Emad Abo El-Enin May-2010
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Definition Motives Success factors Mistakes that could lead to failures Types of classification Examples
Total business conducted through alliances Source: Economist Intelligence Unit Global Survey 1990 : 3-5% 2000: 20% 2005: 30% 2010: 40% “The greatest challenge in corporate culture and the way business is being conducted, may be the accelerating growth of relationships based on partnership, not ownership” (Peter Drucker)
In Average, each fast-growing company is engaged in 5 different types of strategic alliance
Strategic Partner Strategic Partner
In a strategic alliance both parties contribute to their joint venture their respective resources and capability Aim is to add greater value to their respective positions By doing so, to
Increase their financial return To access the capability of their partner which they themselves lack To acquire skills that they themselves may lack
Strategic Alliances Definition
“Two or more bodies working together to achieve
something that one cannot do, or chooses not to do alone, that has a significant and often long term impact, on the organization.”
“A co-operative arrangement between two or more parties who combine their strengths to achieve compatible objectives whilst retaining their individual identities and share the risks and rewards.”
’To be ‘strategic
Must be aligned with organizational strategy For associations, need to focus on member value, not making € Key Question… ‘Can we deliver on our mission statement more effectively by working with partners or by working alone?’ Review Are there any projects on hold or rejected because of lack of resources?
?Why Strategic Alliances
To gain access to specific markets Ex – Chrysler and Benz – to gain access to EU where regulations favor local companies To increase market share To avoid import barriers, licensing, requirements, and other protectionist legislation – GM-Toyota venture to avoid import quotas
?Why Strategic Alliance
Adding value to products/services Improving market access Strengthening operations Adding technological strength Enhancing strategic growth Building financial strength
Businesses use strategic alliances to: ِAchieve advantages of scale, scope and speed Achieve Increase market penetration Enhance competitiveness in domestic and/or global markets Enhance product development Develop new business opportunities through new products and services Expand market development Increase exports Diversify Create new businesses Reduce costs. Strategic alliances are becoming a more and more common tool for expanding the reach of your company without committing yourself to expensive internal expansions beyond your core business.
Critical success factors to SA
Trust Cooperation Communication
Success factors cont
(70%) (68%) (49%) (47%) (40%) (35%) (31%) (30%) (20%) (18%) (13%) (11%) (10%) (9%) (5%)
1. Partner selection 2. Senior management commitment 3. Clearly understood roles 4. Clearly defined objectives 5. Good communication between partners 6. Relationship building 7. Thorough planning 8. Close senior management ties 9. Frequent performance feedback 10. Day-to-day attention 11. Fair sharing of risks, resources & reward 12. Clear payback timelines 13. Alignment of culture 14. Previous alliance experience
Worthwhile 15. Integration of information system
Source: Technical & Alliance Survey of 455 CEO’s
16. High level of trust is the most accurate predictor of success 17. Creation of best value in members eyes 18. High level of commitment to win-win 19. High levels of interdependence - You need each other 20. Strategically important to both partners - Equal commitment & priority -The one for whom priority is highest does most of the work 21. Personal chemistry 22. Integrity 23. Sharp focus & a strong vision of what can be achieved 24. Confidence in partner 25. Good strategic fit i.e. strategic synergy 26. Complementary critical driving forces 27. Compatible style of management 28. Effective mechanisms for resolving disputes - An exit strategy 29. Individual excellence 30. Recognition this is going to take effort 31. Delivery as stated - Removes the performance risk -Otherwise leads to anger & mistrust 32. Realistic performance indicators - Appropriate measurement & metrics
Mistakes that could lead to failures
More failures than successes -In early 90’s, 61% failed (McKinsey) -By 2004, 52% failed -Highest with international alliance 50% fail due to poor planning & 50% due to poor management Can be very dangerous –IBM & Microsoft The good news? 70% improvement if follow best practice So proceed with caution!!
