Playbook

for the Industry of Natural Resources

Samantha Sewrutton BSc
26 october 2018

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 Purpose
 Strategic Alliance (SA) is an integral part of developing and implementing
new business strategies
 in order to survive and prosper in a rapidly changing and highly competitive
global marketplace in which the pace of technological innovation has greatly
accelerated (Martin, 2003)

 A company’s alliance portfolio — the combination of all of its alliances —

requires a holistic and strategic approach (Hoang, 2016)

 SA is just a convenient business arrangement (Dordevic, 2009)

 The ambition is to share best practices and experiences from different

sources of references in order to be able to make a “best fit”

 This is not an all-encompassing playbook as no two alliances are identical

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 Outline
1. Strategic Alliance Definition
2. Why do Strategic Alliances grow
3. Disadvantages of Strategic Alliance
4. Key Business Issues that Should Be Addressed Before Forming a Strategic Alliance
5. Critical Factors in the Initial Formation Stage of Strategic Alliances
6. Primary Types of Strategic Alliance utilized in the Industry of Natural Resources
7. Key Issues in Structuring Strategic Alliances
8. Formation of a Strategic Alliance
9. Steps in developing, implementing and continuously improving an affective strategic
alliance
10. Comparison of different types of corporate entities commonly used in Strategic
Partnerships
11. Strategic Alliance success factors
12. References

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1. Strategic Alliance Definition

 An arrangement “whereby two or more firms agree

to pool their resources to pursue specific market
opportunities” (Martin, 2003)
 SAs are collaborative arrangements where two or
more companies join forces to achieve mutually
beneficial strategic outcomes (Dordevic, 2009)

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 2. Why do Strategic Alliances grow
Extensive integration of companies has
become less common, but the need has grown for greater coordination of
production than market transactions can offer

Drivers Motives
 New technologies  Financial and funding considerations
 Increasing importance of  Validation of technology
 Access to technology
human capital  Access to manufacturing and project
 Economic globalization management expertise
 Access to distribution channels
 Industrial integration and  Access to regulatory expertise
specialization  Elimination of duplication
 Risk sharing
 Entry into new product markets
 Economic of scale
 Pooling of complementary resources
 Prelude to an acquisition
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 3. Disadvantages of Strategic
Alliances

 Surrender of partial control

 High administrative costs
 Less flexibility
 Long-term commitment
 Number of participants
 Compatibility requirements
 Overdependence on partner

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 4. Key Business Issues before Strategic
Alliances
Questions with potential strategic partners
 What type of strategic alliance is needed to lift your
company to the next level of excellence?
 What market forces make a strategic alliance necessary?
Are they strong enough to last for a significant period? Do
they create opportunities for higher margins, or greater
market share?
 What are the objectives of the strategic alliance and are
they understood by each of the strategic partners and are
the objectives compatible?
 Is your company’s culture compatible with those of your
possible strategic allies? Do the other preconditions for
good working relationships with your partners exist?
 Will the strategic alliance receive the strong support of
upper and middle management in all affected departments
of both companies?
 What are the incentives for each company in entering into
the strategic alliance?
 Which employees from both companies will be involved at
the beginning, middle and end of the relationship?
 What assets will be contributed to the strategic alliance
and what can be done with the assets?
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 Will the strategic allies compete in areas outside the scope
of the strategic alliance?
 Should the strategic allies exclude certain customer
relationships or contracts that would otherwise be within
the scope of the strategic alliance?
 What is the strategic alliance’s business plan?
 What are the limits on rights, obligations and scope of
activity?
 How will the strategic alliance be capitalized, and what are
its likely sources of capital?
 How will profits of the strategic alliance be shared?
 Who will control the accounting process for the strategic
alliance?
 Are material risks and their fallout understood? Are the
consequences of possible failure sufficiently understood?
 What are possible exit strategies for the strategic alliance
and its members?
 Is the alliance likely to result in a sale of one of the allies to
the other?
 Would the strategic alliance create opportunities for higher
margins, greater market share or significantly reduced
competition?
 Is there a strong management team picked out for the
strategic alliance?
 5. Critical Factors
Formal stage of Strategic Alliance

