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Jack Welch, former Chairman of G.E.
STRATEGIC ALLIANCES – Module III
• Strategic Alliances • Types of Strategic Alliances • Reasons for Strategic Alliances • Risks of Strategic Alliances • Stages of Alliance Formation Examples • Major strategic alliances of Samsung electronics • LG Electronics alliance portfolios • Sun Microsystems alliance portfolios • Philips Alliances
Strategic Alliance is a significant long/term partnership and collaborative agreement entered into by two or more companies to pursue a set of agreed upon critical goals while remaining (legally) independent organizations. These collaborations can come in many shapes and sizes, including contractual and equity forms. It normally is a synergistic arrangement whereby the participating organizations each brings different strengths and capabilities to the alliance.
“The whole is greater than sum of parts”
expertise. manufacturing capability. or intelle ctual property. pro ject funding. distribution channe ls. knowledge. Partners may provide the strate gic alliance with resources such as products. Ex : Star Alliance Strategic alliance . capital equipment.
Firm A Partnerships between firms where their Firm B Resources Capabilities are combined to pursue mutual interests to Develop Manufacture Distribute Services Goods Core Competencies .
Strategic Alliance e. Du Pont & Sony developing optical memory storage products 6. Siemens & Toshiba working together to create new generation memory chips 5.g. GM & Hitachi collaborating to produce electronic components for automobiles . GM’s components division supplies components to Toyota 2. Alliances of major US airlines with smaller carriers in Europe 4.: 1. IBM. Canon produces medium volume copiers for sale in Kodak’s name 3.
PROS/CONS of Strategic Alliance PROS Sharing costs/risks Developing new technologies Capturing economies of scale Access to new markets/technologies Organizational learning Overcoming governmental barriers CONS - Possible opportunistic behavior of partners Searching costs Coordination costs Monitoring costs Technology/information leakage .
Types of Strategic Alliances Joint Venture Independent firm is created by the joining assets fro m two other firms where each contributes 50% of the total Example: Dow Corning from Dow Chemical and Corning Inc. Equity Strategic Alliance Partnership where the two partners do not own equal s hares Example: Chrysler and Mitsubishi Automotive Non-Equity Strategic Alliance Contract is given to supply. produce or distribute a firm’s goods or services (without equity sharing) Example: Chrysler’s supplier network .
Types of Strategic Alliances Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries. Sometimes formed between company and a foreign government. or among companies and governments .
Reasons of Strategic Alliances STRATEGIC ALLIANCE MOTIVES > Sharing costs and risks > Formulating technical standards and designs > Preempting key competitors > Combining complementary skills > Accessing new markets and technologies > Reserving learning opportunities .
customs. objectives and metrics for the alliance. culture. and how future financial contributions will be addressed. 5. and other re quirements.Commit to clearly understanding how the alliance will be financed. 4. and h olidays in the country where the strategic alliance is located. history. it is essential that you make at least the following thirteen critically important co mmitments. with Key Result Areas ( “KRAs”) by functional department.Commit to managing risk by monitoring compliance with applicable regulatory. 3. . legal.Commit to considering a code of conduct that is enforced so that everyone understands and is h eld accountable to the business values of the alliance. 6. 7.STRATEGIC ALLIANCES 13 CRITICAL COMMITMENTS FOR STRATEGIC ALLIANCES If you are considering a strategic alliance. how losses and profits will be determined and allocated. 1. 2.Commit to becoming conversant with at least the basic language.Commit to having the strategic alliance managed well using a governance structure that makes it clear how decisions will be made and by whom.Commit to articulating what you will consider success or failure (so you know when to hold and w hen to fold) and within stated time frames.Commit to having clear purposes.
and af ter the alliance. written exit strategy. 13 . 10 . 11 .Commit to using alternative dispute resolution when the inevitable disagreements arise. entrance strategy and strategic plan. and to having excellent in ternal controls including segregation of duties 9 .Commit to building and managing the alliance’s “relationship capital through con tinuous communication and pro-active exchange of information before. . for everything there is a time and a season and nothing lasts forever.Commit to having business legal counsel with experience in the area of the allian ce to prepare the alliance document that helps you achieve your business objectives and which reflects your business decisions. written.Commit to having a clear. face to face. on site operational reviews.Commit to being actively engaged in the operation of the alliance and to having re gularly scheduled.STRATEGIC ALLIANCES 13 CRITICAL COMMITMENTS FOR STRATEGIC ALLIANCES 8 . during.Commit to having a clear. 12 .
