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Contents
Strategic Alliance is a significant long/term
partnership and collaborative agreement entered
into by two or more companies to pursue a set of
agreed upon critical goals while remaining (legally)
independent organizations.
These collaborations can come in many shapes
and sizes, including contractual and equity forms.
It normally is a synergistic arrangement whereby
the participating organizations each brings
different strengths and capabilities to the alliance.
Firm A
Partnerships between firms
Firm B
where their
Resources
Capabilities
Core
Competencies
are combined to
pursue mutual
interests to
Goods
Services
Types of Strategic Alliance
Strategic Alliance
Contractual Equity
Licensing commitment
<< Joint Venture
Franchising
Purchase of Equity Share
Joint R&D
Equity Swap
Turnkey Project
…
…
Types of Strategic Alliance
Contractual
Licensing –
the sale of a right to use certain proprietary knowledge in a defined way
Franchising –
a method of doing business wherein a franchisor licenses trademarks and
tried and proven methods of doing business to a franchisee
Joint R&D –
two or more organizations agree to combine their technological
knowledge to create new innovative products
Turnkey Project –
a project in which a separate entity is responsible for setting up a plant
or equipment and putting it into operations
Joint Venture Equity
Independent firm is created by the joining assets from two
other firms where each contributes 50% of the total
Diversification Alliances
Corporate- Synergistic Alliances
Level
Franchising
Business-Level Strategic Alliances
Vertical Strategic Alliance
◦ A cooperative partnership across the value chain.
◦ Are most effective when partners trust each other.
Strategic alliances
Corporate-Level Strategic Alliances
Diversification by Alliance
◦ Integrating unique knowledge stocks to create products
that serve new markets and customers.
◦ Valuable if the new products developed are related to
current products in such that synergy can be created.
Synergy by Alliance
◦ Partners share resources or integrate complementary
capabilities to build economies of scope.
◦ Franchising: the licensing of a good or service and
business model to partners for specified fees (usually a
signing fee and a percentage of the franchisee’s
revenues or profits).
Supplier Value
Chain Partnerships that build on the
complementarities among firms that
make each more competitive
Challenges
◦ Different cultures and a lack of trust hinders the transfer
of knowledge or sharing of other resources.
PROS/CONS of Strategic Alliance
PROS
- Sharing costs/risks
- Developing new technologies
- Capturing economies of scale
- Access to new markets/technologies
- Organizational learning
- Overcoming governmental barriers
CONS
- Possible opportunistic behavior of partners
- Searching costs
- Coordination costs
- Monitoring costs
- Technology/information leakage
Gain access to a new or restricted market
Develop new goods or services
Facilitate new market entry
Share significant R&D investments
Share risks and buffer against uncertainty
Develop market power
Gain access to complementary resources
Build economies of scale
Meet competitive challenges
Learn new skills and capabilities
Outsource for low costs and high quality output
Strategic, not tactical
Focused on long-range goals and major economic benefits
Features:
- tight linkages
- vested interests
- high level support
- cooperation and collaboration
Components of a Strategic
Alliance
Confidentiality agreement
Strategy Development
studying the alliance’s feasibility, objectives and rationale, focusing on the major issues
and challenges and development of resource strategies for production, technology, and
people.
Partner Assessment
Contract Negotiation
determining whether all parties have realistic objectives, forming high calibre negotiating
teams, defining each partner’s contributions and rewards as well as protect any proprietary
information, addressing termination clauses, penalties for poor performance, and
highlighting the degree to which arbitration procedures are clearly stated and understood.
Alliance Operation
30
25
20
15 35
10
21
15
5
7
2 3
0
1980
1985
1990
1995
1997
2002
Financial
participation
Strategic
alliances
Increasing
commitment
from both
partners
3C
Capability Commitment
Cultural mismatch 28
Poor communications 54
Overly optimistic 73
0 50 100
Source: “Alliance Analyst” Survey of 455 CEO’s
An alliance can fail for many reasons
failure to understand and adapt to a new style of
management
failure to learn and understand cultural
differences between the organizations
lack of commitment to succeed
strategic goal divergence
insufficient trust
operational and geographical overlap
unrealistic expectations
Joint Ventures
A “union” of two or more parties who contractually agree to
contribute to a specific venture which is usually limited to a
specific task for a specific period of time
C A
A B
A B B
Companies A and
B combine to form Companies
a new company C remain
independent
Motives for IJV Formation
New
Markets
Existing
Markets
Diversification
Problems Inherent in a JV
Each party is responsible for the actions of the JV
and one another
Source : http://www.samsung.com/us/aboutsamsung/companyprofile/
LG Electronics alliance
portfolios
Sun Microsystems alliance portfolios
Sun Microsystems business and
alliance strategy
Dell computers alliance
portfolios
Dell computers business and alliance
strategyStrategy
Business Alliance Strategy
• Virtual integration: control flow • OEM alliances with key component
of information from suppliers to suppliers such as Intel
customers • Service alliances with Decision One,
• Assembler versus owner of IBM, EDS, Andersen Consulting
technology • Generate revenue “outside the box”
• Direct model (with both by aligning with Internet service
suppliers and customers) offers providers (e.g., AOL)
competitive advantage (low • Streamline logistics with suppliers by
cost, first-to-market with latest implementing valuechain.com
technology) • Distribution alliances with
• Desire to move into the valueadded
enterprise computer market resellers and retailers to gain
international presence
• Technology transfer agreements
(e.g.,
IBM) to move into enterprise market
Asiana airlines alliances with competitiors
(Star alliances)
Codeshare agreements of airline industry
First truly global airline alliance
NEC Rockets Past Its Competitors:
In the 1980s, NEC used more than 100 joint
ventures to gain a leading position in three
critical high-tech markets: computers,
semiconductors, and telecommunications.
NEC Rockets Past Its Competitors:
(cont’d)
During a period of eight years NEC grew more
than five-fold, from $4 billion in sales to more
than $20 billion. It shot past its competitors and
emerged as one of the leading international
companies with in-depth competence in all three
key markets. NEC did this while spending a far
smaller portion of its revenue on R&D than its
competitors.
Nortel and Microsoft
Nortel and Microsoft Form Strategic Alliance to
Accelerate Transformation of Business
Communications