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Alliances

2 nd a s s i g n m e n t
To: Dr Amr Kheer
From: Ahmed Farouk Elhashemy

International Marketing 12/1/2009

What are Alliances?
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1.
2. An alliance is an agreement between two or more parties, made in order
to advance common goals and to secure common interests
3. Cooperative agreements between two or more firms
4. Are business alliances among companies that provide strategic benefits
to the partners.
5. A co-operative arrangement between two or more parties who combine
their strengths to achieve compatible objectives whilst retaining their
individual identities and share the risks and rewards
6. The alliance often involves technology transfer (access to knowledge and
expertise), economic specialization, shared expenses and shared risk.
7.
8.
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International Marketing 12/1/2009

Objectives of Alliances:
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1.
2.
3. Sharing costs and risks
4. Combining complementary skills
5. Formulating technical standards and dominant designs
6. Accessing new markets and technologies
7. Preempting key competitors
8. Reserving learning opportunities
9. Develop partnerships that benefit all involved
10.Build a solution based knowledge set through partner relationships

International Marketing 12/1/2009

Success Factors
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1. Satisfy customer demands.

2. Share R&D costs.
3. Fill knowledge gaps.
4. Make scale economies.
5. Make scope economies : Alliances can enlarge dramatically
the scope of a company’s operations. Alliances focusing
on scope help counter the ever-shorter product cycle of
modern technology.
6. Jump market barriers.
7. Speed in product introduction.
8. Pre-empt competitive threats
9. Use excess capacity.
10. Reduction in costs.
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International Marketing 12/1/2009
Mistakes that lead to failure of Alliances
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1. Fear of change.
2. Difficulty in beginning a trust based relationship.
3. Need to overcome negative perception of alignment with single
source.
4. Non-competitive procurement is seen as not cost competitive.
5. Low cost is often erroneously equated with best value.
6. Requires earlier design/selection decisions.
7. Perception of risk with pre-purchasing.
8. May conflict with existing manufacturer/subcontractor/vendor
agreements.
9. May complicate subcontracting (separation of products/labor).
10.Project managers tend to wrap work up into more comprehensive
scopes.
11.Alliances tend to be person-to-person relationships - may not
continue if representatives leave.
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International Marketing 12/1/2009

 Types of classifications
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 Such alliance may be in the form of :

1. Management contract.
2. Franchising
3. Supply or purchase agreement.
4. Joint Venture.
5. Agreement to provide technical services.
6. Licensing of know-how, technology, design or patent.
These arrangements differ in scope mainly by virtue of the

following :
 Capital commitment.
 Structure of organization.
 Decision making.
 Proportion between risks and reward.
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International Marketing 12/1/2009
 Advantages of Alliances
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 Improved Cash Flow
 Reduced Overhead
 Improved Access to Capital
 Obtain Capital
 Credibility
 Access to Facilities and Technology
 Access to Expertise
 Ability to Keep the Company Small
 More Products to Sell
 Innovative Products
 Creative People
 Speed and Flexibility in Delivering New Products
 Ability to Hedge Your Own R&D Effort
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International Marketing 12/1/2009
 Advantages of Alliances(Cntd)
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 Less Costly than Buying a Company

 Cost Savings
 Product Distribution
 Diversification into New Markets
 Manufacturing Capability
 Reduced Risk
 Knowledge and Know-how
 Avoid Need to Reinvent What Has Been Invented Elsewhere
 The Shoring up of Weak Areas in the Company
 Strengthened Relationships with Key Suppliers or Customers
 Ability to Move Quickly
 Ability to Stay Focused on Core Competence
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International Marketing 12/1/2009
 Disadvantages of Alliances
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1. Sharing of Future Profits
2. Foreclosure of Other Opportunities
3. Barriers to Future Financing Opportunities
4. Distractions
5. Creating a Competitor or a Potential Competitor
6. Unexpected Disappointments and Headaches from Your Partner
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International Marketing 12/1/2009

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Examples

International Marketing 12/1/2009

STAR ALLIANCE
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 It is the world's first and largest airline alliance.

 Founded in 1997, its name and emblem represent the five
founding airlines, Air Canada, Lufthansa, Scandinavian
Airlines System, Thai Airways International and United
Airlines.
 Star Alliance is headquartered in Frankfurt am Main, Germany.
 It has 21 full and 3 regional members, with another three
expected to become full members by 2009.
 The alliance's market share is 28% of the global market based on
revenue passenger kilometers (RPK).
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International Marketing 12/1/2009

SKYTEAM
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 SkyTeam is the second largest airline alliance in the world.

 It has 11 full members with 2 pending members.
 Aeromexico, Air France, Delta Airlines and Korean Air launched
the SkyTeam on June 22, 2000.
 SkyTeam also operates a cargo alliance called SkyTeam Cargo.

International Marketing 12/1/2009

 ONEWORLD
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(ONEWORLD MANAGEMENT
COMPANY LTD)
 It is the third largest airline alliance.
 Oneworld was established in 1999.
 Its management company is based in Vancouver, British
Columbia, Canada.
 It has 10 members and 17 affiliates.

International Marketing 12/1/2009

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Thank You

International Marketing 12/1/2009