University of Newcastle, Singapore Trimester 3, 2011

Huong.Ha@newcastle.edu.au
@2011, Ha 1

Dr. Huong Ha

FISH


F I S H

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Fun Innovative Sharing Helping

Work together as a group
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Knowledge objectives Strategic alliances as a primary type of cooperative strategy Business-level cooperative strategy

Corporate-level cooperative strategy
International cooperative strategy Network cooperative strategy Competitive risks with cooperative strategies Managing cooperative strategies
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define and discuss three types of strategic alliances 3. name the business-level cooperative strategies and describe their use Copyright © 2011 Cengage Learning Pty Limited 4 . define cooperative strategies and explain why firms use them 2.Studying this chapter should provide you with the strategic management knowledge needed to: 1.

explain the cooperative strategies’ risks 7. discuss the use of corporate-level cooperative strategies in diversified firms 5.4. Copyright © 2011 Cengage Learning Pty Limited 5 . understand the importance of cross-border strategic alliances as an international cooperative strategy 6. describe two approaches used to manage cooperative strategies.

assist with partners to develop additional resources and capabilities as the foundation for new competitive advantages. Corporate strategy  a strategy in which firms work together to achieve a shared objective  a strategy to create value through cooperation and to establish favourable position  Strategic alliances:   are a primary type of cooperative strategy. capabilities and core competencies. allow firms to leverage their existing resources. Copyright © 2011 Cengage Learning Pty Limited  .

 Joint venture is effective in establishing long- term relationships and in transferring tacit knowledge. Copyright © 2011 Cengage Learning Pty Limited .Three types of strategic alliances  Joint venture  Two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

 Non-equity strategic alliance  Two or more firms form alliances through contractual agreements given to a company to supply.)  Equity strategic alliance  Two or more firms own different percentages of equity in a new venture. produce or distribute a firm’s goods or services without equity sharing. Copyright © 2011 Cengage Learning Pty Limited .Three types of strategic alliances (cont.

Reasons firms develop strategic alliances Copyright © 2011 Cengage Learning Pty Limited .

Copyright © 2011 Cengage Learning Pty Limited . A business-level cooperative strategy improves a firm’s performance in individual product markets.  The combination of resources and the capabilities of partnering firms create competitive advantages that a firm cannot create by itself.

Business-level cooperative strategy (cont.) Copyright © 2011 Cengage Learning Pty Limited .

) Copyright © 2011 Cengage Learning Pty Limited .Business-level cooperative strategy (cont.

Business-level cooperative strategy (cont.) Complementary strategic alliances Combine partner firms’ assets in complementary ways to create new value Two types: • Vertical (firms share resources and capabilities from different stages of the value chain to create a competitive advantage) • Horizontal (firms share some of the resources & capabilities from the same stage of the value chain to create a competitive advantage) Copyright © 2011 Cengage Learning Pty Limited .

Often difficult to reverse and expensive to operate. Copyright © 2011 Cengage Learning Pty Limited .Business-level cooperative strategy (cont.) Complementary strategic alliances Competition response strategy Firms join forces to respond to a strategic action of a competitor. so strategic alliances are primarily formed to respond to strategic rather than tactical actions.

) Complementary alliances These strategic alliances are used to hedge/evade against risk and uncertainty. Competition response strategy Uncertaintyreducing strategy Copyright © 2011 Cengage Learning Pty Limited . An alliance may be formed to reduce the uncertainty associated with developing new product or technology standards. They are particularly used in fast-cycle markets.Business-level cooperative strategy (cont.

Tends to be used in highly concentrated industries.Business-level cooperative strategy (cont. • Legal aspect Copyright © 2011 Cengage Learning Pty Limited .) Created to avoid destructive or excessive competition Complementary alliances Competition response strategy • Explicit collusion: when firms directly negotiate production output and pricing agreements in order to reduce competition (illegal) Uncertaintyreducing strategy Competitionreducing strategy • Tacit collusion: when firms in an industry indirectly coordinate their production and pricing decisions by observing other firm’s actions and responses.

Copyright © 2011 Cengage Learning Pty Limited .  Horizontal complementary alliances are sometimes difficult to sustain because they are often partnerships between rival competitors.Assessment of business-level cooperative strategies  Complementary business-level strategic alliances have the greatest probability of creating a sustainable competitive advantage.  Alliances used to reduce competition are more likely to achieve competitive parity/similarity than competitive advantage.

