a foundation for the rise of business strategic partnerships. Through the process of globalization, transnational companies have pushed into new product and geographical markets. As they do so, they seek out partnerships with firms in the local economy to leverage their infrastructure, market penetration, or favorable business, regulatory, and legal environments. Increasing international competition and faster pace of technological advance because of globalization has limited firms’ ability to be self-sufficient in everything. As such, companies specialize in a core competency and outsource everything else – such as research and development or specific products – to other firms. Moreover, firms invest capital in firms abroad and create financial partnerships to capture stake in new and emerging markets and products. This is, in part, a result of economic liberalization in developing countries that has come about through evolutions in the geopolitical environment and the increasing financial interconnectedness of the international order.
Globalization is thus a driving influence behind strategic partnerships, as the economic circumstances that globalization creates incentivizes companies to seek out ways to increase their market share, minimize costs, and focus on core competencies. It is easier for transnational firms to establish partnerships than to penetrate and dominate new markets alone, considering the costs and risks that are involved. In the increasingly globalized world, no company can successfully “go it alone” as it deals across borders.
However, as noted, strategic partnerships also abet and speed up the process of globalization. Through a strategic partnership, the developing firm or country that is a partner with a more advanced or capable firm learns new methods of production, management, or technology. Moreover, the developing firm’s market power and capabilities are strengthened through foreign investment. This feeds into the process of “convergence” between developed and developing countries, as strategic partnerships assist developing countries in establishing competitive indigenous industries. As countries “catch up,” they increasingly participate in the global economic and financial marketplace, strengthening the ties between countries that serve as the foundation of globalization. Likewise, as developing countries seek more foreign investment, they continue to liberalize their economies or seek to establish business and regulatory regimes that are favorable for foreign entities; again, an element of globalization.
Moreover, strategic partnerships necessarily entail “partnership” – the establishment of relationships, networks, and lines of communication between firms, their people, and their cultures. Formal and informal partnering through networks and clusters is again a way for knowledge to disseminate to industries in less advanced markets and economies. The process of learning about new people, new companies, and new cultures – be them political, regulatory, social, or business; all important for companies to understand – absolutely underpins the interconnectedness that defines globalization. Simply partnering and cooperating across borders drives countries, companies, and people across the world closer together.
Thus, as argued, strategic partnerships and globalization feed off each other. As the world continues to globalize, and as it becomes increasingly difficult for firms to maintain market dominance along against a multipolar S&E environment, international technological competition, and rising costs, they will seek out strategic partnerships abroad. Meanwhile, these strategic partnerships disseminate business practices, technology and innovation, and strengthen local economies. This in turn contributes to the factors which led to the strategic partnership in the first place. One does not necessarily come before the other, nor is one a more important element in the push-pull relationship between globalization and strategic partnerships.