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For example :
A large company can break down the marketing barriers that face a small
company which in turn brings entrepreneurial creativity to partnership.
CHARACTERISTICS
1. Two or more firms that unite to pursue a set of agreed upon goals, remain
independent subsequent to the formation of an alliance.
2. The partner firms share that benefits of the alliance and control over the
performance of assigned tasks.
NEED
Advantages of Alliances
Alliances can rapidly meet a company’s need for key resources such as more
customers, additional capital, new/better products, new distribution channels,
additional facilities, increased production capacity, or competent personnel etc.
Management contract.
Franchising
Joint Venture.
Capital commitment.
Structure of organization.
Decision making.
Advantages
A business strategic alliance is also means to an end, not just and end in itself.
Strategic alliance often take place between firms of different industries and of
varied sizes, for vertical or horizontal links, consolidation of positions or any of
the following :
Alliance strategy must be integrated into the overall corporate strategy and
articulated in the strategic plan with a process for implementation. The entire
process of developing and managing an alliance could be as follows :
The kind of strategic planning that a company undertakes will affect the nature of
the alliances that a company enters into. If a company is willing to undertake long
term strategic planning, the alliances entered into as part of the long-term vision
are likely to be those that take some time to come to ‘fruition’, such as research
and development partnerships.
Medium-term strategy carries lower risk, owing to its owing to its shorter time
horizon. Alliances used commonly as part of medium-term strategy include joint
ventures, licensing or distribution relationships, etc.
The time frame of short-term or operational strategy is one to three years, where
managers primarily look at financial and asset management with a narrow
product and market focus for immediate results.
Options analysis
1) Consider whether the company should be looking for an alliance and if so,
why?
3) Identify the options for alliance structures, consideration cost, risk and the
commitment to human resources.
4) Focus on specific structures, keeping in mind an understanding of the
organization’s corporate personality. For example, if the corporate personality
requires complete control rather than collaborative team building ‘acquisition’
may be right alternative.
In the process generates specific options, the next step is a corporate self-
analysis. After the corporate self analysis, the next major task is developing
alliance partner criteria. Following closely on criteria development will be the
partner search and evaluation process, negotiation and ‘closure’.
It is essential that the partner analysis is proactive and not reactive. A partner
that approaches a company may not be the optimum partner. It is therefore,
necessary to examine other opportunities, if they exist. Accordingly a list of
prospective partners should be prepared.
c) Partner Selection
Compatibility
What is your partner’s strategy? The most competent partner in the world
won’t make a good alliance it contradictory strategies collide within the
alliance.
How manageable are differences in corporate cultures? Every company
has its own unique corporate culture. Managements need to weigh what
kind of impact this will have on the alliance.
Capability
How does reality accord with a potential partner’s own projection of itself?
All companies try to present themselves in the best possible light. The
danger sign should flash when investigations reveal the company’s
statements and what the balance sheet or independent analysts state are
not the same.
Commitment
Does the alliance fall within a core business or product line of the partner?
If the proposed alliance is in a business area that is only peripheral to the
partner’s mainstream activities, several dangers may exits. First, the
partner may not devote the time and resources necessary to making the
venture succeed. Second, the partner could easily withdraw from the
alliance and leave to your disadvantage.
d) Partner Analysis
Once the potential partner has been identified, the next step is to analyse the
strategic fit of the partner with the company. This can be done by asking some
important questions like
Will the relationship meet the mission statement goals?
What is the strategic potential for the company resulting from a partnership?
What is the risk exposure for the company, arising out of the relationship, in
terms of knowledge transfer?
Briefly, many of the mistakes made in planning an alliance have their origin in
the lack of preparation. If the preparation is done well, with constant review of
the plan, the potential for managing the alliance is greatly enhanced. The
various factors potentially conducive to successful alliances are :
EXAMPLES OF ALLIANCES
Global Scenario
There has been a growing tendency in recent years for Japanese companies to
have joint investments mostly with American firms in research and products and
also work out joint distribution arrangements. These alliances have blurred and
distinction between corporate and national interests. Some such alliances are
described below.