1. Follow a structured process 2. Not enough preparation time - On average takes 8-12 months - Impatience 3. Poor strategy & goals e.g. - Increase revenue to fix a drop in member retention - Underdeveloped membership benefit offer 4. Hidden agenda leading to distrust 5. They are introduced as an objective 6. You create a future competitor 7. Do not share strategy & goals 8. Wrong emphasis early on e.g. - Getting 51% (control) 9. Lack of understanding of what is involved - Unrealistic expectations 10. Fails the ‘public perception test’ & damages your reputations 11. Complex to manage 12. Reactive, not prepared & proactive 13. Some uncomfortable with loss of control 14. Exclusive arrangements upset people 15. Overdependence 16. Lack of commitment from the top 18. Reduced donations 19. Legal problems
Types of Alliance
Types of classification
Alliances come in many shapes and sizes. Terms commonly used are joint ventures, collaborations , formal and informal, equity and non equity ,partnering, and partnerships. You may also have heard the terms merger, acquisition, and outsourcing. Some feel that these are not true “strategic alliances”
Pyramid Of Alliances
/Acquisition Merger Joint Venture
R&D collaborations/Tech Transfer Licensing/Private Label Joint selling and Distributions Joint Marketing
Types of Strategic Alliances
Ventures Outsourcing Affiliate Marketing Technology Licensing Product Licensing Franchising R&D Distributors
Joint Ventures A joint venture is an agreement by two or more parties to form a single entity to undertake a certain project. Each of the businesses has an equity stake in the individual business and share revenues, expenses and profits.
Joint Ventures are agreements between parties or firms for a particular purpose or venture. Their formation may be very informal, such as a handshake and an agreement for two firms to share a booth at a trade show. Other arrangements can be extremely complex, such as the consortium of major U.S. electronics firms to develop new microchips, Charles P. Lickson in A Legal Guide for Small Business.
The 1980s was the decade where outsourcing really rose to prominence, and this trend continued throughout the 1990s to today, although to a slightly lesser extent. “Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation.”
Affiliate marketing has exploded over recent years, with the most successful online retailers using it to great effect. The nature of the internet means that referrals can be accurately tracked right through the order process. Example Amazon was the pioneer of affiliate marketing, and now has tens of thousands of websites promoting its products on a performancebased basis.
This is a contractual arrangement whereby trade marks, intellectual property and trade secrets are licensed to an external firm. It’s used mainly as a low cost way to enter foreign markets. The main downside of licensing is the loss of control over the technology – as soon as it enters other hands the possibility of exploitation arises
This is similar to technology licensing except that the license provided is only to manufacture and sell a certain product. Usually each licensee will be given an exclusive geographic area to which they can sell to. It’s a lower-risk way of expanding the reach of your product compared to building your manufacturing base and distribution reach
Franchising is an excellent way of quickly rolling out a successful concept nationwide. Franchisees pay a set-up fee and agree to ongoing payments so the process is financially risk-free for the company. However, downsides do exist, particularly with the loss of control over how franchisees run their franchise.
Strategic alliances based around R&D tend to fall into the joint venture category, where two or more businesses decide to embark on a research venture through forming a new entity.
Host Country Pharmaceutical Firm Home Country Pharmaceutical Firm
R&D Joint Venture
If you have a product one of the best ways to market it is to recruit distributors, where each one has its own geographical area or type of product. This ensures that each distributor’s success can be easily measured against other distributors.
This is perhaps the most common form of alliance. Strategic alliances are usually formed because the businesses involved want more customers. The result is that cross-promotion agreements are established. Consider the case of a bank. They send out bank statements every month. A home insurance company may approach the bank and offer to make an exclusive available to their customers if they can include it along with the next bank statement that is sent out. It’s a win-win agreement – the bank gains through offering a great deal to their customers, the insurance company benefits through increased customer numbers, and customers gain through receiving an exclusive offer.
Another Types of strategic alliances classification
Vertical alliances are relationships between organizations in different industries. This is a type of alliance most commonly found in the service sector where collaboration of expertise can be coordinated to offer complete solutions to clients.
