Collaboration Strategies

- Chapter 8

HUFS

IME

Table of Contents
OPENING CASE : The XenoMouse
OVERVIEW
REASONS FOR GOING SOLO
- Availability of Capabilities
- Protecting Proprietary Technologies
- Controlling Technology Development and Use
- Building and Renewing Capabilities
ADVANTAGES OF COLLABORATING
TYPES OF COLLABORATIVE ARRAGEMENTS
- Strategic Alliances
- Joint Ventures
- Licensing
- Outsourcing
- Collective Research Organizations
CHOOSING A MODE OF COLLABORATION & MONITORING PARTNERS

HUFS

IME

Opening case : The XenoMouse

Discussion Questions:
1. What are the pros and cons of Abgenixs collaborating with a partner on
ABX-EGF?
2. If Abgenix chooses collaboration, would it be better off licensing ABX-EGF
to the pharmaceutical company or forming a joint venture with the biotech
company?
3. How does Abgenixs decision about collaborating for ABX-EGF impact its
prospects for its other drug development projects?

HUFS

IME

Opening case : The XenoMouse

The XenoMouse
- After spending 7 years and $40 million in research and development, Abgenix
had created a very special mouse. The XenoMouse was a strain of genetically
engineered mice capable of producing antibodies with human protein sequences.
- These antibodies had great potential for treating human illnesses, including
cancer, arthritis, and organ transplant rejection .
- Major pharmaceutical and biotechnology companies were lined up to license
access to XenoMouse, and the stock market was so enthusiastic about Xeno
Mouses prospects that it drove Abgenixs market capitalization up to $3
billion by 2000.

HUFS

IME

Opening case : The XenoMouse

The XenoMouse
- Abgenix had plans for two different ways to derive revenues from XenoMouse.
- First, it licensed pharmaceutical or biotechnology
companies the rights to use
XenoMouse to develop antibodies for a specific disease target the companies
had identified. (Average fees before commercialization ranged from $7 million
to $10 million, royalties were 5 to 6 percent of sales)
- Second way of deriving revenues was to develop its own drugs through early
the rights
stages of testing and then license
to develop and market the drug
to another company.
- One of Abgenixs drug development programs, ABX-EGF had eradicated
human cancer tumors from every test mouse in which the tumors had been
injected.
- Abgenix had to make some important decisions about whether, and how,
it would use partners to further develop the ABX-EGF antibodies.
(handing-off option, joint venture option, solo development option)

HUFS

IME

Opening case : The XenoMouse

The Handing-Off Option
- A large pharmaceutical company was interested in licensing the worldwide
rights to the ABX-EGF technology.
- The company seemed like a good potential partner because if had the skills
and resources necessary to guide ABX-EGF through the necessary testing
and regulatory process, as well as commercially launching and marketing
the drug if it were approved.
- The pharmaceutical company was willing to pay up-front fees and a royalty
rate that was considered high by industry standards.

HUFS

IME

Opening case : The XenoMouse

The Joint Venture Option
- A biotechnology firm was interested in a 50/50 joint venture with Abgenix.
- Abgenix and the biotech company would split the cost of developing ABX-EGF.
- The two companies would then share the profits if the drug proved successful.
- Recognizing that Abgenix had already done significant work on the program,
the biotech firm agreed to make some additional up-front payments to Abgenix.

HUFS

IME

Opening case : The XenoMouse

The Solo Development Option
- Abgenix was also considering pursuing further development of ABX-EGF on
its own.
- This option meant that Abgenix would need to develop the in-house capabilities
to bring the product through the testing and regulatory process.
- By late 2001, management at Abgenix was leaning toward developing the drug
in-house and also had plans to build a large manufacturing facility.
- Abgenix was burning through its cash quickly, and after the stock market had
soured in 2001, cash had gotten harder to come by.
- Adding still more urgency to the situation was the fact that heavy hitters such
as Genentech and AstraZenca were also developing their own drugs targeting
the EGF pathway.

HUFS

IME

Overview
Firms frequently face difficult decisions about the scope of activities to perform
in-house, and whether to perform them alone as a solo venture or to perform them
collaboratively with one or more partners.
Collaboration can often enable firms to achieve more, at a faster rate, and with less
cost or risk than they can achieve alone.
Collaboration also often entails relinquishing some degree of control over development
and some share of the expected rewards of innovation, plus it can expose the firm to
risk of malfeasance by its partner(s).

HUFS

IME

REASONS FOR GOING SOLO

Availability of Capabilities
- If a firm has all of the necessary capabilities for a project, it may have little
need to collaborate with others and may opt to go it alone.
- For example, in the 1970s Monsanto was interested in developing food crop
seeds that were genetically modified to survive strong herbicides.
(Roundup Roundup Ready soybeans)
Protecting Proprietary Technologies
- Firms sometimes avoid collaboration for fear of giving up proprietary
technologies.
- Furthermore, the firm may wish to have exclusive control over any proprietary
technologies created during the development project.