Toshiba
Toshiba has a long-term strategy bused on the three G’s – growth, group
management and globalization. Globalization is achieved by forming new joint
ventures, research agreements and cooperative relationships in new business
areas. In 1996, Toshiba Corp. started its new US $1 billion chip-making facility at
Nagoya, Japan. This was based on strategic alliances with the companies IBM
and Siemens of Germany. Some of the other alliances which Toshiba entered
into include:
An agreement with Apple Computers for new technology creation for
multimedia
Alliance with MCA and time Warner in the US, Thomson Multimedia in
France, and Hitachi, Matsushita and Pioneer in Japan to develop digital
video discs (DVD). These were attempts to establish an industry-wide
unified format.
Hitachi
GE’s power system unit had joined with Mitsui to build Asian power projects. GE
had the technology and Mitsui has the contacts and financial power to get power
contracts in Asia. They got an estimated US $85 million contract in China for two
steam turbines. Mitsui played the role of the lead contractor. They also teamed
up for a power project in Indonesia.
IBM-Apple
In July 1991 IBM and Apple agreed to wide-ranging co-operation to develop new
generations of computer technology. According to a Financial Times article of
October 3, 1991, this partnership includes a series of specific agreements:
In addition, there has also been a change in the strategies of Indian companies in
relation to the global market place. In 1980s saw a significant growth in alliance
formation with competitors in several industry groups.
Wipro Fluid Power (WFP)
Wipro Fluid Power was started in 1978. Labour troubles led to the closure of its
manufacturing unit in 1993. however, it was able to recover owning to its strong
research base build through alliances.
IFB
IFB industries entered into a strategic alliance with the Asko group of Finland.
The agreement envisaged the following:
IFB would manufacture dishwashers at its Bhopal factory. This would also
be utilized for manufacturing microwave ovens for which another
technological tie-up was being negotiated. While IFB was to have access
to the Asko technology to manufacture dishwashers, it could also plan the
production of cloth dryers, refrigerators, electric cookers and other
household items.
Tata – IBM
Formed in 1968, TCS was envisaged to cater to the growing demand for
information technology and management consultancy. By the 1980s, TCS had
become a leader in computer-related solutions in India.
TCS achieved success with E-X, its financial accounting package. Its package,
TRWO, enabled an executive to monitor critical situations from his desk.
TCS also entered into an alliance with Microsoft Corp. where TCS would
have access to Microsoft products, technology and information, while it
would provide solutions to customers’ business information needs based
on this platform, several value-added services, such as integration
consulting, custom and turnkey application development, technical support
and training, etc.
Ranbaxy
In January 1995, Ranbaxy Laboratories and Eli Lilly of the US announced two
joint ventures with an initial investment of US $ 90 million. The Indian joint
venture was to focus on research, development and manufacture of generic
products with both partners having equal stakes in the US $ 60 million
investment. The products manufactured included off-patent drugs, line
extensions or new formulations of existing Lilly and Ranbaxy products and new
products of both companies. The objective was to find new molecules for the
cure of cancer, cardiovascular diseases and infectious diseases.
The US joint venture with an investment of US $30 million, was to market the
products resulting from the Indian joint venture in the US market. Eli Lilly was to
assist in Ranbaxy’s global presence, targeting disease categories and enhancing
critical capabilities.
CASE STUDY
During the year 2006, Corporation Bank, Oriental Bank of Commerce and Indian
Bank have decided to form a strategic business alliance. The Boards of the three
nationalized bank informed the Bombay Stock Exchange on 14th September,
2006, that the proposed ‘strategic business alliance’ of these three PSU banks is
only a ‘technical alliance’ and will not involve inter-bank transfer of staff. The
bank employees unions have also been kept informed of the proposed alliance to
share information.
(c) What are the important criteria in the selection of alliance partners?
(e) Why did the three PSU banks, in your opinion, formed a strategic business
alliance instead of amalgamation / merger?