Chapter 9

Strategic
Alliances

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall. 9-1

 Strategic Alliances

The Strategic Management Process

External
Analysis

Strategic Strategy Competitive

Mission Objectives
Choice Implementation Advantage

Which Businesses
Internal to Enter?
Analysis
Corporate Level • Vertical Integration
Strategy • Diversification

• Strategic Alliances
• mode of entry

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-22
 Strategic Alliances

Strategic Alliances Defined

Strategic Alliance:

Any cooperative effort between two or more

independent organizations to develop,
manufacture, or sell products or services

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-33
 Strategic Alliances

Motivation for Alliances

Create economic value by:
• accessing complementary resources and capabilities
• leveraging existing resources and capabilities

An alliance is an organizational form of exchange

that:
• should produce a gain from trade due to
some comparative or absolute advantage

Implication: Choose partners that are better at

something than you are (complementary resources)
Copyright © 2012 Pearson Education,
Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-44
 Strategic Alliances

Motivation for Alliances

Gains from Trade

Canada Mexico
Wheat
6 1 Exchange
bushels/hr.
Rate:
Bananas 1 bu. = 1 lb.
4 5
lbs./hr.

Canada: 2 hrs. = 6 bu. Wheat and 4 lbs. Banana, or

2 hrs. = 12 bu. Wheat
By trading, Canada can get: A ½ hour gain
6 bu. Wheat and 6 lbs. Bananas from trade!

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-55
 Strategic Alliances

Motivation for Alliances

Gains from Trade

Canada Mexico
Wheat
6 1 Exchange
bushels/hr.
Rate:
Bananas 1 bu. = 1 lb.
4 5
lbs./hr.

Mexico: 2 hrs. = 1 bu. Wheat and 5 lbs. Bananas, or

2 hrs. = 10 lbs. Bananas
By trading, Mexico can get: A 4 hour gain
5 bu. Wheat and 5 lbs. Bananas from trade!

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-66
 Strategic Alliances

Three Types
Of
Alliances

Nonequity Joint
Alliance Venture
Contracts Joint Equity
Equity
• licensing Alliance Holdings
• supply & • independent
distribution Cross Equity firm is
agreements Holdings created
• partners own
stakes in
eachother
Copyright © 2012 Pearson Education,
Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-77
 Strategic Alliances

How Strategic Alliances Create Value

Improve Current Operations

Value
Creation Shaping the Competitive Environment

Facilitating Entry and Exit

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-88
 Strategic Alliances

How Strategic Alliances Create Value

Improving Current Operations

Exploiting economies of scale
• a partner brings increased market share
and/or manufacturing capacity

Learning from partners

• a partner brings technology and/or
market knowledge

Risk and cost sharing

• a partner bears a portion of the risk and/or
cost of the alliance
Copyright © 2012 Pearson Education,
Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-99
 Strategic Alliances

How Strategic Alliances Create Value

Shaping the Competitive Environment

Facilitating technology standards

• partners may agree on a standard and avoid
a market battle for the standard

Facilitating tacit collusion

• partners may communicate within an alliance
in subtle, legal ways whereas the same
communication between competitors outside
an alliance would be illegal

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-10
10
 Strategic Alliances

How Strategic Alliances Create Value

Facilitating Entry and Exit
Low-cost entry into new industries
• a partner provides instant access and legitimacy

Low-cost exit from industries

• a partner is an informed buyer

Managing uncertainty
• alliances may serve as ‘real options’
Low-cost entry into new geographic markets
• partners provide local market knowledge, access,
and legitimacy with governments and customers
Copyright © 2012 Pearson Education,
Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-11
11
 Strategic Alliances

Challenges to Value Creation and Allocation

Incentives to Misappropriate Value (Cheat)

An alliance is an exchange context in which:

• partner inputs may be difficult to monitor

• actual value creation may be difficult to monitor

• value appropriation (allocating the value) may be:

• difficult to monitor
• subject to power dynamics

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-12
12
 Strategic Alliances

Challenges to Value Creation and Allocation

Three Forms
of Adverse misrepresenting
Misappropriating Selection the value of inputs
Value

providing inputs
Moral
of lesser value
Hazard than promised
Holdup

exploiting the transaction-

specific investment of partners
Copyright © 2012 Pearson Education,
Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-13
13
 Strategic Alliances

Sustained Competitive Advantage

Are strategic alliances rare?
As a form of organizing economic exchange, NO!