 Always conduct a thorough due diligence review of the

prospective strategic partner and its technology
 Recognize its own motivations for entering into the strategic
partnership and how it fits into its overall business strategy
 Closely examine and understand the motivations to ensure that
the parties objectives are compatible and that incentives for
both parties are adequate
 Start with a non-binding term sheet describing their
fundamental business expectations
 Before signing a letter of intent, seek legal review

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 Critical factors c’td
 Partners to be non-substitutional
 Any rights of exclusivity should be conditioned on the achievement of
milestones, such as revenue targets, so that if specific milestones are not
met, the exclusivity component of the strategic alliance will end
 carefully define ownership, participants, mission, objectives, operating
principles, licensing, manufacturing and distribution rights
 define the mechanisms and consequences of terminating their strategic
alliance (before signing an agreement, partners build a consensus of
support for the strategic alliance among its management and key
employees)
 identify where in the strategic alliance transaction real value creation will
occur and focus on how the structure and documentation of the strategic
partnership will best assure the realization of that value
 Take care of the smaller party culture in the structure of the alliance in
order to preserve the value of the association to the larger company
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 6. Primary types of strategic
partnerships in the Industry of NR
 R&D
 Technology licenses
 Marketing & Distribution
 Distribution to specific geographic area
 Access to various marketing channels
 Scarce supplies and utilities
 Hybrid Strategic Alliances
 Integrated business enterprise
 Contribution of capital, technology, facilities, and human
resources

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 7. Key Issues in Structuring Strategic
Alliances

The choice of structure for a particular strategic partnership will

depend upon the participants’ respective tax and accounting
goals, business objectives, and financial needs, as well as their
planned capital and other contributions to the venture

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 Key issues structuring Strategic
Alliances
1. The Parties 18. Defaults and remedies
2. Legal relationship of the Parties 19. Governing law, resolution of disputes
3. The Scope, Purpose and Exclusivity of a 20. The approval stage
Strategic Alliance 21. Legal concerns
4. Financial Structure 22. Guarantees, warranties, representations
5. Ownership, Control and Management 23. Choice of law and Forum
6. Ownership and Control Issues 24. Dispute resolution
7. Management of the Strategic Alliance Venture 25. Alternative dispute resolution
8. Transfer of Personnel 26. Confidentiality
9. Construction of Facilities 27. Intellectual property concerns
10. Supply of Raw Material
11. Marketing of Products
12. Licensing of Know-How and Confidentiality
13. Service Agreements
14. Financial Policy, Accounting, Audits,
Authorization Policy
15. Non-competition
16. Duration and termination
17. Transfer of interest
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8. Formation of a Strategic Alliance

1. List and prioritize the core

services each entity currently
provides
2. Identify the qualifications of
personnel needed for providing
the core services
3. Identify its personnel with the
appropriate qualifications
4. Team determines will be
provided by partner(s),
partner(s) will compile a
schedule of fees based on staff
qualifications and the typical
duration of the engagement

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 9. Steps in developing, implementing and
continuously improving an affective strategic
alliance

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11. Comparison of different types of corporate entities
commonly used in Strategic Partnerships

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12. Ten Strategic Alliance Success
Factors
 Have a clear strategic purpose
 Find a fitting partner
 Specialize
 Create incentives for cooperation
 Minimize conflicts between partners
 Share information
 Exchange personnel
 Operate with long-term horizons
 Develop multiple joint projects
 Be flexible

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 13. References

 Growing Use of Strategic Alliances by J. Martin, 2003

 How to manage Alliances Strategically by Hoang, hen,
Rothaermel, Frank, 2016
 Alliances and partnerships by Dordevic, 2009

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