International Strategic Alliance

Group 3

1 Definition 2 Reasons for ISA 3 Purpose/Benefits 4 Types 5 Characteristics 6
CaseCase-LG Philips LCD

What is Strategic Alliance?
Strategic Alliance refers to spontaneous cooperation between two or more companies who seek to meet strategic goals for a specific term. It enables companies to survive, grow, and prosper by meeting diverse consumers various demands that are rapidly changing.

International Strategic Alliance refers to those strategic alliances that cross national borders and aren t limited to specific fields of business.

What makes companies to join an alliance? The change of business nature from a competition to grab a dominant position to cooperation to compete Effective usage of limited resources Growing similarities among taste and favors of customers worldwide Shortened product life cycle/span and acceleration of technology development .

Possible Benefits and Purposes ‡ 1) Risk reduction stable profit by diversification of product portfolio distributed and reduced fixed expense reduced cost of capital investment quick market entrance and revulsion of capital .

Possible Benefits and Purposes ‡ 2) Economy of scale. using the competency of the partner company regarding cost . Optimization of management reduced cost of unit production by massive scale of production reduced cost.

Possible Benefits and Purposes ‡ 3) Strengthening the ground for competition reduced competition through alliance increased market share .

Possible Benefits and Purposes ‡ 4) Utilizing the partner company¶s dominant position in the market acquisition of technology through R&D activity of the partner company access to resources and labor power acquisition of capital for investment access to routes of transportation avoiding regulations from regional government .

engineering service to cross-licensing. production technology. joint technology development. Fields of technology alliance expanding-ly include from patents.Type of SA ± contents based ‡ 1) Technology Today s complex and highly-interdependent environment of the technology leads companies to form an alliance. . brand.

Subcontract between a large sized firm and small/mid sized companies used to be a main form. . however. the current shift covers to bi/multi-lateral between large sized firm.Type of SA ‡ 2) Purchase Purchase alliance is formed to secure stable sources and includes mutual supply of parts or whole products.

service improvement. responsiveness to product life cycle. . Its types are joint production. flexibility on labor supply. and outsourcing. OEM production.Type of SA ‡ 3) Production Production Alliance refers to joint production/supply of management resources among participating companies to secure the market and obtain technology in the process. It benefits participating companies with lower labor cost. securing larger market with lower supply cost.

and improved customer service. and selling products together.Type of SA ‡ 4) Marketing Marketing Alliance is formed between/among firms wishing to take advantage of each other s marketing capability. developing joint brand. Its types are consigning goods for sale. reduced transportation/storage cost. . It gives some advantages to joining firms such as shortened time needed for market entrance and brand building. It also enables firms to react quickly to some changes in the market and hence take a dominant position relatively easily.

Type of SA ± interdependence based R&D Agreement Licensing Franchising Supply Agreement Cross-Licensing Marketing Agreement Joint Production Consortium Joint Venture Series Mutual Shared .

Smooth cooperation at the beginning stage.Prepare articles for agreement termination . M&A Strong companies in complementary relationship Cooperation between compatible partners .Maintain strong partnership .Set clear leadership . with high probability of termination in relatively long period .Work on having bargaining power .Limited-term. financial goal business area .Type of SA ± bargaining power based Classification Characteristics of allying company Alliance strategy Cooperation between/among competing companies Complementary cooperation To-be-disposed cooperation Strong companies -High probability of failure in competing over core meeting strategic.Build flexibility and balance .

Decisively terminate the cooperation if needed .Type of SA ± bargaining power based Disguised cooperation Cooperation between -High probability of following a strong company and the law of the jungle a weak company .High probability of termination of the cooperation through merger and acquisition from a third party Independence formed cooperation Cooperation between/among weak companies .High probability of the a strong company and weak s leaving after learning a weak company technology and know-how of the strong company (from the point of the strong) Alliance between/among two or more weak companies .Secure a vantage ground (from the point of the weak) Cooperation between .