Individuals from a civil engineering, project management, construction, landscaping and interior design firms all have different areas of expertise, yet together can deliver a complete building solution. None of the firms could bid on a job of this magnitude independently, but as a team they can combine their expertise for as long as necessary.
Horizontal alliances include firms from the same industry. Alliances are usually used to achieve scale, to adjust for seasonal changes or handle niche areas of expertise.
:Example A communications
consulting firm submits a proposal to create a communications plan for an organization that handles politically sensitive issues. The consulting firm decides to include a .political advisor in its proposal
: Administrative Alliance
Generally involves one organization entering into an agreement with another for the provision of administrative services, space or products. The main purpose is to share functions, increase operational efficiency and to reduce costs
sharing office space and a receptionist
Joint Programming or Business Network :Alliance
Two or more organizations form an alliance/joint venture for the purpose of delivering a joint program. The two business entities are taking advantage of their different skills and abilities in an .effective manner
A group of independent consultants come together to develop a management-training program. This may include individuals with expertise indifferent areas such as human resources, leadership and communications skills, and conflict resolution. These consultants will utilize their different skills to develop the program and may then market it by using their respective .client/contacts list
This involves the amalgamation or joining together of two or more organizations, which typically share similar objects, goals, principals and/or services/products. This collaboration typically results in the dissolution of one or both of the initial organization
Two large organizations such as a financial institution or an insurance company may merge, which effectively eliminates a primary competitor. Or on a smaller scale, a group of consultants with different expertise merge to form one company. The individual companies are dissolved.
Another Types of Alliance
Third-party logistics (3PL) Fourth-party logistics (4PL) Retailer-supplier partnerships (RSP) Distributor integration (DI)
Examples of SA Successes and Failures
August 29, 2000
Women.com Partners with Procter & Gamble
Women.com, which provides women with advice, community and shopping on the Web, will incorporate Procter & Gamble's ParentTime.com property into its Web network. Parentime.com is an interactive resource designed to provide comprehensive, personalized information on child rearing. Additionally, Women.com will work to develop unique marketing programs for P&G's beauty care and home care business segments, according to Lillian Gilden, vice president, strategic alliances, Women.com.
Alibaba Group forms strategic alliance with Bank of China on online payment
Published: 23 Jul 2009 Alibaba Group and Bank of China formed a long-term
strategic alliance to collaborate on several e-commerce initiatives including online payment, international business cooperation, small business financing and joint marketing. Under the terms of their alliance, Alibaba Group and Bank of China will jointly develop the Alipay Card (a smart card to be issued by Alibaba Group's subsidiary Alipay, Asia’s largest online payment platform) and a trust rating system. They will also roll out a small enterprise loan-assistance scheme and pursue credit card innovation and other innovations related to import-export and small businesses.
Giorgio Armani and SAMSUNG announce new strategic alliance for the creation of innovative portable and home consumer electronics products
on May 03, 2008
SAMSUNG Electronics, a market leader in consumer electronics, and Giorgio Armani, one of the world’s leading fashion and lifestyle design companies, have announced a groundbreaking strategic alliance for the development of innovative portable and home consumer electronics products, founded on the combination of Giorgio Armani’s iconic design aesthetic and SAMSUNG’s cutting edge technology. Giorgio Armani will create the design aesthetic and SAMSUNG will provide technology and function,
The Walt Disney Company and Coca-Cola Expand Multi-Year Strategic Alliance; DASANI Bottled Water to Be Featured Water at Disney's .U.S. Parks and Resorts
Alliance Includes Promotional and Sponsorship Opportunities, Including Advertising Buys on ABC Television Network The Walt Disney Company and The Coca-Cola Company have expanded their multi-year agreement by which DASANI Water will be the featured bottled water at Disney's U.S. Parks and Resorts The water also will be served on the Disney Cruise Line. The alliance includes sponsorship and promotional opportunities, including advertising buys across Disney's media properties through ABC Unlimited.
