Professional Documents
Culture Documents
Alliances
Partnership & Cooperation
Chapter-7
Strategic Alliance
Strategic Alliances
cross-shareholding deals
licensing arrangements
formal joint ventures (e.g. Fuji-Xerox)
informal co-operative arrangements.
Strategic Alliances
Motives for entering strategic alliances are varied,
but often include market access; hence the
overlap with the topic of entry mode.
In many respects, the entry modes of licensing,
franchising and joint ventures are strategic
alliances.
However, strategic alliances tend to involve much
more than market access, for example, they can
also involve the transfer of technical and
managerial know-how between partners and
sharing
the
fixed
costs
of
new-product
Joint Venture
A joint venture is a special type of
strategic alliance in which two or more
firms join together to create a new
business entity that is legally separate
and distinct from its parents
A joint venture entails establishing a
firm that is jointly owned by two or more
otherwise independent firms. Ex FujiXerox
Joint Ventures
Advantages:
Disadvantages:
Drivers of International SA
Globalization
Technological Factors
Types of Alliance
Vertical Relationship:
suppliers and buyers
formed
between
Motives
Fierce competition
Rapidly changing technologies
Shorter product life cycle
High R&D cost
Economize on production and research cost
Access intangible assets - managerial skills,
Strategic Alliances
Advantages:
Disadvantages:
Partner characteristics
Compatibility
Motivation
Commitment
Reliability
Cultural fit:
Emerging Economies
Developed economies:
Purpose: access to cheap labor, raw
material, increasing customer base,
experience
Emerging economies
Purpose:
access to financial assets,
technical
capabilities,
modern
technologies.
Alliance Structure
Having selected a partner, the alliance should be structured so the
firms risks of giving too much away to the partner are reduced to an
acceptable level.
Walling off
critical technology
Establishing
contractual
safeguards
Opportunism by partner
reduced by:
Agreeing to swap
valuable skills
and technologies
Seeking credible
commitments
Alliance Structure
1. Alliances can be designed to make it difficult (if not
impossible) to transfer technology not meant to be
transferred.
The design, development, manufacture and service of a
product manufactured by an alliance can be structured so as to
wall off sensitive technologies to prevent their leakage to the
other partner (Harrigan - bleedthrough).
e.g. in the alliance between Boeing and the Japanese to build
the 767
Boeing walled off research, design, and marketing functions
considered central to its competitive position, while allowing
the Japanese to share in production technology. Boeing also
walled off new technologies not required for 767 production.
Alliance Structure
2. Contractual safeguards can be written into an alliance
agreement to guard against the risk of opportunism by a
partner.
Alliance Structure
3. Both parties to an alliance can agree in
advance to swap skills and technologies that
the other covets, thereby ensuring a chance for
equitable gain.
Cross-licensing agreements are one way to achieve
this goal.
e.g. In the alliance between Motorola and Toshiba
Motorola licensed some of its microprocessor
technology to Toshiba
Toshiba has licensed some of its memory chip
technology to Motorola.
Alliance Structure
4. The risk of opportunism by an alliance
partner can be reduced if the firm extracts a
significant credible commitment from its
partner in advance.
e.g. The alliance between Xerox and Fuji to build
photocopiers for the Asian market.
Rather than enter into an informal agreement
licensing arrangement (which Fuji Photo initially
wanted), Xerox insisted that Fuji invest in a 50-50 JV
to serve Japan and East Asia.
Risk
distorting information,
harbouring hidden agendas,
and
delivering unsatisfactory products
and services'.
Risk
Performance
risk:
Likelihood that an
alliance may fail even when partner firms
commit themselves fully to the alliance.
This could be due to external factors such as:
Unprecedented fierce competition,
Political change,
Government policy change,
Wars, strikes
Internal
factors such as lack of
competence in critical areas.
Trust
Part of the trick of managing an alliance
successfully seems to be to build interpersonal
relationships between the firms managers.
Trust
Belief is that the resulting friendships help build trust
and facilitate harmonious relations between the two
firms.
Personal
relationships
foster
an
informal
management network between the two firms. This
network can then be used to help solve problems
arising in more formal contexts (such as in joint
committee meetings between personnel from the two
firms).
Learning
Learning from Partners
A major determinant of how much a company gains
from an alliance is its ability to learn from its alliance
partner (Hamel et al, 1989).
Hamel et al, found that in every case in which a
Japanese company emerged from an alliance
stronger than its Western partner, the Japanese
company had made a greater effort to learn.
Learning
Few Western companies seemed to want to learn from their
Japanese partners. They tended to regard the alliance
purely as a cost sharing or risk sharing device, rather than
as an opportunity to learn how a potential competitor does
business.
e.g. alliance between General Motors and Toyota to build
the Chevrolet Nova formed in 1985 and still operating today.
Toyota quickly achieved most of its objectives from the
alliance, learning about US supply and transportation and
gaining the confidence to manage US workers.
That knowledge was quickly transferred to Georgetown,
Kentucky, where Toyota opened a plant of its own in 1988.
In contrast, it may be that all GM got was a new product,
the Chevrolet Nova.
Learning
Some GM managers complained that the knowledge they
gained through the alliance with Toyota has never been put to
god use inside GM.
They believe they should have been kept together as a team to
educate GMs engineers and workers about the Japanese
system. Instead they have been dispersed to various GM
subsidiaries.
To maximise the learning benefits of an alliance, a firm must
try to learn from its partner and then apply the knowledge
within its own organisation.
It has been suggested that all operating employees should be
well briefed on the partners strengths and weaknesses and
should understand how acquiring particular skills will bolster
their firms competitive position.
This tends to be standard practice among Japanese companies.
Alliance dissolution
Summary