Strategic Management Session XVII PDF

Strategic Management
Joint Ventures, Alliances and Internationalization

(Session XVII)
Dr. Saurav Snehvrat
Course: STMB19-3
Case: Groupe PSA
Q2. Evaluate the decision of PSA to acquire Opel/Vauxhall based on our
discussions in class. Can an alliance-based approach work in this situation?
Why or why not?
Case: Groupe PSA
Q2. Evaluate the decision of PSA to acquire Opel/Vauxhall based on our
discussions in class. Can an alliance-based approach work in this situation?
Why or why not?
ABC Test
Attractiveness: Same Industry

Opportunity to provide premium brands and China
Cost of Entry/Ownership: Loss Making Company

No large premium
GM willing to disinvest
Better-off: Europe centric economies of scale

Proven Track Record
German Brand
Case: Groupe PSA
Q3. What is the possible impact of Brexit negotiations on the Opel/Vauxhall?
Strategic Alliances
❑ “Strategic Alliances are voluntary agreements between firms that involve
the sharing of knowledge, resources and capabilities with the intent of
developing processes, products or services.”
❑ An alliance qualifies as strategic only if it has the potential to affect a

firm’s competitive advantage.
❑ Critical resources are sometimes embedded in strategic alliances that

span firm boundaries.
Source: Rothaermel, F. T. (2015). Strategic management: concepts. McGraw-Hill Education.

Strategic Alliances
❑ Why do firms enter into strategic alliances?
❑ Strengthen competitive position.
❑ Enter new markets
❑ Hedge against uncertainty
❑ Access critical complimentary assets
❑ Learn new capabilities

Strategic Alliances

Reading: When to Ally and When to Acquire
Acquisition deals are competitive, based on market prices and risky.
Many firms deploy acquisitions to increase scale or cut costs.
Alliances are cooperative, negotiated, and not so risky.

Many firms enter new markets, customer segments and regions.
In many firms, the decision makers between acquisitions and alliances are
different.
M&A group reports to the finance department.
Alliance group reports to business development.
Capabilities based on history of firms.
Source: Dyer, J. H., Kale, P., & Singh, H. (2004). When to ally and when to acquire. Harvard Business Review.
When to Ally and When to Acquire?
Market and Technology Uncertainty
A Redundancy B
Types of
resources and
synergy
Competition
Modular: managing resources independently. Ex. Hotels and airlines.
Sequential: one company completes the task and then hands over to the
other. Ex. Biotech and pharma firms.
Reciprocal: iterative knowledge sharing process. Ex. Joint development of

products/services, combination of rivals.
When to Ally and When to Acquire?
Synergies and Resources Market Factors
Type of synergy Strategy Degree of market Strategy
uncertainty
Modular Non equity alliances
Low Non Equity Alliances
Sequential Equity based alliances
Low/medium Acquisitions
Reciprocal Acquisitions
High Equity based alliances
Nature of resources* Strategy
Low Non equity alliances Level of Strategy
competition for
Low/medium Acquisitions resources
High Equity based alliances Low Non equity Alliances
*Relative value of soft to hard resources Medium Equity based alliances

Extent of Strategy High Acquisitions
redundancies
High Acquisitions If solutions from the 2 sides conflict, market
factors dominate.
Case: Eli Lilly in India
Q 1. Did Eli Lilly pursue the right strategy to enter the Indian market?
Attractiveness:
❑ Vast market of India.
❑ Learn to operate in a complex and protected economy of India.
❑ Use Eli’s innovation and existing products.
Better-off:
❑ Political and regulatory connections of Ranbaxy.
❑ Business experience and customer relationships of Ranbaxy.
❑ Present manufacturing of Ranbaxy.
❑ Match between “values” of Ranbaxy and Eli Lilly.
Ownership/Cost of Entry:
❑ Regulations did not permit FDI of 100 percent.
❑ Restrictions on import and manufacturing.
❑ Cost of Entry minimal both in terms of cost and possibility of leakage.
Synergies and Resources Market Factors
Type of synergy Strategy Degree of market Strategy
uncertainty
Modular Non Equity Alliance
Low Non Equity Alliance
Sequential Equity based alliances
Low/medium Acquisitions
Reciprocal Acquisitions
High Equity based alliances
Nature of resources* Strategy
Low Non Equity Alliance Level of Strategy
competition for
Low/medium Acquisitions resources
High Equity based alliances Low Non Equity Alliance
*Relative value of soft to hard resources Medium Equity based alliances

Extent of Strategy High Acquisitions
redundancies
High Acquisitions
Q. How did the JV evolve over time?
Presence of three phases:
Stage 1: Launch/Start-up: Mascarenhas focused on identity.
Stage 2: Consolidation: Shaw focused on building systems and processes,

performance.
Stage 3: Maturity: Gulati focused on continuity and learning.

Stage 1: Launch/start-up : Mascarenhas focused on identity.

❑ Entrepreneurial spirit
❑ Ability to deal with uncertainty and ambiguity
❑ Ability to integrate.

performance.

Stage 1: Launch/start-up: Mascarenhas focused on identity.

performance.
❑ Ensure continuance of profitability.
❑ Build standard operating procedures.
❑ Assuage crisis on both sides.

Stage 1: Launch/startup: Mascarenhas focused on identity, ambiguity and

integration.

performance.

