Strategic Alliances

Emad Abo El-Enin

May-2010
 Content
1. Definition
2. Motives
3. Success factors
4. Mistakes that could lead to failures
5. Types of classification
6. Examples
 Total business conducted through alliances
Source: Economist Intelligence Unit Global Survey

1990 : 3-5%
2000: 20%
2005: 30%
2010: 40%

“The greatest challenge in corporate culture and the way

business is being conducted, may be the accelerating growth
of relationships based on partnership, not ownership”

(Peter Drucker)

In Average, each fast-growing company is engaged in 5 different

types of strategic alliance
 Strategic Alliance

Strategic Partner Strategic Partner

 In a strategic alliance both parties contribute to their joint

venture their respective resources and capability
 Aim is to add greater value to their respective positions
 By doing so, to
 Increase their financial return
 To access the capability of their partner which they themselves lack
 To acquire skills that they themselves may lack
 Strategic Alliances Definition
“Two or more bodies working together to achieve
something that one cannot do, or chooses not to do
alone,
that has a significant and often long term impact, on the
organization.”
Source: Alliantist

“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.”
 ’To be ‘strategic
 Must be aligned with organizational strategy
 For associations, need to focus on member
value, not making €
 Key Question…
‘Can we deliver on our mission statement more
effectively by working with partners or by
working alone?’
 Review
Are there any projects on hold or rejected
because of lack of resources?
 ?Why Strategic Alliances
 To gain access to specific markets
Ex – Chrysler and Benz – to gain access to EU
where regulations favor local companies
 To increase market share
 To avoid import barriers, licensing,
requirements, and other protectionist
 legislation
– GM-Toyota venture
to avoid import quotas
 ?Why Strategic Alliance

 Adding value to products/services

 Improving market access
 Strengthening operations
 Adding technological strength
 Enhancing strategic growth
 Building financial strength
 Motives
Businesses use strategic alliances to:
 ِِAchieve
Achieve advantages of scale, scope and speed
 Increase market penetration
 Enhance competitiveness in domestic and/or global markets
 Enhance product development
 Develop new business opportunities through new products and
services
 Expand market development
 Increase exports
 Diversify
 Create new businesses
 Reduce costs.
Strategic alliances are becoming a more and more common tool for
expanding the reach of your company without committing yourself to
expensive internal expansions beyond your core business.
 Critical success factors to SA
 Trust

 Cooperation

 Communication
 Success factors cont
.
Essential 1. Partner selection (70%)
2. Senior management commitment (68%)
3. Clearly understood roles (49%)
4. Clearly defined objectives (47%)
5. Good communication between partners (40%)
6. Relationship building (35%)
7. Thorough planning (31%)

Important 8. Close senior management ties (30%)

9. Frequent performance feedback (20%)
10. Day-to-day attention (18%)
11. Fair sharing of risks, resources & reward (13%)
12. Clear payback timelines (11%)
13. Alignment of culture
(10%)
14. Previous alliance experience (9%)

Worthwhile 15. Integration of information system (5%)

Source: Technical & Alliance Survey of 455 CEO’s

…Experts add
16. High level of trust is the most accurate predictor of success
17. Creation of best value in members eyes
18. High level of commitment to win-win
19. High levels of interdependence
- You need each other
20. Strategically important to both partners
- Equal commitment & priority
-The one for whom priority is highest does most of the work
21. Personal chemistry
22. Integrity
23. Sharp focus & a strong vision of what can be achieved
24. Confidence in partner
25. Good strategic fit i.e. strategic synergy
26. Complementary critical driving forces
27. Compatible style of management
28. Effective mechanisms for resolving disputes
- An exit strategy
29. Individual excellence
30. Recognition this is going to take effort
31. Delivery as stated
- Removes the performance risk
-Otherwise leads to anger & mistrust
32. Realistic performance indicators
 - Appropriate measurement & metrics
Mistakes that could lead to
failures
 More failures than successes
-In early 90’s, 61% failed (McKinsey)
-By 2004, 52% failed
-Highest with international alliance
50% fail due to poor planning & 50% due to poor
management
 Can be very dangerous –IBM & Microsoft
 The good news? 70% improvement if follow best
practice
 So proceed with caution!!
1. Follow a structured process
2. Not enough preparation time
- On average takes 8-12 months
- Impatience
3. Poor strategy & goals e.g.
- Increase revenue to fix a drop in member retention
- Underdeveloped membership benefit offer
4. Hidden agenda leading to distrust
5. They are introduced as an objective
6. You create a future competitor
7. Do not share strategy & goals
8. Wrong emphasis early on e.g.
- Getting 51% (control)
9. Lack of understanding of what is involved
- Unrealistic expectations
10. Fails the ‘public perception test’ & damages your reputations
11. Complex to manage
12. Reactive, not prepared & proactive
13. Some uncomfortable with loss of control
14. Exclusive arrangements upset people
15. Overdependence
16. Lack of commitment from the top
18. Reduced donations
19. Legal problems
 Types of Alliance
 Opportunistic alliance