in terms of comparison with conventional business partnership Specification Target Market Purposes Conventional business partner ship Limited area.Characteristics of SA. region Economic ones to reduce risk and cost Strategic Alliance Worldwide To quickly react to technology innovation. and to secure comparative competitiveness Horizontal network among competing companies within the same industry Relationship Vertical cooperation such as management at developed nation and labor/production at developing/transitional nations . pursue economy of size. reduce R&D cost and risk.

in terms of comparison with conventional business partnership Specification Conventional business partner ship One way i. joint investment to establish subsidiaries. limited Short-term. Multiple contracts Form of cooperation Areas of cooperation Duration of cooperation Type Fixed form. unit contract Single business.e. complex contract Multiple business.g. single contract . single cooperation Technology licensing. continued negotiations Cross-licensing. transfer of technology Strategic Alliance Direction of cooperation Two ways e. joint technology development. organic Flexible term.Characteristics of SA. common task operation Unfixed form.

Case ± LG Philips LCD 1. 1998 . 1995 .establish LCD division. 1993 . 198 TFT.start to develop TFT-LCD.first export of LCD to Taiwan. Basic information 1) LG .LG LCD separation from LG Electronics. 1999 .$ 500 mil sales.

Case ± LG Philips LCD 1. of the world s biggest electronics .9 bil in 1998 . shavers .600 employees in more than 60 countries .Royal Philips Electronics of the Netherlands .Europe s largest with sales of $33. Basic information 2) Philips .global leader in color TVs.227.

acquire TFT-LCD business from LG Electronics with LCD TFTresearch center and factories . Ltd .complete joint venture contract. changing a company s name to LG Philips Co.5 bil won from Philips . 1985 . Establishment .managed by the Board of Directors composed of 3 members each from LG and Philips .LG Philips LCD Co.increment in its capital by 72.Case ± LG Philips LCD 2. Ltd set up in Feb.

utilize Philips worldwide sales network .improvement in debt-to-equity ratio debt-to.use of technology and long experience .Case ± LG Philips LCD 3.attract foreign investment .secure a bridgehead for world LCD markets .able to reduce costs and share the risks . Benefits 1) For LG .advantages from Philips renowned reputation .

utilize LG world class competitiveness in production & technological expertise .secure stable source of LCDs to meet the booming demand . Benefits 2) For Philips .strengthen Philips position in TFT LCD .Case ± LG Philips LCD 3.promote LCD business .able to reduce costs and share the risks .

etc .focus on new products such as plastic LCD.all R&D conducted without any help from LG & Philips .develop 52 products such as 35 TFT-LCD models and TFTlowlow-temperature TFT-LCD PILOT until 1999 TFT- . Operational Details .Case ± LG Philips LCD 4.start a stand-alone company from scratch stand.

9 bil . Performance of Joint Venture 1) financial aspects .post 15.Case ± LG Philips LCD 5.record $200 mil in monthly sales at the joint venture .02% in the 1st half of market shares .increase in total assets up to 312.

lower debt-to-equity ratio debt-to- .post about 617.2 bil won in its net income after tax and around 2. Performance of Joint Venture 2) operational aspects .Case ± LG Philips LCD 5.29 tril won in sales volume .

reduction in investing more capital Remarkably good .attain its original targets in sales (world monitor market share at a stable LCD supply source to satisfy high demands for LCD monitors . notebook at 16%) .achieve its original goal in terms of financial aspects .Case ± LG Philips LCD 6. Overall evaluations .

Case ± LG Philips LCD 7. Challenges .lots of competition in TFT-LCD markets TFT.the market price goes down .established only for manufacturing the TFT-LCD. not TFTother LCD products but the market becomes saturated .

and airplane . IMT 2000.need to extend its production into application area such as medical equipment. Future Plan .explore another joint venture to reduce costs and risks .Case ± LG Philips LCD of next-generation plants to meet the future nexthigh demand for LCD .

Complementary contribution of competence and critical resources . Factors for success in this joint venture .Appropriate management system .High degree of inter-personal interaction between interpartners firms .Case ± LG Philips LCD 9.High degree of autonomy and flexibility .Learning between partner firms .Split of financial ownership .

Case ± LG Philips LCD 10. Conclusion achieve its original goal in terms of financial aspects & attain its original targets in sales Joint Venture based on successful factors .