 Hello students, we are going to discuss the topic of cross-border alliances. We are discussing cross-border alliances in the context of international human resource management. But before we talk about human resource management issues in cross-border alliances, we first of all would like to know what cross-border alliances are. In simple words, cross-border alliances are such firms that belong to different countries and they come together, means alliance, and they ally together to work for the benefit of each other. So partnerships which are across national borders, they are called cross-border alliances. That is the simple definition of what cross-border alliances are, but the academic definition of cross-border alliances is that these are cooperative agreements between two or more firms from different national backgrounds which are intended to benefit all partners. So it could be two firms from different countries or two or more from two or more different countries coming together and making a cooperative partnership which is supposed to benefit all the members. You know that because of globalization, yes, that's the word, globalization, that is our main reason behind internationalization of the firms and globalization has led to a number of international dynamics in business and one of these dynamics has resulted in cross-border alliances. Now there are a number of ways in which these cross-border alliances can be formed and they can operate. There are equity modes of cross-border alliances and non-equity modes and then there are other which are a mixture of equity and non-equity modes. Now let us take a look at what are these different modes of making cross-border alliances. All right, so non-equity alliances are those partnerships in which it is an investment vehicle in which profits and other responsibilities are assigned to each party according to a contract. In this kind of partnership, you do not merge your legal entity. Both of the firms' legal entities are separated, which means that if you, for example, have a bankruptcy or losses, then beyond a contract, you will not bear those losses. If a firm's contract says that that firm is going to share, let's say, 30% of the profit and not the losses, the responsibilities then are on the other firm to share the losses. So the entity that has its existence as a firm does not merge, it remains separate. And both the firms, they separately operate as a legal entity, but they work for some common benefits. So this example can be that you can give a franchise or, for example, a license. So the licensing company that obtains the license is responsible for running the firm, making it profitable, and if the firm is flopped, then the company that gives the license does not have the responsibility to bear the losses of the company that takes the license. The company that takes the license is a licensing company that shares some fees or a profit or whatever contracts they have, like we talked about, according to a contract, they are supposed to pay them accordingly, but they will not share the legal responsibility. So that is a non-equity alliance and each party cooperates as a separate legal entity and bears its own liabilities. The second mode of forming alliances is equity alliances. Now equity alliances is the opposite of non-equity alliances and in these types of alliances you go for sharing all the profit and losses of the organization. So it means that you get merged together and you become one new entity. So equity modes involve foreign direct investors, purchase of shares of an enterprise in a country other than its own. So it could be done in three ways. It could be green field investments or acquisitions. It could be mergers or it could be international joint ventures. What are these three different types we are going to discuss it in later topics? And then merger and international joint ventures, they involve long-term collaborative strategies, including HR practice. So when you merge together, when you are forming a new entity, then you have to make strategies for all aspects of your business because your profits and losses are all going to be shared together so you need to operate as a single entity and therefore it is going to be a long-term collaborative thing in which you make strategies including human resource strategies. So in this diagram you can see that there are different forms of equity and non-equity modes of foreign operations. You can see that the white boxes are equity modes and the light blue boxes are non-equity modes and the third dark blue box is the other forms of cross-border alliance. So you can see in the white boxes there are mergers and acquisitions. Then there are international joint ventures and thirdly there are subsidiaries. You may remember from your previous topics what subsidiaries are and we are going to discuss in next topics what are joint ventures and mergers and acquisitions. A small discussion on the non-equity modes of aligning because later on we are not going to take them up separately. There could be subcontracting in which there could be offshoring and outsourcing. Now offshoring and outsourcing they are kind of similar concepts. In outsourcing you do that you purchase services from a foreign company. This is also a type of offshoring. Offshoring is a larger concept but offshoring is particularly when you make your facilities in another country. For example production facilities in another country. For example Nike used to get its products prepared in Pakistan because of low labor costs. That is offshoring. Then you can go for franchising. Franchising is mode of non-equity cross-border alliance in which the franchising organization it takes the responsibility of setting up the entire management system of an organization. So the franchise provides you the entire business. Whereas licensing is a lesser intrusive form of cross-border alliance in which the licensor provides the license to operate under the logo of that licensing organization. But they do not interfere in the day-to-day activities or the management of the organization. And then there could be management contracts in which the organization can provide management facilities to affirm in a different country. For example this is very much common in the hotel industry. You may know the name of Pearl Continental which is a chain of hotels held in Pakistan under the umbrella of intercontinental hotels. So the management is provided by the intercontinental hotels. But the legal entity of Pearl Continental Hotel is restricted to Pakistan. So that is one example of management contracts. Alright so these are the different types of equity and non-equity modes of cross-border alliances.