In 1990 Volvo and Renault agreed to establish a strategic alliance. They knew each other well through 20 years of industrial co-operation. The motives for the alliance were to exploit sizable potential synergies in joint product development, purchasing and manufacturing and to create complementary firms to compete in the global marketplace.
Chrysler-Fiat Sign Global January 20, 2009
Chrysler had signed a deal with Italy's Fiat to establish what it called a global strategic alliance. The alliance would allow Fiat and Chrysler to take advantage of each other's distribution networks and "optimize fully their respective manufacturing footprint and global supplier base."
Under the terms of deal, Fiat takes an initial 35 percent equity interest in Chrysler for which it will not pay cash nor commit to future funding for Chrysler.
technology sharing, including fuel-efficient and environmentally friendly powertrain technologies, access to additional markets, including distribution for Chrysler vehicles in markets outside of North America. the Chrysler-Fiat alliance also gives Fiat access to the American market, from which it has long been absent. Fiat had plans to begin selling its AlfaRomeo line in the U.S., plans that were postponed or derailed by the current economic crisis.
GSK announces a strategic alliance with Dr. Reddy’s to further accelerate sales growth in emerging markets
15 June 2009,
GlaxoSmithKline plc (GSK) announced an agreement with Dr. Reddy’s Laboratories Ltd (Dr. Reddy’s) to develop and market selected products across an extensive number of emerging markets,
About Dr. Reddy’s
Dr. Reddy’s Laboratories is an emerging global pharmaceutical company that fulfills its purpose of providing affordable and innovative medicines through three core businesses: 1-Pharmaceutical Services and Active Ingredients 2-Global Generics 3-Proprietary Products. Their products are marketed globally, with a focus on India, US, UK, Germany and Russia.
WARNER BROS. INTERNATIONAL THEATRES AND PEPSI FORM STRATEGIC ALLIANCE
Warner Bros. International Theatres and Pepsi-Cola Company announced a multi-year strategic alliance to quench the rapidly growing thirst of young audiences for the ultimate movie experience. Under terms of the deal, International Pepsi-Cola Company brands such as Pepsi, Mirinda and 7Up -- as well as other regional brands -- will have exclusive pouring rights at all existing and projected Warner Bros. International Theatres under Warner Bros. management. The agreement will cover 358 movie screens at 43 theatres in six countries, including: Great Britain, Spain, Germany, Portugal, Italy and Japan.
Pepsi will be one of the sponsors for the United Kingdom and Spain's premieres of "Batman & Robin," the highly anticipated fourth adventure in the blockbuster Batman series, with a major promotional campaign at Warner Bros. International Theatres. Pepsi and Warner Bros. plan to launch a broad range of innovative marketing efforts, including: promotional tie-ins with major movies, lobby merchandising campaigns and specially designed fountain equipment featuring the Looney Tunes cartoon characters.
Honda and Hong Kong Disneyland Form .Strategic Alliance
As part of the alliance, Honda will be the official sponsor of the Park's new and immersive Autopia attraction, which allows guests of all ages to drive to the future aboard shiny electric cars. Honda will also support the Park's "Wild About Safety Campaign" - a campaign dedicated to promoting guest safety and comfort while enjoying the Park. In addition, Honda has obtained exclusive rights in featuring the park's images to promote their automobiles, motorcycle and selected power equipment products in Hong Kong and mainland China.
Prince Alwaleed's Rotana in strategic alliance with Disney
December 15, 2009
Rotana Media Group, one of the largest media groups in the region and Fox International Channels (FIC), the international television channels arm of Rupert Murdoch’s News Corporation , today announced that viewers in the Middle East and North Africa region will have access to more of the world’s best family entertainment after signing a multi-year output deal with The Walt Disney Company. This collaboration will provide a compelling proposition to Rotana’s bouquet of offerings to viewers and the trade community across the Middle East region. The deal,, will bring Disney and ABC’s much-loved television series and movies to the region’s viewers free-to-air on Fox Movies and Fox Series channels, including content from the Academy Award®winning animation studio, Disney/Pixar.
Like a good marriage –takes effort,
commitment &enthusiasm, not control &ownership