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chapte

7
Chapter
7
Making
Strategic
Alliances
and
Networks
Work

Global Strategy
Strategy
Global
Mike W. Peng
Mike W. Peng

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2014
2014 Cengage
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Outline
Defining strategic alliances and networks
A comprehensive model of strategic alliances
and networks

Formation
Evolution
Performance
Debates and extensions
The savvy strategist
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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Defining Strategic Alliances and


Networks

Strategic alliances are voluntary agreements


between firms

Strategic alliances are compromises between pure


market transactions and mergers and acquisitions

Alliances fall into two broad categories:


contractual (non-equity) and equity-based

Strategic networks are strategic alliances formed


by multiple firms to compete against other
networks and singular firms
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website, in whole or in part.

The Variety of Strategic Alliances


Strategic Alliances
A compromise between short-term, pure
market transactions (e.g., spot transactions)
and long-term, pure organizational solutions
(e.g., mergers and acquisitions)
The Variety of Strategic Alliances

Mergers
Mergers
and
and
Acquisitions
Acquisitions
(M&A)
(M&A)

Market
Market
Transactions
Transactions

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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 7.1

A Comprehensive Model
of Strategic Alliances
and Networks

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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 7.2

A Comprehensive Model of
Strategic
Industry-based
considerations
Alliances
and Networks

Traditional: Firms are independent players


The dynamic of five forces:
Horizontal alliances, entry barriers, upstream
alliances with suppliers, downstream vertical
alliances with buyers, and alliances and networks
to provide substitute products/services

Resource-based considerations
The resource-based view is embodied in the
VRIO framework, which are value, rarity,
imitability and organizational aspect of
strategic alliance and networks
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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Strategic Alliances and Networks:


Advantages and Disadvantages
Strategic alliances and networks must create
value
Advantages must outweigh disadvantages

ADVANTAGES

DISADVANTAGES

Reduce costs, risks, and uncertainties

Possibilities of choosing the wrong partners

Gain access to complementary assets and capabilities

Costs of negotiation and coordination

Opportunities to learn from partners

Possibilities of partner opportunism

Possibilities to use alliances networks as real options

Risks of helping nurture competitors (learning race)

Table 7.1
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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Formation
Stage one: To cooperate or not to cooperate
Stage two: Contract or equity?
Stage three: Positioning the relationship

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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

A Three-Stage Decision Model


of Strategic Alliance and
Network Formation

Source: Adapted from S. Tallman & O. Shenkar, 1994, A managerial decision model of international
cooperative venture formation (p. 101), Journal of International Business Studies, 25 (1): 91113.

Figure 7.3
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website, in whole or in part.

Stage Two: Contract or Equity?


EQUITY-BASED
ALLIANCES/NETWORKS

NON-EQUITY-BASED
ALLIANCES/NETWORKS

Nature of shared resources


(degree of tacitness and complexity)

High

Low

Importance of direct organizational


monitoring and control

High

Low

Potential as real options

High (for possible upgrading to M&As)

High (for possible upgrading to


equity-based relationships)

Influence of formal institutions

High (when required or encouraged by


regulations)

High (when required or encouraged by


regulations)

DRIVING FORCES

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Evolution
Combating opportunism
Need to protect against opportunism
Contractual safeguards and credible commitment

Evolving from strong ties to weak ties


Strong ties are cultivated over a long period of time
Weak ties are characterized by infrequent
interaction and low intimacy
Firms have a combination of strong ties and weak
ties
Benefits of the different types of ties depend on the
firms strategies
Many interfirm relationships evolve from an
emphasis on strong ties to a focus on weak ties
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Evolution (cont.)
Going through a divorce
Initiation
Going public
Uncoupling
Aftermath

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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Performance
The performance of strategic alliances and
networks
A combination of objective and subjective
measures can be used to determine
performance
Four factors may influence the performance of
alliances and networks: equity, learning and
experience, nationality, and relational
capabilities

The performance of parent firms


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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Alliance- and Network-Related Performance Measures


ALLIANCE/NETWORK LEVEL

PARENT FIRM LEVEL

Objective

Objective

Financial performance (for example, profitability)

Financial performance (for example, profitability)

Product market performance (for example, market share)

Product market performance (for example, market share)

Stability and longevity

Stock market reaction

Subjective

Subjective

Level of top management satisfaction

Assessment of goal attainment

Table 7.4
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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Debates and Extensions


Majority JVs as control mechanisms versus
minority JVs as real options
Alliances versus acquisitions
Acquiring versus not acquiring alliance partners

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copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Improving the Odds for Alliance Success

AREAS

DOS AND DONTS

Contract versus chemistry

No contract can cover all elements of the relationship. Relying on a detailed contract does
not guarantee a successful relationship and it may indicate a lack of trust.

Warning signs

Identify symptoms of frequent criticism, defensiveness (always blaming others for


problems), and stonewalling (withdrawal during a fight).

Investment in the relationship

Like married individuals working hard to invigorate their ties, alliances require continuous
nurturing. Once a party starts to waver, it is difficult to turn back.

Conflict resolution mechanisms

Good married couples also fight. Their secret weapon is to find mechanisms to avoid
unwarranted escalation of conflicts. Managers need to handle conflicts-inevitable in any
relationship-in a credible, responsible, and controlled fashion.

Source: Based on text in M. W. Peng & O. Shenkar, 2002, Joint venture dissolution as
corporate divorce (pp. 101102), Academy of Management Executive, 16 (2): 92105.

Table 7.7

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website, in whole or in part.

The Savvy Strategist


New generation of strategists needs to be savvy

at both competition and cooperation


co-opetition
Improving relational (collaborative) capabilities is
crucial for success
Need to understand the rules of game governing
networks - both formal and informal
Carefully weigh the pros and cons associated
with alliances and acquisitions
Copyright 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.