. creating strategies for accommodating all partners’ management styles. preparing appropriate partner selection criteria. technology. objectives and rationale. and people. focusing on the major issues and challenges and development of resource strategies for production. Partner Assessment Contract Negotiation Alliance Operation Partner Assessment analyzing a potential partner’s strengths and weaknesses.Stages of Alliance Formation Strategy Development Strategy Development studying the alliance’s feasibility. understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner.
finding the calibre of resources devoted to the alliance. penalties for poor performance. linking of budgets and resources with strategic priorities. Alliance Operation addressing senior management’s commitment. and highlighting the degree to which arbitration procedures are clearly stated and understood. and measuring and rewarding alliance performance. defining each partner’s contributions and rewards as well as protect any proprietary information. forming high calibre negotiating teams. addressing termination clauses.Stages of Alliance Formation (cont’d) Strategy Development Partner Assessment Contract Negotiation Alliance Operation Contract Negotiation determining whether all parties have realistic objectives. .
Longing of Partner for the Alliance .Success factor of Strategic Alliance Compatibility Existing Networks. Corporate Culture of Partner 3C Capability Resources and Core Competence of Partner Commitment Passion.
1996). and to reduced management control . 1997 Spekman et al. to loss of competitive knowledge. to conflicts resulting from incompatible cultures and objectives. Dacin et al . A study of almost 900 joint ventures found that less than half were mutually agreed to have been successful by all parties (Harrigan. 1986.Risks of Strategic Alliances Strategic alliances can lead to competition rather than cooperation. .
Reasons for Failure 60% of partnerships fail! Lack of partnership experience Cultural mismatch Misunderstood operating principles Lack of financial commitment Slow results or payback Lack of shared benefits Poor communications Overly optimistic 0 50 20 Caution 28 31 32 Critical 42 49 54 73 100 Source: “Alliance Analyst” Survey of 455 CEO’s .
An alliance can fail for many reasons failure to understand and adapt to a new style of management failure to learn and understand cultural differences between the organizations lack of commitment to succeed strategic goal divergence insufficient trust operational and geographical overlap unrealistic expectations .
com/us/aboutsamsung/companyprofile/ . co-produce and jointly market DVD recorders Sell side-by-side refrigerators through a network of more than 500 re tailers Co-develop digital household electronics Source : http://www.Major strategic alliances of Samsung electronics Partners KDDI Bang & Olufsen Kent State University Qualcomm Toshiba (TSST) Areas of Cooperation Supply CDMA2000 1xEV-DO network equipment in Eastern Japan Partner in home theater business Co-develop display technologies Cooperation in MDDI (Mobile Display Data Interface) technology Develop and market optical storage devices Sony (S-LCD) IBM Dell Hewlett-Packard Disney Napster Sony NEC Matsushita Best Buy Microsoft Establish joint venture for 7th generation LCD (1870 x 2200 mm) line Co-develop nano-logic process technologies Supply multi-functional laser printers Share technology for ink-jet printers Supply "Movie Beam" set-top box for VOD Co-develop and market Samsung-Napster player Expand and consolidate memory stick business Cooperate in high-end business computer systems Standardize technology.samsung.
LG Electronics alliance portfolios .
2%) Sun micro systems Customers ( 5.5%) Others (2.Sun Microsystems alliance portfolios Competitor (16%) Suppliers ( 20.8%) Complementors (54.9%) .
EDS..Sun Microsystems business and alliance strategy Business Strategy • Highly vertical: ownership of technology (operating system plus CPU). Netscape/AOL) to deliver applications and services • Internet/e-commerce specialist . Andersen Consulting) • Licensing of technology (e. Solaris.g. SPARC) to develop industry standards • Align with resellers to sell into indirect channels • Outsource manufacturing of SPARC chips to Texas Instruments • Internet alliances (e. Java.. provide services • Use of shared software and hardware components among different vendors to create industry standards • Belief in open systems to allow computers to talk to one another Alliance Strategy • Align with partners to provide services (e.g. IBM.g..
7%) Dell computers Customers ( 3.Dell computers alliance portfolios Competitor (10.9%) Complementors (38.8%) Others (4.7%) Suppliers ( 41.9%) .
