7

7
Making Strategic
hapter
c chapter

Alliances and Networks

Work
Part II: Business-Level Strategies

Global Strategy
Mike W. Peng
Copyright © 2009 Cengage. PowerPoint Presentation by John Bowen, Columbus State Community College
All rights reserved.
 Outline
• Defining strategic alliances and networks
• A comprehensive model of strategic alliances
and networks
• Formation
• Evolution
• Performance
• Debates and extensions
• The savvy strategist

Copyright © 2009 Cengage. All rights reserved. 7–2

 Defining Strategic Alliances and
Networks
• Strategic alliances are “voluntary agreements
between firms”
• Strategic alliances are compromises between
short-term and long-term solutions
• Alliances fall into two broad categories:
contractual (non-equity) and equity-based
• The term “strategic networks” is derived from the
term “social networks” highlighting the social
aspects of interfirm relationships
Copyright © 2009 Cengage. All rights reserved. 7–3
 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
Market and
Transactions Acquisitions
(M&A)

Figure 7.1

Copyright © 2009 Cengage. All rights reserved. 7–4

 A Comprehensive Model
of Strategic Alliances
and Networks

Figure 7.2
Copyright © 2009 Cengage. All rights reserved. 7–5
 A Comprehensive Model of Strategic
Alliances and Networks
• Industry-based considerations
 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

Copyright © 2009 Cengage. All rights reserved. 7–6

 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

Copyright © 2009 Cengage. All rights reserved. 7–7

 Formation

• Stage one: To cooperate or not to cooperate

• Stage two: Contract or equity?
• Stage three: Positioning the relationship

Copyright © 2009 Cengage. All rights reserved. 7–8

 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): 91–113. Figure 7.3
Copyright © 2009 Cengage. All rights reserved. 7–9
 Stage Two: Equity or Contract (Non-equity)
DRIVING FORCES EQUITY-BASED NON-EQUITY-BASED
ALLIANCES/NETWORKS ALLIANCES/NETWORKS
Nature of shared resources High Low
(degree of tacitness and complexity)
Importance of direct organizational High Low
monitoring and control

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 High (when required or encouraged by
regulations) regulations)

Table 7.2

Copyright © 2009 Cengage. All rights reserved. 7–10

 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
Copyright © 2009 Cengage. All rights reserved. 7–11
 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

Copyright © 2009 Cengage. All rights reserved. 7–12

 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 7.3
Copyright © 2009 Cengage. All rights reserved. 7–13
 Debates and Extensions

• Learning race versus cooperative specialization

• Majority JVs as control mechanisms versus
minority JVs as real options
• Alliance versus acquisitions

Copyright © 2009 Cengage. All rights reserved. 7–14

 Improving the Odds for Alliance Success

AREAS DO’S AND DON’TS

Contract versus “chemistry”
Warning signs
Investment in the relationship
Conflict resolution mechanisms
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.
Identify symptoms of frequent criticism, defensiveness (always blaming others for
problems), and stonewalling (withdrawal during a fight).
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.
“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. 101–102), Academy of Management Executive, 16 (2): 92–105. Table 7.4
Copyright © 2009 Cengage. All rights reserved. 7–15
 The Savvy Strategist

• Strategic horizon has expanded from how a

single firm strategizes to highlighting interfirm
strategy
• 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 © 2009 Cengage. All rights reserved. 7–16