1. Strategic Management (MGT501)
Lecture 23
Dr Muhammad Mustafa Raziq

2. Topic Covered in the Previous Lecture
Diversification and Integration Strategies
Mergers, Acquisitions, and Takeover Strategies

3. Topics to be covered in this lecture
Strategic Alliances
Joint Venture’s Strategies
International Business Entry Level Strategies

4. 6.4. Strategic Alliances
There are four types of perspectives that firms follow with respect to other firms in the same industry
Competition for the same market
Cooperation to jointly manage some shared aspects of their environment
Cooperation to influence industry characteristics
No competition, but have a specialized niche market with a differentiated product (rare occurrence or short- term phenomenon)

5. 6.4. Strategic Alliances (continued)
With respect to the allocating decisions and extent of influence on environment for growth, competitive, and cooperative positions a firm takes can be illustrated as follows:
Factors
Competition
Cooperation
Resource allocation for
Individual Survival need
Individual position making
Collective survival need
Collective strategy
Industry position making
Joint mobilization of resources
Influence the shared environment for growth
Standalone growth strategy
Single firm growth alters the institution
Collective growth strategy
Influencing key suppliers, consumers, regulatory agencies, community, civil society etc for institutional change

6. 6.4. Strategic Alliances (continued)
With respect to the allocating decisions and extent of influence on environment for growth, competitive, and cooperative positions a firm
Factors
Competition
Cooperation
Focus
Cooperation to better the competitive position of a single firm through alliances, network, joint venture etc
Legally enforceable contracts
Cooperation to better the position of an entire industry, not just gain advantage for a single firm or group of firms
Institutional structure creation
Returns
Tangible profits or shareholder value or reputation for the firm
Participation enforceable
Create uncertain, intangible, industry-level public goods in the future (free rider problem may ensue)

7. Communal Strategy
Communal strategy is a bridge between collective strategy (organizations with common concerns collaborate to determine how they will approach certain issues) and institutional strategy (related to the aspects of the organizational external environment) focusing on collective action to bring about institutional (rules of the game) change
Communal strategy contributes to public good from which all firms in the industry benefits
Peer pressure and trust are the forces unifying the members of the industry. Member firms adhere voluntarily to an industry code of practice, participate in events, initiatives, and contribute membership dues, and other donations

8. 6.4.2. Corporate Strategic Alliances
Strategic alliances are contractual business agreements to pool resources and engage in a new business venture with or without an equity investment
Such a business venture has a finite length with partners performing specific tasks and partner contributions be in the area of technology, product development, marketing, licensing, research or skills. There are two generic types of alliances:
Vertical alliances vs horizontal strategic alliances (horizontal alliances are more favored)
International vs domestic strategic alliances (international is more successful and are across national boundaries)

9. 6.4.3. Alliance network strategy
The position of a particular firm in an alliance network affects firm’s performance.
Firms pursue a network strategy that enables them to attain a position of prominence in the network (Kokar and Prescott, 2008)
The advantages of forming alliances in a network are as follows:
Access to critical and key information (information volume)
Information diversity
Act as channel of resources
Affiliation-based benefits provide opportunities for the prominent firm in the network to establish its strategic agenda as the defining norm of the industry or network
Facilitate joint and coordinated action by the partners, thereby giving performance benefits
Legitimacy and reputation benefits through alliance with significant partners

10. 6.4.4. Design of a Firm’s Alliance Portfolio
Firms adopt alliance network strategies to gain competitive advantages. There are two ways the firms design the network strategy:
Attain a position of prominence or being in control in the network
Occupy an entrepreneurial position in the network by acting as bridges between different parts of network, recombining information, and knowledge in novel combinations, and thus getting first-mover advantages
Alliances portfolio is determined by the strategy of the firm. If a firm’s strategy execution needs critical and key information, then the firm should form into alliance in a network for flow of information.

11. 6.5. Joint Venture’s Strategies
Joint ventures pool together resources on a disorganized, experimental basis, and offer the possibility of sequential investment
Theories in information economics, transaction cost economics, and agency theory are useful in understanding why firms engage in joint ventures and partnerships

12. 6.5.1. Advantages of Joint Ventures
Joint ventures cease to exist when the goals of partnership are achieved. The advantages of joint ventures are as follows:
Entry into a new geographical market through JV
Access to technology or expertise
Gain new capacities
Risk sharing
Less expose a firm fully to the partner
Offer opportunities to exit from non-core businesses
A business can be separated or isolated from the main organization through a JV

13. 6.5.2. Collaborative Partnerships
Partnerships and JV are similar in the sense that both are strategic alliances, but can have different business implications
A partnership usually involves a long-term continuing business relationship
There are three types of partnerships including JV as a type of partnership:
General partnerships where the agreement provides for the percentage of promotional distribution of profits, management control, and liability
Limited partnerships: where partnerships have limited liability and decision making roles are different (e.g. between a manufacturing firm and a retailer)
JV: partnerships for limited period of time

14. 6.6. International Business Entry Level Strategies
The international entry modes and establishment modes for firms may be different but seek to have a strategy fit, internal fit, external fit, and an overall fit.
An overall fit between the firm’s organizational capabilities, environmental contingencies, and international strategies promote performance.
While adopting a global strategy in order to gain competitive advantages, one of the sources of this advantage is the difference between countries that is exploited as a source of value creation arbitrage.

15. 6.6. International Business Entry Level Strategies (continued)
The following are various forms of arbitrage (taking advantage of a difference between two or more markets), leveraging the differences for value or disadvantages:
Knowledge arbitrage
Labour arbitrage
Tax arbitrage
Capital arbitrage (low cost machinery, financial capital etc)
Administrative arbitrage (environmental laws and regional trade agreements)
Cultural arbitrage (country of origin effects, liability of origin effects)
Geographic arbitrage (cost of transportation differences)
Specialized input arbitrage (differences in availability of raw materials, their cost, and quality)

16. 6.7. Multinationals and Strategy
Global Strategy
Integration and Responsiveness
Subsidiary own Strategy

17. Summary of the topics covered in this lecture
Strategic Alliances
Joint Venture’s Strategies
International Business Entry Level Strategies

18. Topics for the next lecture
Political Strategies for Competitive Advantage
Reverse Logistics as Sustainable Competitive Advantage
Outsourcing Strategies: Make versus Buy
Franchising Strategies
Portfolio Analysis