Group 5

 Some people believe that an alliance is a marriage that will last forever. In reality, it is not.

 Average joint venture lasts 7 years  Almost 80 percents of alliances end up in a sale to one of the partners  Merck sold its stake in Astra Merck after 9 years  Merck terminated alliance with DuPont Merck after 5 years  Long last alliance, Firestone ended being the supplier alliance with Ford motor over a dispute on safety issues

 Non-equity alliances often have shorter life spans  Marketing alliance often last no more than 2 years, while some could be counting in months.  In an alliance, termination is a natural part in the alliance life cycle.  Most companies neglected on planning on termination strategies

 Firms need to take a broader and more strategic view of alliance termination  More effective when the firm carefully assess the strategic and contractual consideration in the initial phases of venture creation  It is more important to plan for termination early in the alliance set up.  Help to reduce the troubles when unexpected events happen

Finding strategies to increase firm’s overall ability to end the alliance, which they are not listed in the alliance contract but it is external factors Five Merit Special Attention 1) Set clear termination goals 2) Make appropriate contributions to the alliance 3) Keep the deal structure flexible 4) Institute effective human resource policies 5) Develop a portfolio of option

 Termination success is also related to the details in the alliance contract agreed earlier on.  We recommend that firms should focus on 4 contractual dimensions.  Manager of an alliance needs to deeply understand the functions of the 4 dimensions and how to implement on each one.

 Trigger Events: determine what kind of events that will trigger the termination of alliance  Alliance completion  Alliance performance failure  Change in external environment  Change in parent status  Parent breach  Parent deadlock  Termination at will

 Alliance completion ▪ It is reasonable for each party to have the right to terminate the alliance if the venture crosses certain time, or even reach an objective on technological, financial and market.  Alliance performance failure ▪ Each partner should have something in mind if the other partner fails to deliver what he or she had agreed to work on earlier in the earlier stage of alliance. The partner can decide to terminate the alliance if the objectives are not met.

 Change in external environment ▪ Some events could cause turbulence in the alliance, both partners should indicate which events will cause the alliance to be terminated. For example, Politic, economic, price of crude oil and changing in consumer’s trends.  Change in parent status ▪ Macro level, sale of partner’s firm, transfer of firm’s asset. ▪ Micro level, internal changes in partner’s firm. For example, management team, board of director and stuff who is important in maintaining the alliance.

 Parent breach ▪ Breach of contract. ▪ The partner fails to follow the basic obligation in the alliance contract agreement.  Parent deadlock ▪ What will happen if the other party deadlock on critical decisions? ▪ Ways to solve dispute, higher level of management team involve or external arbitration.  Termination at will ▪ Each partner should make an agreement on which events that each party is allow to terminate the alliance with both side happy with the outcome.

 Future ownership rights  Within the contract, details on who will own related asset when the alliance is terminated should be included.  In non-equity alliance, it is more straightforward.  Valuation methods  Roulette  Independent assessor  Post termination demands  Future relationships  Future restrictions  Future responsibilities

 Before start an alliance, members of the team need to ask some basic questions about their potential alliance.  By questioning themselves, but we do not need an exact answer.  It is just to create a general discussion between team members to gain deeper knowledge on termination issues.

 What is the realistic life span of the alliance?  What are the ten most likely reasons that the alliance will end?  Are there natural decision points for terminating or recommitting to the alliance?  On a scale of 1 to 10, how large are the termination risk?  What are the main termination goals in this alliance?  Will certain alliance structures or asset contributions make it much easier for us to exit the alliance, or harder for the partner to do so?  Is it in our interest to make it harder for our partner to exit the alliance?  What will be the five hardest tasks in closing down the alliance?  Are there ways to create options today in case this alliance fails tomorrow?