International Strategic Alliances Rob Fuller Director of Entrepreneurial Programs Beyster Institute

MEET U.S.2 International Strategic Alliances Why use alliances? Options for creating partnerships How to make alliances work

MEET U.S.3 Basic Approach to Globalization Create a competitive advantage Establish geographic scope Select global strategy Create alliances

MEET U.S.4 Creating a Competitive Advantage Every successful strategy is rooted in the establishment of a competitive advantage Most competitive advantages take the form of either: –Differentiation –Low Costs

MEET U.S.5 Tracking Profitability and Market Share Profit Market Share Toyota Honda Chrysler BMW Mercedes

MEET U.S.6 Advantages of Differentiation Perceived uniqueness Better match with customer needs Ability to target profitable niches Any aspect is fair game: –Quality, features, reliability, …

MEET U.S.7 Advantages of Size Costs are typically related to volume Unit Costs Market Share

MEET U.S.8 Extending Competitive Advantage to Global Markets Increase market share Increase return on investment Economies of scale Location Raw materials, Lower cost labor, Key customers, Energy, Transportation, etc.

MEET U.S.9 Strategies for Global Competition “Global Strategies” (Honda, Sony) –Products are standardized across national markets –Decisions regarding business-level strategies are centralized in the home office –Strategic business units (SBU) are assumed to be interdependent –Emphasizes economies of scale –Often lacks responsiveness to local markets

MEET U.S.10 Strategies for Global Competition “Multidomestic” Strategies (Philips) –Strategy and operating decisions are decentralized to strategic business units in each country –Products and services are tailored to local markets –Business units in one country are independent of each other –Assumes markets differ by country or regions –Focus on competition in each market –Prominent strategy among European firms due to broad variety of cultures and markets in Europe

MEET U.S.11 International Trends Liability of foreignness –Legitimate concerns about the relative attractiveness of global strategies –Global strategies not as prevalent as once thought –Difficulty in implementing global strategies Regionalization –Focusing on particular region(s) rather than on global markets –Better understanding of the cultures, legal and social norms

MEET U.S.12 Entry Modes Equity Joint Venture Minority EJV Majority EJV Cash Neutral EJV Wholly Owned Subsidiary Greenfield Acquisition Non-Equity Export Direct Indirect Contractual Licensing Collaboration w/o Equity R & D Contracts

MEET U.S.13 Selecting an Entry Mode ExportingHigh Cost, Low Control LicensingLow cost, low risk, little control, low returns AcquisitionQuick access, high cost, complex deals, problems of integration New subsidiaryComplex, costly, risky, time consuming, maximum control, high potential Strategic Alliances?

MEET U.S.14 Strategic Alliance A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage –Involves the exchange and sharing of resources and capabilities to co-develop or distribute goods and services –Requires cooperative behavior from all partners

MEET U.S.15 Strategic Alliances Equity Exchange Joint Venture One-Way Equity Purchase Mutual Equity Purchase Non-Equity Exchange Collaboration without Equity Cash-Neutral Exchange of Assets Co-Branding

MEET U.S.16 Why use Alliances?

MEET U.S.17 Profitability and Market Share Example Profit Market Share Toyota Honda Chrysler BMW Mercedes

MEET U.S.18 Problems in Alliances Partner may act opportunistically Partner may misrepresent competencies brought to the partnership Partner fails to make committed resources and capabilities available to other partner Partner may make investments that are specific to the alliance while the other partner does not