Strategic Alliances

1. Strategic Alliances

2. Motivation for Strategic Alliances • Technology Exchange • Global Competition • Industry Convergence • Economies of Scale and Reduction of Risk

3. Reasons for Strategic Alliances • Gain access to new markets • Enter new businesses • Introduce new products • Overcome trade barriers • Avoid predatory competition • Gain access to complementary resources • Pool resources, skills, and risk capital • Share risk • Share R & D expenses

4. Sources of Interfirm Synergies that can Motivate Strategic Alliances • Exploiting economies of scale • Learning from competitors • Managing risk and sharing costs • Facilitating tacit collusion • Low-cost entry into new markets • Low-cost entry into new industries and new industry segments • Managing uncertainty

5. Entry Mode Advantages Disadvantages Ability to realize location and experience-curve economies High transport costs Trade barriers Problems with local marketing agents Exporting Low development costs and risks Licensing Lack of control over technology Inability to realize location and experience curve economies Inability to engage in global strategic coordination

6. Entry Mode Advantages Disadvantages Lack of control over quality Inability to engage in global strategic coordination Franchising Low development costs and risks Lack of control over technology Inability to engage in global strategic coordination Inability to realize location and experience economies Joint Ventures Access to local partner’s knowledge Sharing development costs and risks Political acceptability

7. Entry Mode Advantages Disadvantages Protection of technology Ability to engage in global strategic coordination Ability to realize location and experience economies Wholly owned subsidiaries High costs and risks

8. Motivation for International Strategic Alliance Formation To Take Existing Products to Foreign Markets To Diversify Into a New Business New Markets Learning from your partner Learning with your partner Open Markets Closed Markets To Strengthen The Existing Business To Bring Foreign Products To Local Markets Achieving economies of scale Acquiring technology Reducing financial risk of major core business projects Marketing & distribution “Screwdriver” assembly plants Developing local technology Technology flowback to foreign parent Existing Markets Existing Products New Products

9. PALs Across Companies • Pooling • Allying • Linking

10. Examples of Types of Strategic Alliances • Service Alliances • Opportunistic Alliances (Product-link) • Stakeholder Alliances

11. Contractual Forms • NONEQUITY ALLIANCE: managed through contracts • EQUITY ALLIANCE: Cooperative contracts & equity investments • JOINT VENTURE: Independent firm formed by cooperating firms

12. Threats as Opportunistic Behavior • Adverse Selection • Moral Hazard • Holdup

13. Integration Issues: Social Complexity • BARRIERS TO INTEGRATION • Different functional time orientation • Different functional language and interpersonal orientation • Different goal orientation • Formality of structure • FACILITATORS OF INTEGRATION • Shared values • New product vision provided by leadership • Budget allocation to foster integrated design

14. Strategic Alliances and Sustained Competitive Advantage • Rareness • Number of firms and other alliances in the industry(s) • Benefits obtained, especially complementary assets and abilities

15. Strategic Alliances and Sustained Competitive Advantage • Imitability • Direct Duplication • Difficulty in developing socially complex skills • Substitutes • Internal Development/Corporate Entrepreneurship • Venture Capitalists • New-Venture Incubator • Idea Generation and Transfer Program • Intrapreneurship

16. Strategic Alliances and Sustained Competitive Advantage • Acquisitions • Speed versus Cost of Acquisition • Access to Complementary Assets versus Unnecessary Adjunct Businesses • Removal of Potential Competitor versus Organizational Clashes • Upgrade Corporate Resources versus Major Commitment

17. Reasons for Acquisitions • Increased market power • Overcome entry barriers • Increased speed • Lower risk compared to developing new products • Increased diversification • Avoid competition

18. Strategic Fits Between a Target and a Bidder Business Adding New Products Related-Complementary New Products Similar Customers Unrelated New Products New Customers Identical Similar Products Similar Customers Related-Supplementary Similar Products New Customers Serving New Customers

19. Reasons For Acquisition’s Poor Performance • Overdiversification • Managerial energy absorption • Excess debt • Too large • Acquisition as a substitute for innovation May Lead to Need for Restructuring

20. Strategic Alliance Checklist 1. Understanding your capabilities and needs • Do you really need a partner? For how long? • How big is the payoff? How likely is success? • Is a joint venture the best option? 2. Choosing an appropriate partner • Does the partner share your objectives for the venture? • Does the partner have the necessary skills and resources? • Will you have access to them? • Will you be compatible? • Can you arrange an “engagement period?”

21. Strategic Alliance Checklist 3. Designing the joint venture • Define the venture’s scope of activity, and its strategic freedom via its parents • Lay out each parent’s duties and payoffs, to create a “win-win” situation • Establish the managerial role of each partner 4. Doing the deal • How much paperwork is enough? Trust versus legal considerations • Agree on an end game

22. Strategic Alliance Checklist • Making the venture work • Give the venture continuing top management attention • Manage cultural differences • Watch out for inequities • Be flexible