EDS. Andersen Consulting • Generate revenue “outside the box” by aligning with Internet service providers (e. first-to-market with latest technology) • Desire to move into the enterprise computer market Alliance Strategy • OEM alliances with key component suppliers such as Intel • Service alliances with Decision One.g. AOL) • Streamline logistics with suppliers by implementing valuechain. IBM) to move into enterprise market ..g.Dell computers business and alliance strategy Business Strategy • Virtual integration: control flow of information from suppliers to customers • Assembler versus owner of technology • Direct model (with both suppliers and customers) offers competitive advantage (low cost.com • Distribution alliances with valueadded resellers and retailers to gain international presence • Technology transfer agreements (e.. IBM.
Asiana airlines alliances with competitiors (Star alliances) Codeshare agreements of airline industry First truly global airline alliance .
Founder Group sees the alliance as a response t to increased competition from Intel. they will target the publishing sector.com and the rec ent launch of free auction services in Hong Kong. The partnership will leverage the two companies' respective user bases. The alliance also combines Yahoo’s expertise and tech nology in the auction platform with Sina’s market reach and brand in China The venture follows eBay's purchase of the remaining stake in Shanghai-based Eachnet. It is expected to help Yahoo improve its ma rket position on the mainland. while AMD sees this move as a way to make a new start to its business in China. Initially. Sina has 83 million registered users.and medium-sized busin esses in China and offer auctions and fixed-price sales. The co-branded website will provide services for small.in an effort t o increase its market share in China AMD recently formed an alliance with the Founder Group. Yahoo and Sina Sina (the leading mainland internet portal) and Yahoo have teamed up to offer auction servic es in China. of which the Group has a more than 80). which has dominated the local market. . The latter will make and sell computers based on AMD's 64-bit microprocessors. Yahoo’s China traffic figures are estimated to be 78 million.PRODUCTS PORTFOLIO Advanced Micro Devices (AMD) and Beijing University Founder Group -.
Wash.Nortel and Microsoft Nortel and Microsoft Form Strategic Alliance to Accelerate Transformation of Business Communications Microsoft CEO Steve Ballmer (R) and Nortel President and CEO Mike Zafirovski today announced a strategic alliance between the two companies at Microsoft headquarters in Redmond. .
Philips Alliances .
What is FlexRay? (Philips) FlexRay – Industry Standard Development .
. partnerships or corporations that continue to operate independently from the other except for activities related to the Joint Venture.Joint Ventures A “union” of two or more parties who contractually agree to contribute to a specific venture which is usually limited to a specific task for a specific period of time A joint venture is a separate legal entity generally governed under partnership law—which varies from state to state The JV parties can be individuals.
joint venture between TVS and Suzuki Joint venture of Samsung & Texas Instruments to manufacture semiconductors in Portugal Samsung-HP joint venture to market HP’s products in Korea . venture between Govt of India & Suzuki TVS-Suzuki .g.: Maruti Udyog – Jt.e.
Pros and cons of Joint Ventures Advantages ◦ Allows for sharing of risk (both financial and political) ◦ Provides opportunity to learn new environment ◦ Provides opportunity to achieve synergy by combining strengths of partners ◦ May be the only way to enter market given barriers to entry Disadvantages ◦ Requires more investment than a licensing agreement ◦ Must share rewards as well as risks ◦ Requires strong coordination ◦ Potential for conflict among partners ◦ Partner may become a competitor .
To operate under a JV. all parties have decided to keep core business separate and limit interaction to joint operations. .Components of a JV Agreement The Union ◦ The contract can be viewed as a pre-nuptial agreement ◦ The alliance is the union ◦ The new legal entity can be viewed as the child. The Separation ◦ Separation is inevitable because JVs generally have a limited life and purpose.
Strategic Alliance Joint Venture Strategic Alliance Contractual Separate legal entity Significant matters of operating and financial policy are predetermined and “owned” by the JV May or may not be contractual Generally. not a separate legal entity Significant matters of operating and financial policy may or may not be predetermined but are “owned” by the individual participants .JV vs.
Strategic Alliance (cont’d) Joint Venture Strategic Alliance Exist for a specific time Exist for a specific project or purpose Limited with respect to future expectations Indefinite life or a specific time Fluid and allows for greater amounts of ambiguity .JV vs.
Joint Venture C Strategic Alliance A A B B A B Companies A and B combine to form a new company C Companies remain independent .
Motives for IJV Formation New Markets To take existing products to new markets To strengthen the existing business To diversify into a new business To bring foreign products to local markets Existing Markets Existing Products New Products .
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