1. Global Strategy Mike W. Peng c h a p t e r 77 Copyright © 2009 Cengage.PowerPoint Presentation by John Bowen, Columbus State Community College All rights reserved. Making Strategic Alliances and Networks Work Part II: Business-Level Strategies Global Strategy Mike W. Peng chapter 7 7

2. Copyright © 2009 Cengage. All rights reserved.7–2 Outline Defining strategic alliances and networks A comprehensive model of strategic alliances and networks Formation Evolution Performance Debates and extensions The savvy strategist

3. Copyright © 2009 Cengage. All rights reserved.7–3 Defining Strategic Alliances and Networks Strategic alliances are “voluntary agreements between firms” Strategic alliances are compromises between short-term and long-term solutions Alliances fall into two broad categories: contractual (non-equity) and equity-based The term “strategic networks” is derived from the term “social networks” highlighting the social aspects of interfirm relationships

4. Copyright © 2009 Cengage. All rights reserved.7–4 The Variety of Strategic Alliances Strategic Alliances  A compromise between short-term, pure market transactions (e.g., spot transactions) and long-term, pure organizational solutions (e.g., mergers and acquisitions) The Variety of Strategic Alliances Figure 7.1 Mergers and Acquisitions (M&A) Mergers and Acquisitions (M&A) Market Transactions Market Transactions

5. Copyright © 2009 Cengage. All rights reserved.7–5 A Comprehensive Model of Strategic Alliances and Networks Figure 7.2

6. Copyright © 2009 Cengage. All rights reserved.7–6 A Comprehensive Model of Strategic Alliances and Networks Industry-based considerations  Traditional: Firms are independent players  The dynamic of five forces:  Horizontal alliances, entry barriers, upstream alliances with suppliers, downstream vertical alliances with buyers and alliances and networks to provide substitute products/services Resource-based considerations  The resource-based view is embodied in the VRIO framework, which are value, rarity, imitability and organizational aspect of strategic alliance and networks

7. Copyright © 2009 Cengage. All rights reserved.7–7 Strategic Alliances and Networks: Advantages and Disadvantages Strategic alliances and networks must create value Advantages must outweigh disadvantages Table 7.1 ADVANTAGESDISADVANTAGES Reduce costs, risks, and uncertaintiesPossibilities of choosing the wrong partners Gain access to complementary assets and capabilitiesCosts of negotiation and coordination Opportunities to learn from partnersPossibilities of partner opportunism Possibilities to use alliances networks as real optionsRisks of helping nurture competitors (learning race)

8. Copyright © 2009 Cengage. All rights reserved.7–8 Formation Stage one: To cooperate or not to cooperate Stage two: Contract or equity? Stage three: Positioning the relationship

9. Copyright © 2009 Cengage. All rights reserved.7–9 A Three-Stage Decision Model of Strategic Alliance and Network Formation Figure 7.3 Source: Adapted from S. Tallman & O. Shenkar, 1994, A managerial decision model of international cooperative venture formation (p. 101), Journal of International Business Studies, 25 (1): 91–113.

10. Copyright © 2009 Cengage. All rights reserved.7–10 Stage Two: Equity or Contract (Non-equity) Table 7.2 DRIVING FORCES EQUITY-BASED ALLIANCES/NETWORKS NON-EQUITY-BASED ALLIANCES/NETWORKS Nature of shared resourcesHighLow (degree of tacitness and complexity) Importance of direct organizationalHighLow monitoring and control Potential as real optionsHigh (for possible upgrading to M&As)High (for possible upgrading to equity-based relationships) Influence of formal institutionsHigh (when required or encouraged by regulations) High (when required or encouraged by regulations)

11. Copyright © 2009 Cengage. All rights reserved.7–11 Evolution Combating opportunism  Need to protect against opportunism  Contractual safeguards and credible commitment Evolving from strong ties to weak ties  Strong ties are cultivated over a long period of time  Weak ties are characterized by infrequent interaction and low intimacy  Firms have a combination of strong ties and weak ties  Benefits of the different types of ties depend on the firms’ strategies  Many interfirm relationships evolve from an emphasis on strong ties to a focus on weak ties

12. Copyright © 2009 Cengage. All rights reserved.7–12 Performance The performance of strategic alliances and networks  A combination of objective and subjective measures can be used to determine performance  Four factors may influence the performance of alliances and networks: equity, learning and experience, nationality, and relational capabilities The performance of parent firms

13. Copyright © 2009 Cengage. All rights reserved.7–13 Alliance- and Network-Related Performance Measures Table 7.3 ALLIANCE/NETWORK LEVELPARENT FIRM LEVEL Objective  Financial performance (for example, profitability)  Product market performance (for example, market share)  Stability and longevity  Stock market reaction Subjective  Level of top management satisfaction  Assessment of goal attainment

14. Copyright © 2009 Cengage. All rights reserved.7–14 Debates and Extensions Learning race versus cooperative specialization Majority JVs as control mechanisms versus minority JVs as real options Alliance versus acquisitions

15. Copyright © 2009 Cengage. All rights reserved.7–15 Improving the Odds for Alliance Success Table 7.4 Source: Based on text in M. W. Peng & O. Shenkar, 2002, Joint venture dissolution as corporate divorce (pp. 101–102), Academy of Management Executive, 16 (2): 92–105. AREASDO’S AND DON’TS Contract versus “chemistry”No contract can cover all elements of the relationship. Relying on a detailed contract does not guarantee a successful relationship and it may indicate a lack of trust. Warning signsIdentify symptoms of frequent criticism, defensiveness (always blaming others for problems), and stonewalling (withdrawal during a fight). Investment in the relationshipLike married individuals working hard to invigorate their ties, alliances require continuous nurturing. Once a party starts to waver, it is difficult to turn back. Conflict resolution mechanisms“Good” married couples also fight. Their secret weapon is to find mechanisms to avoid unwarranted escalation of conflicts. Managers need to handle conflicts-inevitable in any relationship-in a credible, responsible, and controlled fashion.

16. Copyright © 2009 Cengage. All rights reserved.7–16 The Savvy Strategist Strategic horizon has expanded from how a single firm strategizes to highlighting interfirm strategy Improving relational (collaborative) capabilities is crucial for success Need to understand the rules of game governing networks - both formal and informal Carefully weigh the pros and cons associated with alliances and acquisitions