STRATEGIC ALLIANCES

International Marketing 2nd Assignment

”An association to further the common interests of the members“
 
Inter corporate agreements covering a wide gamut of functions
ranging from component sourcing through R&D to Production &
.Marketing
 
Strategic alliances lead organization to get an opportunity to widen
their customer base, offload or utilize their surplus capacity,
.integrate vertically, use each others strengths and so on
 
: 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
 
Two or more firms that unite to pursue a set of agreed
upon goals, remain independent subsequent to the
.formation of an alliance
 
The partner firms share that benefits of the alliance and
.control over the performance of assigned tasks
 
The partner firms contribute on a continuing basis in
.one or more key strategic areas, sector products, etc
 
 NEED
 
1-Satisfy customer demands.
 
2-Share R&D costs.
 
.Fill knowledge gaps-3
 
.Make scale economies-4
 
Make scope economies : Alliances can enlarge dramatically-5
the scope of a company’s operations. Alliances focusing on
scope help counter the ever-shorter product cycle of
.modern technology
6-Jump market barriers.
 
.Speed in product introduction-7
 
Pre-empt competitive threats-8
 
.Use excess capacity-9
 
.Reduction in costs-10
 
 Advantages of Alliances
 
 Alliances are the quickest way to grow a company,
particularly in times of damage. Without implementing
difficult and time-consuming internal changes, they allow a
company to :
 
 Rapidly move to decisively seize opportunities before they
disappear.
 
 Respond more quickly to change.
 
 Adapt with greater flexibility.
 
 Increase a company’s market share.
 Gain access to a new market or beat others to that
market.
 Quickly shore up internal weaknesses.
 
 Gain a new skill or area of competence.

 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.
 Types of Strategic Alliance
 
 Such alliance may be in the form of :
 
 Management contract.
 
 Franchising
 
 Supply or purchase agreement.
 
 Joint Venture.
 
 Agreement to provide technical services.
 
 Licensing of know-how, technology, design or patent.
 These arrangements differ in scope mainly by
virtue of the following :
 
 Capital commitment.
 
 Structure of organization.
 
 Decision making.
 
 Proportion between risks and reward.
 
 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 :
 
◦ 1-Gain a means of Distribution in International market – It may
beneficial for an exporter to ally with local partner, to understand
the functioning and the local market network.
  
◦ 2-Overcome legal or Regulatory barriers – In some countries it is
mandatory to have local partner in order to conduct business.
Thus, alliances offer suitable options.
  
 
◦ 3-Diversification – It may be advantageous to enter into an
alliance, as a business guide to minimize pitfalls in a new
business territory.
 
◦ 4-Avoiding competition – An alliance may be entered into
with a market leader or a major competitor to avoid
competition.
 
◦ 5-Focus on New Products and Restructuring – An alliance in
the form of a research and development alliance may focus
at the development of new products. Apart from this, an
alliance may also enable the firm to adapt to a more
effective organisational structure.
 
 IMPLEMENTING AND MANAGING THE
ALLIANCE
 
 The success or failure of an alliance is dependent
on how the venture is structured, the kind of
managers placed in charge and how the
responsibilities and strategic missions are divided
among the partners.
 
 The alliance implementation or management plan
must thus be formalized jointly with the partner.
The plan is generally a written document, which
should inter alia, answer the following questions.
 Who will do what?
 How will contributions be made?
 What communications mechanism will be in place for
approvals?
 How will the information flow?
 Who will be the liaison from each company?
 How will be partnership fit in with the existing relationship
of both companies?
 
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
  
◦ A technology-sharing agreement with IBM to develop new data
storage devices using ‘NAND-flash’ memory chips
  
◦ An alliance with IBM and Siemens to develop advanced
semiconductor devices; it has developed the world’s smallest 256-
Mb D-Ram.
  
 ◦ Through an alliance with IBM, Japan, it opened a second
large-size then-film-transistor (TFT) LCD plant.
 
◦ Alliance with National Semiconductor and Samsung
Electronics of Korea to jointly develop and market flash
memory chips.
 
◦ An alliance with Sun Microsystems Inc. of the US in the
areas of rightsizing. Internet and interactive technology to
share product development, marketing and distribution in
these fast-growth areas.
 
◦ 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.
 
◦ An alliance with Time Warner, its partner in TITUS
communications, which aimed to work with cable TV
operators throughout Japan to form a nationwide multiple
system operator network. ]
 Hitachi
 
 Hitachi formed many strategic business relationships in
areas of computers, electronics and technology, which include:
 
 An R & D agreement with Texas Instruments to develop a next-generation
computer memory chip.
 
 Providing chip manufacturing technology to Goldstar electron of Korea
 
 Supplying mainframe computers to Germany’s Comparex and Italy’s Olivetti
 
 A joint venture with GE to sell lighting products in Japan
 
 Joint development of a new gas turbine with GE.
 
 Joint development of new RISC computer chip with Hewlett Packard.
 
 Joint development of medical equipment with Boehringer-Mannheim of
Germany.
 
 Research cooperation between Hitachi Cambridge Laboratory and Cambridge
University of developing a single-electron memory device.
  
Mitsui GE
 
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:
 
 Joint development of software to facilitate links between Apple’s Macintosh
personal computers and IBM’s personal-computer networks.
  
 Development of new System 7 Macintosh software that can run on a IBM-
designed reduced instruction set computing (RISC) microprocessor.
  
 Joint development, in conjunction with Motorola, of a new set of
microprocessors based on IBM’s RISC design.
  A collaborative project to combine both partners’
versions of AT&T’s Unix system. The companies plan to
create a new Unix version that both IBM and Apple can
use with their incompatible machines and networks.
 
 Creation of a joint venture to develop a radically new
approach to software design that will create software for
Apple, IBM and other computers.
 
 Establishing a joint venture to formulate industry
standards for “multi-media”, the simultaneous
processing of video, graphics, voice and text.
 
 The Indian Scenario
 
 Upto 1990, Indian companies were recipients to
technology through licensing or joint ventures with
foreign companies. Most companies had been
concentrating on the domestic market for their
products and had not integrated themselves with the
global market. The economic liberalization measures
initiated in 1991 have changed the scenario. Indian
companies are orienting their operations towards
greater integration with the global market.
 
 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.
 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
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
 ....Thank You

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