1. Copyright © 2012 Pearson Canada Inc. 00 Chapter 11 Alliances as Vehicles

2. Copyright © 2012 Pearson Canada Inc. 1 LEARNING OBJECTIVES 1. Explain why strategic alliances are important and their main features. 2. Describe the process of building and managing alliances. 3. Identify the various forms of strategic alliances. 4. Summarize the considerations when negotiating the alliance. 5. Compare and contrast cooperatives and franchising as strategic vehicles. 6. Understand the characteristics of alliances in stable and dynamic competitive contexts.

3. Copyright © 2012 Pearson Canada Inc. 2 Strategic Alliances This is an agreement between two or more individuals or companies that they will act together to achieve common goals.

4. Copyright © 2012 Pearson Canada Inc. 3 Strategic Alliance Defined An alliance is strategic when it has three distinguishing characteristics: 1. The exchange of knowledge associated with technology, skills, or products takes place. 2. Trust plays a key role in the management of the alliance. 3. Success of the alliance depends on the collaborative efforts among the companies forming the alliance.

5. Copyright © 2012 Pearson Canada Inc. 4 Strategic Alliance Defined Various Alliances 1. Consortium 2. Cooperative 3. Countertrade 4. Distribution Alliance 5. Franchising 6. Joint Venture 7. Licensing 8. Cross-licensing

6. Copyright © 2012 Pearson Canada Inc. 5 Strategic Alliance Defined Various Alliances (cont’d) 9. Minority Investment 10. Network 11. Outsourcing 12. Purchasing Alliance 13. Sales Alliance 14. Solution Alliance 15. Supplier Alliance

7. Copyright © 2012 Pearson Canada Inc. 6 Use of Alliances Increasingly companies engage in strategic alliances as they seek to improve their competitiveness as markets become global and trade barriers drop. Moreover, innovations, such as digital communications, entertainment, and online services, create the need to include new performance attributes in value curves so that they appeal to customers. Everywhere, companies are discovering that they cannot “go it alone” as they seek to create such curves, so they are looking to collaborate with other companies by using strategic alliances.

8. Copyright © 2012 Pearson Canada Inc. 7 Building and Managing an Alliance A Five-Stage Process: Stage 1: Building the Case for an Alliance Stage 2 : Identifying and Screening Potential Partners Stage 3: Negotiating and Setting Up the Alliance Stage 4: Managing the Alliance Stage 5: Assessing Strategic Performance of the Alliance

9. Copyright © 2012 Pearson Canada Inc. 8 Building and Managing an Alliance Stage 1: Building the Case for an Alliance Enhancing Competitive Advantage 1. Improving Operations 2. Enhancing Competitive Conditions 3. Facilitating Entry and Exit

10. Copyright © 2012 Pearson Canada Inc. 9 Building and Managing an Alliance Sustaining Competitive Advantage 1. Rare 2. Costly to Imitate

11. Copyright © 2012 Pearson Canada Inc. 10 Building and Managing an Alliance Stage 2 : Identifying and Screening Potential Partners Identifying Potential Partners Screening Potential Partners

12. Copyright © 2012 Pearson Canada Inc. 11 Building and Managing an Alliance – IDENTIFYING POTENTIAL PARTNERS New entrants Suppliers Rivals Customers Substitutes Any other organization could become an alliance partner Firms Complementors

13. Copyright © 2012 Pearson Canada Inc. 12 Building and Managing an Alliance Screening Potential Partners Five Questions: Strategic fit: Are the partners’ objectives compatible? For how long? Resource and financial fit: Are the partners willing and able to contribute the resources and competencies? Cultural fit: Can the partners understand each other? Do they share the same business logic and commitment? Structure, systems, and processes fit: Can the decision-making and control mechanisms be aligned? Additional fit criteria: What other key questions should be on the table, such as timing, other alliances, alliance alternatives, environmental context, and competitive pressures?

14. Copyright © 2012 Pearson Canada Inc. 13 Building and Managing an Alliance Stage 3: Negotiating and Setting Up the Alliance Stewardship Resource Commitments A Governance Structure

15. Copyright © 2012 Pearson Canada Inc. 14 Building and Managing an Alliance Stage 4: Managing the Alliance Leadership Staffing Culture Collaboration

16. Copyright © 2012 Pearson Canada Inc. 15 Building and Managing an Alliance Stage 5: Assessing Strategic Performance of the Alliance Periodically, the alliance needs to be reviewed to see whether it is still the best way of doing things and whether the partner in the alliance is the best partner. If an alliance is the best solution and the partner has worked out well, the company may want to consider buying the partner. If the alliance is still the best solution but the partner has proven less satisfactory than anticipated, it is time to start looking for a new partner. If the alliance is no longer the best solution, then it is time to terminate it.

17. Copyright © 2012 Pearson Canada Inc. 16 Specific Forms of Alliance Cooperatives Challenges Managing Cooperatives: 1. Multiple Sources of Power 2. Personal Interests 3. Personal Styles 4. Broad Membership

18. Copyright © 2012 Pearson Canada Inc. 17 Specific Forms of Alliance Franchising Franchising involves a franchisor and franchisees. The franchisor has something to sell and the franchisee is willing to sell it. Contractual agreements specify what the franchisor provides to the franchisee and how much control the franchisor has.

19. Copyright © 2012 Pearson Canada Inc. 18 Alliances and Corporate Strategy Dedicated Alliance Function Recent research indicates that corporations are more likely to succeed with alliances when they have a dedicated alliance function. Those with an institutionalizing approach typically have more experience doing alliances so have developed organizational mechanisms that improve efficiency by formalizing decision making and enforcing standardized practices such as how to select partners. Those without an integrating approach have less experience so seek to learn from their successes and mistakes as companies integrate alliances.

20. Copyright © 2012 Pearson Canada Inc. 19 Alliances and International Strategy Many alliances are international as companies become bigger and their competition becomes global: either they involve partners from different countries or the alliance itself is headquartered in a country different from those of the partners. The reasons that a domestic company allies with a foreign company are the same as those for alliances among domestic companies—it builds competitive advantage by pursuing the company’s business or corporate strategy.

21. Copyright © 2012 Pearson Canada Inc. 20 Strategic Alliances in Stable and Dynamic Environments Stable Environments Stable environments are characterized by mature industries that are populated with well-established companies and stable demand for their products and services. This influences the objectives that partners set for their alliances. Typically they seek to consolidate market positions and generate economies of scope and scale using alliances that provide production technologies and market access.

22. Copyright © 2012 Pearson Canada Inc. 21 Strategic Alliances in Stable and Dynamic Environments Dynamic Environments In dynamic environments, strategic opportunities and needs are much less certain. In this environment, alliances are used to close resource gaps, create options, and influence environmental developments. The dynamic environment also creates an incentive for quickly forming alliances that amass the resources needed to rapidly pursue opportunities that open up and address competitive threats