❑ Continue with performance and processes.
❑ Make sure SoPs built in the previous stage are learnt.
❑ Introduce options for new growth.
Q2. How would you assess the overall performance of the JV? What did the
partners learn from the joint venture?
Q2. How would you assess the overall performance of the JV? What did the
partners learn from the joint venture?
Parameter Eli Lilly Ranbaxy
Learning How to operate in low price, volume How to market for leading
intensive markets. multinationals
How to create a non unionized work force in India
Conduct low cost, high quality clinical

trials.
HR Source key talent
Marketing Able to market their off-patent or Some benefits from
difficult to copy drugs Ranbaxy products being
marketed.
Financial Good ROI Good ROI
Could have used generics
Q3. What future actions would you recommend regarding the Eli Lilly Ranbaxy
partnership:
To Eli Lilly
To Ranbaxy?
partnership:
To Eli Lilly
Options Pros Cons
Maintaining status quo Eli Lilly benefitting from Ranbaxy might not allow this
the JV in financial, long term.
learning and talent.
Liquidate No reason to There are other benefits like
discontinue the clinical trials, more sales etc.
operations in India.
Acquiring the venture: partial Might be best for Eli Ranbaxy might not agree due
Lilly. to their financial crisis.
Acquiring the venture: complete Second best option. Ranbaxy should be open to
They need access to this.
Indian market and
research.
partnership:
To Ranbaxy
Options Pros Cons
Maintaining status quo Continue expanding on Ranbaxy’s strategy and
a profitable venture. financial position has
changed.
Liquidate partially Get much needed cash. Depends on the financial
Still hold on to future position. Not matching
possibilities. strategy.
Liquidate completely Fits best with strategy Loses any future progress in
and financial position. the JV.
Learnings
❑ How JVs go through stages.
❑ Issues in managing JVs.
❑ Factors on which ownership type is decided.

What is globalization?
“Globalization is a process of closer integration and exchange between
different countries and people worldwide, made possible by falling trade and
investment barriers, advances in telecommunications, and reductions in
transportation costs”.
Multinational Enterprises (MNEs): “A company that deploys resources and

capabilities in the procurement, production, and distribution of goods and
services in atleast two countries”
Foreign Direct Investment (FDI)
Globalization hypothesis: global tastes are converging and larger consumer

bases mean economies of scale for firms.
Source: Rothaermel, F. T. (2015).Strategic management. McGraw-Hill Education.

What is globalization?
“Nothing is exempt. The products and methods of the industrialized world play
a single tune for all the world, and all the world eagerly dances to it.”
https://hbswk.hbs.edu/item/ted-levitt-changed-my-life
The world is flat!
The world is flat!
Dell Theory of Conflict Prevention
No two countries that are both part of a major global supply chain, like
Dell's, will ever fight a war against each other as long as they are both
part of the same global supply chain.
Source: https://twitter.com/tomfriedman
accessed on 14/12/2018.

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Strategic Management

Joint Ventures, Alliances and Internationalization

Dr. Saurav Snehvrat

Attractiveness: Same Industry

Cost of Entry/Ownership: Loss Making Company

Better-off: Europe centric economies of scale

❑ An alliance qualifies as strategic only if it has the potential to affect a

❑ Critical resources are sometimes embedded in strategic alliances that

Source: Rothaermel, F. T. (2015). Strategic management: concepts. McGraw-Hill Education.

❑ Strengthen competitive position.

❑ Enter new markets

❑ Hedge against uncertainty

❑ Access critical complimentary assets

❑ Learn new capabilities

Source: Rothaermel, F. T. (2015). Strategic management: concepts. McGraw-Hill Education.

Source: Rothaermel, F. T. (2015). Strategic management: concepts. McGraw-Hill Education.

Alliances are cooperative, negotiated, and not so risky.

Capabilities based on history of firms.

Market and Technology Uncertainty

Reciprocal: iterative knowledge sharing process. Ex. Joint development of

*Relative value of soft to hard resources Medium Equity based alliances

*Relative value of soft to hard resources Medium Equity based alliances

Presence of three phases:

Stage 1: Launch/Start-up: Mascarenhas focused on identity.

Stage 2: Consolidation: Shaw focused on building systems and processes,

Stage 3: Maturity: Gulati focused on continuity and learning.

Presence of three phases:

Stage 1: Launch/start-up : Mascarenhas focused on identity.

Stage 2: Consolidation: Shaw focused on building systems and processes,

Stage 3: Maturity: Gulati focused on continuity and learning.

Presence of three phases:

Stage 1: Launch/start-up: Mascarenhas focused on identity.

Stage 2: Consolidation: Shaw focused on building systems and processes,

Stage 3: Maturity: Gulati focused on continuity and learning.

Presence of three phases:

Stage 1: Launch/startup: Mascarenhas focused on identity, ambiguity and

Stage 2: Consolidation: Shaw focused on building systems and processes,

Stage 3: Maturity: Gulati focused on continuity and learning.

Parameter Eli Lilly Ranbaxy

Conduct low cost, high quality clinical

❑ How JVs go through stages.

❑ Issues in managing JVs.

❑ Factors on which ownership type is decided.

Multinational Enterprises (MNEs): “A company that deploys resources and

Foreign Direct Investment (FDI)

Globalization hypothesis: global tastes are converging and larger consumer

Source: Rothaermel, F. T. (2015).Strategic management. McGraw-Hill Education.

Dell Theory of Conflict Prevention

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