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Long term relationship between the companies designed to achieve an objective faster, more effectively than either of the firm does so on its own Like a team contributing to Synergy Beyond normal company to company dealings but fall short of merger or full joint venture partnership with formal ties
Eg. Oracle has alliances with IBM. I-flex solution Strategic alliances help companies in globally competitive industries strengthen their competitive position . Capegemini. Alliances among automobile company : Toyota has long term partnership with many of the supplier of automotive parts and components E.g.
Motorola allied with Toshiba to build microprocessor and to enter in the Japanese market .g. To bring together the complementary skills To get into critical country markets quickly To develop new technologies To learn form the alliance partners To create and develop new resources and to create core competencies To reduce the cost of establishment and operations To avoid or minimize risk ◦ E.
LIC with various banks . Motorola and Toshiba Supply chain integration ◦ Are formed among the companies engaged in the various operations of the supply chain ◦ Eg. New market entry ◦ Firms enter with those companies which are already in the market ◦ Eg.
com ◦ Eg. Intel and HP joined to develop 64-bit Itanium microprocessor ◦ Eg. Sony teamed up with Samsung to develop the flat screen tv . Hospital and Insurance company ◦ Different firms of the same industry align themselves to develop new product ◦ Eg. Kingfisher and makemytrip. Design and integrated product Shaping industry evolution ◦ Firms of different industries form alliance to develop integrated product-cum-service ◦ Eg.
Mutual learning and Applying technology ◦ Partners of alliances learn technology. methods and systems from each other ◦ Eg. A.lightings acquired the marketing methods from its partner i.e. . Philips.P.
Android . technology.e. Licensing ◦ Manufacturers leases the right to use intellectual property i. copyright etc to another partner of the alliance. ◦ Eg. patent.
advertising support etc. employee training. product reputation. ◦ Franchisee pays fess and receives various facilities like trademarks. . Franchising ◦ A partner of the alliance operates the business under the name of another company. Franchisor.
Food and cold drink . Co-marketing Partners of the strategic alliance market the product jointly Eg.
Gillette razor and cream . Cross-Marketing ◦ Each partner helps another partner in marketing its product ◦ Eg. McDonalds and Walt Disney’s toys.
IBM used to get its production from Motorola and Toshiba . Co-production ◦ Partners of the alliance produce jointly by using the manufacturing facilities of either of them ◦ (in case of underutilization of one partner and differing demand between the two) ◦ Eg.
Bata. Insurance companies . Outsourcing ◦ Long term contracting of non-core business processes to help achieve increased share holder value ◦ To enable the resources to focus on core business process to improve efficiency ◦ Eg.
Microsoft formed alliance to develop next generation wireless telephone and data communication system . Deutsche telecom. Knowledge sharing ◦ To create new knowledge and hence create more value ◦ Eg Nokia. Motorola. Vodafone.
Win-win approach Market leadership Acquiring competencies Knowledge about unfamiliar markets Developing new technology .
HP and Dell formed an alliance to sell HP branded printers but Dell started producing and selling under its own brand in 2002. . Increase in incompatibility of Partners ◦ ◦ ◦ ◦ When the partners fail to honour commitments Also when the goal is accomplished Once the strengths are acquired Eg.
Sony acquired the knowledge and skills of distinctive consumer electronics and skills from Apple while building the laptops for apple . Risk of knowledge drain ◦ Firms acquire knowledge and use for the development of their own business ◦ Eg.
◦ Eg. Risk of dependence ◦ Can often become dependent excessively on the partners ◦ In turn can result in loss of skills ◦ Eg. Outsourcing by majority of US companies . US automobile industry was excessively dependent on Japanese industry for the production of small cars.
Cost of coordination ◦ Different cultures of the partners complicates the process of coordination ◦ Management style. approaches and practices vary from one partner from another partner . method.
Cost of learning ◦ Experienced managers may feel that they know the subject and fail to learn and implement .
Cost of inflexibility ◦ The partners are required to be flexible and adaptable to the environmental shifts ◦ Failing to which may result in the failure of the alliance .
Cooperation and Coordination ◦ Firms may start with cooperation but once the competences of the other partner are acquired may result in lack of it .
Shifting loyalties of staff ◦ The executives of the companies may shift their loyalty from the parent company to the alliance firm as they work closely with them .
Alliance structure. About two third run into serious managerial and financial trouble within short time of operations and one third ultimately rates as failures by the parties involved (*Strategic management by Pradeep Sinha) The success of an alliance seems to be a function 3 main factors: Partner selection. and the Management .
Partner Selection ◦ The key to make an alliance effective is to select the right partner ◦ A good partner helps the firm to achieve its strategic goals ◦ Must have the capabilities that the firm lacks and it values ◦ A good partner must share the firm’s vision ◦ And is unlikely to try to opportunistically exploit the alliance for own ends .
Alliance Structure ◦ The alliance should be structured so that the firm’s risk of giving too much away is reduced ◦ Contractual safeguards can be written into an agreement ◦ Corss-licensing agreements can be made to swap skills .
Managing the alliance ◦ Sensitivity to cultural differences is an important factor ◦ Alliance should involve trust building activities between the partners ◦ Trying to build interpersonal relationships between the managers (Also referred as “Relational Capital”) ◦ The learning process should happen between the partners and should balance each others strengths and weaknesses .