HUFS

IME

REASONS FOR GOING SOLO

Controlling Technology Development and Use
- Sometimes firms choose not to collaborate because they desire to have complete
control over their development processes and the use of any resulting new
technologies.
- Pragmatic reasons : The new technology is expected to yield high margins and
the firm does not wish to share rents with collaborators.
- Culture reasons : A companys culture may emphasize independence and selfreliance.
- EX) HONDA by Honda President Its better for a person to decide about
his own life rather than having it decided by others.
Building and Renewing Capabilities
- Firms may also choose to engage in solo development even when partnering
could save time or money because they believe that development efforts are
key to building and renewing their capabilities. EX) Sonic Cruiser

HUFS

10

IME

ADVANTAGES OF COLLABORATING
Collaborating can enable a firm to obtain necessary skills or resources more quickly
than developing them in-house. Given time, the company can develop such complementary assets internally.
Obtaining some of the necessary capabilities or resources from a partner rather
than building them in-house can help a firm reduce its asset commitment and
enhance its flexibility. (Product life cycles shorten, High speed technological change)
Collaboration with partners can be an important source of learning for the firm.
One primary reason firms collaborate on a development project is to share the costs
and risks of the project.
Firms may also collaborate on a development project when such collaboration would
facilitate the creation of a shared standard. EX) WAP stands for Wireless Application
Protocol

HUFS

11

IME

ADVANTAGES OF COLLABORATING
The National Cooperative Research Act (NCRA) of 1984, collaborative research
between firms had been restricted by antitrust regulation
- From 1985 to 2003, more than 900 research joint ventures were registered in
the NCRA database (see Figure 8.1)
- Worldwide, use of technology or research alliances has more than doubled
since 1980 (see Figure 8.2)
- As firms forge collaborative relationships, they weave a network of paths
between them that can act as conduits for information and other resources.
engine of innovation

HUFS

12

IME

TYPES OF COLLABORATIVE ARRANGEMENTS

Strategic Alliances
- Firms may use strategic alliances to access a critical capability that is not
possessed in-house or to more fully exploit their own capabilities by leveraging
them in another firms development efforts.
- Even firms that have similar capabilities may collaborate in their development
activities in order to share the risk of a venture or to speed up market development and penetration.
- Alliances can enhance a firms overall level of flexibility.
- Alliance relationships often lack the shared language, routines, and coordination
that facilitate the transfer of knowledge.

HUFS

13

IME

TYPES OF COLLABORATIVE ARRANGEMENTS

Strategic Alliances (contd)
- Yves Doz and Gray Hamel argue that it is useful to categorize a firms alliance
strategy along two dimensions.

Capability
Complementation
Capability
Transfer

HUFS

Individual
Alliance 2n

Network of
Alliances
1
p( Ri ) Corning
GE-SNECMA
Glass
i 1

Thomson-JVC

14

Aspla

IME

TYPES OF COLLABORATIVE ARRANGEMENTS

Joint Venture
- Joint ventures are a particular type of strategic alliance that entails significant
structure and commitment.
- The capital and other resources to be committed by each partner are usually
specified in carefully constructed contractual arrangements, as is the division
of any profits earned by the venture.
Licensing
- Licensing is a contractual arrangement whereby one organization or individual
obtain the rights to use the proprietary technology of another organization
or individual.
- Sometimes firms license their technologies to preempt their competitors from
developing their own competing technologies. To imitate

HUFS

15

IME

TYPES OF COLLABORATIVE ARRANGEMENTS

Outsourcing
- Firms might outsource activities to other firms. By 2003, worldwide spending
on outsourcing services had exceeded $100 billion.
- Contract manufacturing allows firms to meet the scale of market demand without committing to long-term capital investments or an increase in the labor force
thus giving the firm greater flexibility.
Collective Research Organizations
- In some industries, multiple organizations have established cooperative research
and development organizations such as the Semiconductor Research Corporation
or the American Iron and Steel Institute.
- Many of these organizations are formed through government or industry association initiatives. Its purpose was to promote collaboration among industry,
government, and academic organizations.

HUFS

16

IME

CHOOSING A MODE OF COLLABORATION

Potential for
Leveraging
Existing
Competences

Potential for
Developing New
Competencies

Potential for
Accessing
Other Firms
Competencies

Speed

Cost

Control

Solo Internal
Development

Low

High

High

Yes

Yes

No

Strategic
Alliances

Varies

Varies

Low

Yes

Yes

Sometimes

Joint Venture

Low

Shared

Shared

Yes

Yes

Yes

Licensing
In

High

Medium

Low

Sometimes

Sometimes

Sometimes

Licensing Out

High

Low

Medium

Yes

No

Sometimes

Outsourcing

Medium/
high

Medium

Medium

Sometimes

NO

Yes

Low

Varies

Varies

Yes

Yes

Yes

Collective
Research
Organizations

HUFS

17

IME

CHOOSING AND MONITORING PARTNERS

Gaining access to another firms skills or resources through collaboration is not
without risk. It may be difficult to determine if the resources provided by the
partner are a good fit, particularly when the resource gained through the collaboration is something as difficult to assess as experience or knowledge.
Managers can monitor and effectively manage only a limited number of collaborations, the firms effectiveness at managing its collaborations will decline
with the number of collaborations to which it is committed.
Partner selection
- Resource fit refers to the degree to which potential partners have resources
that can be effectively integrated into a strategy that creates value.
- Strategic fit refers to the degree to which partners have compatible objective
and styles.
Partner Monitoring and Governance

HUFS

18

IME