However,

The sources of value creation within alliances

may be rare.
• firms may form a combination of complementary
resources within an alliance that is rare
• the stock of such complementary resources may
be limited so that first movers have a rare combination

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-14
14
 Strategic Alliances

Sustained Competitive Advantage

Are strategic alliances costly to imitate?
As a form of organizing economic exchange, NO!
• the organizational form per se is easily duplicated

However,
The resource combinations that create value in
alliances may be very costly, if not impossible,
to imitate if:
• the value creating combination depends on
social complexity (trust), causal ambiguity,
and/or historical uniqueness
Copyright © 2012 Pearson Education,
Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-15
15
 Strategic Alliances

Sustained Competitive Advantage

Are strategic alliances substitutable?
Internal Mergers &
Development Acquisitions
If: If:
Substitutes for • there are no
• no partner
Strategic Alliances anti-trust issues
is available
• low uncertainty about
• transaction-specific the investment
investment is high • firms can be
integrated easily
• low uncertainty about
the investment • value of combined firms is
not tied to independence
Copyright © 2012 Pearson Education,
Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-16
16
 Strategic Alliances

Organizing Strategic Alliances

Governance Responses to the Challenges of
Value Creation and Allocation

Formal/Codified

Explicit Contracts
Joint Ventures Equity Investments
& Legal Sanctions

• creates mutual • aligns interests of • aligns interests of

understanding partners through partners through
• imposes costs ownership of ownership in
for cheating independent firm each other
• conflict resolution • direct effect • indirect effect

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-17
17
 Strategic Alliances

Organizing Strategic Alliances

Governance Responses to the Challenges of
Value Creation and Allocation

Informal

Trust Firm Reputations

• may allow partners • the shadow of the

to exploit opportunities future constrains
that would be infeasible cheating
with other mechanisms

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-18
18
 Strategic Alliances

Organizing Strategic Alliances

Governance Responses to the Challenges of
Value Creation and Allocation
These responses are not mutually exclusive:

• contracts may be used with equity investments

and joint ventures along with firm reputation
and trust
• reputation and trust come into play in every type
of alliance

Reputation and trust may be sources of competitive

advantage because they are costly to imitate
Copyright © 2012 Pearson Education,
Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-19
19
 Strategic Alliances

Summary
Successful alliance managers will:

• create alliances that will produce gains

from trade—complementary resources
• identify the sources of value creation
• assess the likelihood of challenges to value
creation and allocation
• adopt appropriate governance responses to
the challenges to value creation and allocation

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-20
20
 Strategic Alliances

Summary
Alliances may generate competitive advantage if:
• combinations of complementary resources
meet the VRIO criteria
• governance responses meet the VRIO criteria

The Big Challenge of Strategic Alliances:

Maximizing gains from trade while
minimizing the threat of cheating

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-21
21
 Strategic Alliances

Prisoner’s Dilemma Game

On each round of play each team can choose either Strategy A
or Strategy B.
The objective is to maximize your payoff.
Payoff Matrix
Team I
Strategy A Strategy B
Strategy A

I. $3,000 I. $5,000
II. $3,000 II. $-0-
Team II

Strategy B

I. $-0- I. $1,000
II. $5,000 II. $1,000

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-22
22
 Strategic Alliances

Payoff Schedule
Team I Team II
Round 1 _____________ _____________

Round 2 _____________ _____________

Round 3 _____________ _____________

Round 4 _____________ _____________

Round 5 _____________ _____________

Round 6 _____________ _____________

Total _____________ _____________

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-23
23
 Strategic Alliances

All rights reserved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher. Printed in the
United States of America.

Copyright ©2012 Pearson Education, Inc.

publishing as Prentice Hall

Copyright © 2012 Pearson Education,

Strategic Inc.Management
publishing as Prentice Hall.
& Competitive Advantage – Barney & Hesterly 9-24
24