 Complementary alliance
 Types of classification
Alliances come in many shapes and sizes.
Terms commonly used are
joint ventures, collaborations , formal and
informal, equity and non equity ,partnering,
and partnerships.
You may also have heard the terms
merger, acquisition, and outsourcing. Some
feel that these are not true “strategic
alliances”
Pyramid Of Alliances

/Acquisition
Merger

Joint Venture

R&D collaborations/Tech Transfer

Licensing/Private Label

Joint selling and Distributions

Joint Marketing

Vendor

Suppliers
 Types of Strategic Alliances
 Joint Ventures
 Outsourcing
 Affiliate Marketing
 Technology Licensing
 Product Licensing
 Franchising
 R&D 
 Distributors
 Joint Ventures
A joint venture is an agreement by two or more
parties to form a single entity to undertake a
certain project. Each of the businesses has an
equity stake in the individual business and share
revenues, expenses and profits.
 Joint Ventures are agreements between parties or firms
for a particular purpose or venture. Their formation may
be very informal, such as a handshake and an
agreement for two firms to share a booth at a trade
show. Other arrangements can be extremely complex,
such as the consortium of major U.S. electronics firms to
develop new microchips,

Charles P. Lickson in A Legal Guide for Small

Business.
Outsourcing

The 1980s was the decade where outsourcing really rose to

prominence, and this trend continued throughout the 1990s to
today, although to a slightly lesser extent.

“Outsourcing and globalization of manufacturing allows

companies to reduce costs, benefits consumers with lower cost
goods and services, causes economic expansion that reduces
unemployment, and increases productivity and job creation.”
Affiliate Marketing
Affiliate marketing has exploded over recent years, with the most
successful online retailers using it to great effect. The nature of
the internet means that referrals can be accurately tracked right
through the order process.
Example
Amazon was the pioneer of affiliate marketing, and now has tens of
thousands of websites promoting its products on a performance-
based basis.
Technology Licensing
This is a contractual arrangement whereby trade marks,
intellectual property and trade secrets are licensed to an
external firm. It’s used mainly as a low cost way to enter
foreign markets. The main downside of licensing is the
loss of control over the technology – as soon as it enters
other hands the possibility of exploitation arises
Product Licensing
This is similar to technology licensing except that the license
provided is only to manufacture and sell a certain product.
Usually each licensee will be given an exclusive geographic
area to which they can sell to. It’s a lower-risk way of expanding
the reach of your product compared to building your
manufacturing base and distribution reach

Franchising
Franchising is an excellent way of quickly rolling out a
successful concept nationwide. Franchisees pay a set-up fee
and agree to ongoing payments so the process is financially
risk-free for the company. However, downsides do exist,
particularly with the loss of control over how franchisees run
their franchise.
R&D
 Strategic alliances based around R&D tend to fall into
the joint venture category, where two or more
businesses decide to embark on a research venture
through forming a new entity.
  Host Country Home Country
Pharmaceutical Pharmaceutical
Firm Firm

R&D R&D

R&D
Joint Venture
Distributors
If you have a product one of the best ways to market it is to recruit
distributors, where each one has its own geographical area or
type of product. This ensures that each distributor’s success
can be easily measured against other distributors.
Distribution Relationships
This is perhaps the most common form of alliance. Strategic
alliances are usually formed because the businesses involved
want more customers. The result is that cross-promotion
agreements are established.
Consider the case of a bank. They send out bank statements
every month. A home insurance company may approach the
bank and offer to make an exclusive available to their
customers if they can include it along with the next bank
statement that is sent out.
It’s a win-win agreement – the bank gains through offering a
great deal to their customers, the insurance company benefits
through increased customer numbers, and customers gain
through receiving an exclusive offer.
Another Types of strategic alliances
classification
Vertical Alliances:
Vertical alliances are relationships between organizations in
different industries. This is a type of alliance most commonly found in
the service sector where collaboration of expertise can be
coordinated to offer complete solutions to clients.

