2. 4-1 1 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Chapter Three: The External Environment Chapter Three: The External Environment © 2 0 0 9 Hitt, Ireland, Hoskission, Rowe & Sheppard Strategic Management N o t e s Chapter Ten: Cooperative Strategy Competitiveness & Globalization

3. 4-2 2 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies The Strategic Management Process Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic  Actions  Ch. 1: Strat. Mgmt. & Com- petitiveness Ch. 2: Strat. Mgmt. & Performance Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 10: Cooperative Strategy

4. 4-3 3 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Cooperative Strategy Knowledge Objectives: 1.Explain cooperative strategies & why they are used. 2.Define & discuss three types of strategic alliances. 3.Name the business-level and corporate-level cooperative strategies & describe their use. 4. Note the importance of cross border strategic alliances as an international cooperative strategy. 5.Describe the risks of cooperative strategies. 6. Depict methods to manage cooperative strategies.

5. 4-4 4 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Some Definitions A strategy where firms work together to achieve a shared objective. A strategy where firms work together to achieve a shared objective. DevelopDevelop ManufactureManufacture DistributeDistribute Goods Services are combined to pursue mutual interests to where their Core Competencies Capabilities Resources Strategic Alliances Partnerships between firms Partnerships between firms A Cooperative Strategy Some Definitions

6. 4-5 5 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Standard Cycle Market * Gain market power. * Gain access to complementary resources. * Overcome trade barriers. * Meet competitive challenge. * Pool resources for large projects. * Learn new business techniques. Fast Cycle Market * Share risky R&D expenses. * Overcome uncertainty. * Maintain market leadership. * Form an industry technology standard. * Speed-up product, service or market entry. * Gain access to a restricted market. * Establish franchise in a new market. * Maintain market stability. Slow Cycle Market Reasons for Alliances by Market Type Reasons for Alliances

7. 4-6 6 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies OMERS & Apax Partners purchase of Nelson. Blackberry services used on wireless devices worldwide. Cuisine de France & Tim Horton’s Maidstone Bakeries. Types of Strategic Alliances Create an independent firm is created by equally joining assets from 2 other firms (50-50). Joint Venture Partnership where partners do not own equal shares. Equity Strategic Alliance Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing). Non-Equity Strategic Alliance Types of Alliances

8. 4-7 7 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Complementary Alliances Diversification Alliances Synergistic Alliances Franchising Competition Reduction Alliances Competition Response Alliances Uncertainty Reduction Alliances Types of Strategic Alliances Business- Level Corporate- Level Types of Alliances

9. 4-8 8 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Partnerships built on the complementary aspects of firms to make each more competitive. Supplier Value Chain Buyer Value Chain Include dist., supplier or out- sourcing alliances where firms rely on upstream partners Japanese manufacturers rely on close relationships with and among suppliers to implement Just-In-Time inventory systems Vertical Alliance Vertical Complementary Alliances or downstream partners to build competitive advantage. Business Level Strategic Alliances Bus. Level Alliances

10. 4-9 9 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Used to increase the strategic competitiveness of the partners Horizontal Alliance Buyer Value Chain Horizontal Complementary Alliances Business Level Strategic Alliances For example: Marketing agreements between Various Airlines Marketing agreements between Various Airlines Bus. Level Alliances

11. 4-10 10 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Explicit Collusion: When firms directly negotiate production output & pricing negotiate production output & pricing agreements in order to reduce competition. agreements in order to reduce competition. Often illegal types of cooperative strategy which are used to reduce competition. which are used to reduce competition. Tacit Collusion: When several firms in an industry indirectly coordinate production industry indirectly coordinate production and pricing decisions by observing each and pricing decisions by observing each others competitive actions & responses. others competitive actions & responses. e.g. the OPEC petroleum cartel e.g. Gas Stations at an intersection Competition Reduction Alliances Business Level Strategic Alliances Bus. Level Alliances

12. 4-11 11 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Firms join forces to respond to a strategic action of other competitors. Competition Response Strategies In mobile Internet, France Telecom & Microsoft’s WiFi alliance as a response BT Group’s use of Bluetooth. Many insurance companies use this strategy for large policies. Alliances can be used to hedge against risk & uncertainty. Uncertainty Reduction Strategies 7 insurers covered the WTC for $4.7 Billion. Business Level Strategic Alliances Bus. Level Alliances

13. 4-12 12 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Create economies of scope between 2+ firms, creating synergy across multiple businesses between firms. Synergistic Strategic Alliances Allows firms to grow with relatively strong centralized control without significant capital investments. Franchising Name a fast food establishment. The purchase of Telestat by a variety of investors. Allows a firm to expand into a new product or market area without an acquisition. Diversifying Alliances OMERS moves into a range of infrastructure projects. Corporate-level Strategic Alliances Corporate Level Strategic Alliances Corp. Level Alliances

14. 4-13 13 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies  Host partner knows local market & customs. However.... International Cooperative Strategies  Allows risk sharing via lower investment. International alliances can be difficult to  International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints. Must gauge partner’s strategic intent so  Must gauge partner’s strategic intent so They do not gain access to important technology and become a competitor. International Cooperation

15. 4-14 14 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Network strategies involve a group of interrelated firms that work for the common good of all. Dynamic Networks Network Strategies The types of networks are: Stable Networks Built for the exploitation of economies available between firms. Used in industries characterised by frequent product innovations & short product life cycles. Network Strategies

16. 4-15 15 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Competitive Risks with Cooperative Strategies While cooperative systems offer advantages, there are also major risks associated with them: Misunderstanding partner’s strategic intent. Misunderstanding partner’s strategic intent. Poor contract development. Poor contract development. Failure of partners to make complementary Failure of partners to make complementary resources available. Being held hostage through specific Being held hostage through specific investments made with partner. Misrepresentation of partners’ competencies. Misrepresentation of partners’ competencies. 4-15 15 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Risks with Cooperation Managing Cooperation Risks with Cooperation

17. 4-16 16 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies Competitive Risks Inadequate contracts * Holding alliance partner’s specific investments hostage * Risk & Asset Management Approaches Detailed contracts and monitoring * Misrepresentation of competencies * Partner fails to use complementary resources * Developing trusting relationships * Outcome Value Creation Detailed contracts & monitoring * Developing trusting relationships * Managing Cooperative Strategic Risks Holding alliance partner’s specific investments hostage * Inadequate contracts * Misrepresentation of competencies * Partner fails to use complementary resources * Managing Cooperation

18. 4-17 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation Managing Cooperation Network Strategies The Strategic Management Process Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic  Actions  Ch. 1: Strat. Mgmt. & Com- petitiveness Ch. 2: Strat. Mgmt. & Performance Chapter 3: The External Environment Chapter 4: The Internal Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 10: Cooperative Strategy