Copyright © 2011 Cengage Learning Pty Limited . This strategy consists of alliances designed to facilitate product and/or market diversification.

) Diversifying strategic alliance A diversifying strategic alliance allows a firm to expand into new product or market areas without completing a merger or an acquisition. but also has: • less risk • greater flexibility.Corporate-level cooperative strategy (cont. This has the synergistic benefits of a merger or acquisition. It enables the firm to assess the benefits of a future merger between partners. Copyright © 2011 Cengage Learning Pty Limited .

) Diversifying strategic alliance Creates joint economies of scope between two or more firms Creates synergy across multiple functions or multiple businesses between partner firms Synergistic strategic alliance Copyright © 2011 Cengage Learning Pty Limited .Corporate-level cooperative strategy (cont.

Copyright © 2011 Cengage Learning Pty Limited . Alternative to growth through mergers and acquisitions It is an increasingly popular strategic option on a global basis.) Diversifying strategic alliance Synergistic strategic alliance Franchising Spreads risk and uses resources. capabilities. and competencies without merger or acquisition A contractual relationship (the franchise) is developed between the franchisee and the franchisor.Corporate-level cooperative strategy (cont.

corporate-level cooperative strategies:  are broader in scope. such as growth of the firm to increase managers’ compensation.  can be influenced by opportunistic managerial motives.  require time and effort to monitor and maintain trusting relationships.Assessment of corporate-level cooperative strategies  Compared to business-level strategies. more complex and more costly.  can lead to competitive advantage and value when successful alliance experiences are internalised. Copyright © 2011 Cengage Learning Pty Limited .

 Cross-border strategic alliance  a strategy in which firms with headquarters in different nations combine their resources and capabilities to create a competitive advantage  reasons for forming cross-border alliances:     multinational corporations outperform domestic firms limited growth opportunities in the home nation foreign government policy requires an alliance with a local company to facilitate organisational transformation in core businesses Copyright © 2011 Cengage Learning Pty Limited .

cultures or regulatory constraints.  international alliances can be difficult to manage due to differences in management styles.  host partner knows local market and customs.International cooperative strategy (cont.  must assess partner’s strategic intent such that the partner does not gain access to important technology and become a competitor.)  Synergistic strategic alliance  allows risk sharing by reducing financial investment. Copyright © 2011 Cengage Learning Pty Limited .

 It creates effective social relationships and interactions among partners increasing mutual commitment  The mutual dependence induces partners to work together to serve the common interests of all parties. Definition  A cooperative strategy wherein several firms form multiple partnerships to achieve shared objectives. Copyright © 2011 Cengage Learning Pty Limited .  An alliance network helps to form geographically clustered firms.

Network cooperative strategy (cont. Copyright © 2011 Cengage Learning Pty Limited .)  Alliance network types Stable alliance networks Long term relationships • Typical of mature industries where demand is relatively constant and predictable Stable networks are built to exploit economies (scale and scope) available between firms.

value-creating product innovation and subsequent successful market entries Often exploration of new ideas is a key purpose Copyright © 2011 Cengage Learning Pty Limited Stable alliance networks Dynamic alliance networks .Network cooperative strategy (cont.) Evolve in industries with rapid technological change leading to short product life cycles of goods and services Stimulate rapid.)  Alliance network types (cont.

Copyright © 2011 Cengage Learning Pty Limited .  Failure to make complementary resources available to a partner most commonly occurs between partners located in different nations.  Partners may misrepresent competencies brought to the partnership.  One partner may make investments that are specific to the alliance while its partner does not. Partners may act opportunistically.  Partners may fail to make committed resources and capabilities available to other partners.

Managing competitive risks in cooperation strategies Copyright © 2011 Cengage Learning Pty Limited .

 Cost minimisation management approach  formal contracts with partners that specify:   how the cooperative strategy is to be monitored how the partner behaviour is to be controlled  The goal is to minimise costs and prevent opportunistic behaviour by a partner. Copyright © 2011 Cengage Learning Pty Limited .

Managing cooperative strategies (cont.)  Opportunity-maximisation management approach:  maximises partnership’s value-creation opportunities.  takes advantage of unexpected opportunities to learn from each other.  allows exploration of additional marketplace possibilities. Copyright © 2011 Cengage Learning Pty Limited . leading to value-creation.  fewer formal contracts & constraints make it possible to explore multiple alternatives for sharing resources and capabilities.

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