Example:
Individuals from a civil engineering, project management,
construction, landscaping and interior design firms all have different
areas of expertise, yet together can deliver a complete building
solution. None of the firms could bid on a job of this magnitude
independently, but as a team they can combine their expertise for
as long as necessary.
Horizontal Alliance:
Horizontal alliances include firms from the same industry.
Alliances are usually used to achieve scale, to adjust for
seasonal changes or handle niche areas of expertise.

:Example
A communications consulting firm submits a proposal to create a
communications plan for an organization that handles politically
sensitive issues. The consulting firm decides to include a
.political advisor in its proposal
:Administrative Alliance
Generally involves one organization entering into an
agreement with another for the provision of administrative
services, space or products. The main purpose is to share
functions, increase operational efficiency and to reduce costs

:Example
sharing office space and a receptionist
Joint Programming or Business Network
:Alliance
Two or more organizations
form an alliance/joint venture for the purpose of delivering a
joint program. The two business entities are taking
advantage of their different skills and abilities in an
.effective manner
:Example
A group of independent consultants come together to develop a
management-training program. This may include individuals with
expertise indifferent areas such as human resources,
leadership and communications skills, and conflict resolution.
These consultants will utilize their different skills to develop the
program and may then market it by using their respective
.client/contacts list
 Merger:
This involves the amalgamation or joining together of
two or more organizations, which typically share
similar objects, goals, principals and/or
services/products. This collaboration typically
results in the dissolution of one or both of the initial
organization
Examples:
Two large organizations such as a financial institution or an
insurance
company may merge, which effectively eliminates a primary
competitor. Or on a smaller scale, a group of consultants with
different expertise merge to form one company. The individual
companies are dissolved.
 Another Types of Alliance
 Third-party logistics (3PL)
 Fourth-party logistics (4PL)
 Retailer-supplier partnerships (RSP)
 Distributor integration (DI)
Examples of SA Successes and
Failures
 Women.com Partners with Procter &
Gamble
August 29, 2000

 Women.com, which provides women with advice,

community and shopping on the Web, will
incorporate Procter & Gamble's ParentTime.com
property into its Web network.
 Parentime.com is an interactive resource designed to
provide comprehensive, personalized information on
child rearing.
 Additionally, Women.com will work to develop unique
marketing programs for P&G's beauty care and
home care business segments, according to Lillian
Gilden, vice president, strategic alliances,
Women.com.
Alibaba Group forms strategic alliance with
Bank of China on online payment

Published: 23 Jul 2009

 Alibaba Group and Bank of China formed a long-term
strategic alliance to collaborate on several e-commerce
initiatives including online payment, international
business cooperation, small business financing and
joint marketing.
 Under the terms of their alliance, Alibaba Group and
Bank of China will jointly develop the Alipay Card (a
smart card to be issued by Alibaba Group's subsidiary
Alipay, Asia’s largest online payment platform) and a
trust rating system. They will also roll out a small
enterprise loan-assistance scheme and pursue credit
card innovation and other innovations related to
import-export and small businesses.
 Giorgio Armani and SAMSUNG announce new
strategic alliance for the creation of innovative
portable and home consumer electronics
products

on May 03, 2008

SAMSUNG Electronics, a market leader in consumer
electronics, and Giorgio Armani, one of the world’s leading
fashion and lifestyle design companies, have announced a
groundbreaking strategic alliance for the development of
innovative portable and home consumer electronics products,
founded on the combination of Giorgio Armani’s iconic design
aesthetic and SAMSUNG’s cutting edge technology.
Giorgio Armani will create the design aesthetic and SAMSUNG
will provide technology and function,
 The Walt Disney Company and Coca-Cola
Expand Multi-Year Strategic Alliance; DASANI
Bottled Water to Be Featured Water at Disney's
.U.S. Parks and Resorts

 Alliance Includes Promotional and Sponsorship Opportunities,

Including Advertising Buys on ABC Television Network

 The Walt Disney Company and The Coca-Cola Company have

expanded their multi-year agreement by which DASANI Water will
be the featured bottled water at Disney's U.S. Parks and Resorts

 The water also will be served on the Disney Cruise Line. The
alliance includes sponsorship and promotional opportunities,
including advertising buys across Disney's media properties
through ABC Unlimited.
 Renault-Volvo
alliance
In 1990 Volvo and Renault agreed to establish a
strategic alliance. They knew each other well
through 20 years of industrial co-operation. The
motives for the alliance were to exploit sizable
potential synergies in joint product development,
purchasing and manufacturing and to create
complementary firms to compete in the global
marketplace.
 Chrysler-Fiat Sign Global

January 20, 2009

• Chrysler had signed a deal with Italy's Fiat to
establish what it called a global strategic alliance.
The alliance would allow Fiat and Chrysler to take
advantage of each other's distribution networks and
"optimize fully their respective manufacturing
footprint and global supplier base."

• Under the terms of deal, Fiat takes an initial 35

percent equity interest in Chrysler for which it will not
pay cash nor commit to future funding for Chrysler.
 technology sharing, including fuel-efficient and
environmentally friendly powertrain technologies,

 access to additional markets, including distribution

for Chrysler vehicles in markets outside of North
America.

 the Chrysler-Fiat alliance also gives Fiat access to

the American market, from which it has long been
absent. Fiat had plans to begin selling its Alfa-
Romeo line in the U.S., plans that were postponed
or derailed by the current economic crisis.
 GSK announces a strategic alliance with
Dr. Reddy’s to further accelerate sales
growth in emerging markets
15 June 2009,

 GlaxoSmithKline plc (GSK) announced an

agreement with Dr. Reddy’s Laboratories Ltd (Dr.
Reddy’s) to develop and market selected products
across an extensive number of emerging markets,
About Dr. Reddy’s
 Dr. Reddy’s Laboratories is an emerging global
pharmaceutical company that fulfills its purpose
of providing affordable and innovative medicines
through three core businesses:
1-Pharmaceutical Services and Active
Ingredients
2-Global Generics
3-Proprietary Products.
Their products are marketed globally, with a focus
on India, US, UK, Germany and Russia.
 WARNER BROS. INTERNATIONAL THEATRES
AND PEPSI FORM STRATEGIC ALLIANCE

 Warner Bros. International Theatres and Pepsi-Cola

Company announced a multi-year strategic alliance to quench
the rapidly growing thirst of young audiences for the ultimate
movie experience.

 Under terms of the deal, International Pepsi-Cola Company

brands such as Pepsi, Mirinda and 7Up -- as well as other
regional brands -- will have exclusive pouring rights at all
existing and projected Warner Bros. International Theatres
under Warner Bros. management. The agreement will cover
358 movie screens at 43 theatres in six countries, including:
Great Britain, Spain, Germany, Portugal, Italy and Japan.
 Pepsi will be one of the sponsors for the United Kingdom
and Spain's premieres of "Batman & Robin," the highly
anticipated fourth adventure in the blockbuster Batman
series, with a major promotional campaign at Warner Bros.
International Theatres.

 Pepsi and Warner Bros. plan to launch a broad range of

innovative marketing efforts, including: promotional tie-ins
with major movies, lobby merchandising campaigns and
specially designed fountain equipment featuring the
Looney Tunes cartoon characters.
 Honda and Hong Kong Disneyland Form
.Strategic Alliance

 As part of the alliance, Honda will be the official

sponsor of the Park's new and immersive Autopia
attraction, which allows guests of all ages to drive
to the future aboard shiny electric cars.

 Honda will also support the Park's "Wild About

Safety Campaign" - a campaign dedicated to
promoting guest safety and comfort while enjoying
the Park. In addition, Honda has obtained exclusive
rights in featuring the park's images to promote
their automobiles, motorcycle and selected power
equipment products in Hong Kong and mainland
China.
Prince Alwaleed's Rotana in
strategic alliance with Disney
December 15, 2009
 Rotana Media Group, one of the largest media groups in the region
and Fox International Channels (FIC), the international television
channels arm of Rupert Murdoch’s News Corporation , today
announced that viewers in the Middle East and North Africa region
will have access to more of the world’s best family entertainment
after signing a multi-year output deal with The Walt Disney
Company. 

 This collaboration will provide a compelling proposition to Rotana’s

bouquet of offerings to viewers and the trade community across the
Middle East region.
 The deal,, will bring Disney and ABC’s much-loved television series
and movies to the region’s viewers free-to-air on Fox Movies and
Fox Series channels, including content from the Academy Award®-
winning animation studio, Disney/Pixar.     
     
 Conclusion
 Like a good marriage –takes effort,
commitment &enthusiasm, not control
&ownership
Thank You