Distinguishing

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Presentation 17

• Distinguishing
• Alternative Pathways to Development
• By
• Prof. Dr. Zafar U. Ahmed
• President and CEO
• Academy for Global Business Advancement Inc.,
• Texas AM University at Commerce,
• Commerce, Texas, USA

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Thought Starter
Every nation determines its own destiny
given its risk taking initiatives, perspective
and mindset
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The Growth of Strategic Alliances

• Strategic alliance is a particular mode of
  inter-organizational relationship in which the
  partners make substantial investment in
  developing a long-term collaborative effort, and
  common orientation.
• Strategic alliances allow a firm to focus on its
  value chain activities, permitting it to reap all
  the benefits of specialization.

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The Growth of Strategic Alliances
Various Forms of Strategic Alliances Alliances
Examples Franchise Agreement
McDonalds Cross Distribution Agreement
ATT-Olivetti Buyback agreement
Siemens-Phillips Operating Joint venture -
Intel-Siemens
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The Growth of Strategic Alliances

• The Limits to Internal Growth
• The rapid changes in technological and market
  conditions in an industry induce firms to search
  for a new equilibrium between static and dynamic
  efficiency
• Only few companies can change their resource base
  and shift skills fast enough, to adjust to new
  conditions on the basis of internal growth alone

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The Growth of Strategic Alliances

• Limits on Forming Mergers and Acquisitions
• Various circumstances limit resorting to mergers
  and acquisitions
• Privately ownership
• Protection by elaborate ownership schemes that
  exclude takeovers and mergers
• Public policy restrictions
• Antitrust, antimonopoly concerns

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Driving Factors-Forming Strategic Alliances

• The benefits of strategic alliances are
  compelling since they may overcome the obstacles
  faced by mergers and acquisitions
• They also provide shortcuts to external growth
  that internal growth alone would not provide
• Greatest stimulus to forming alliances has been
  the emergence of global competitors

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Driving Factors-Forming Strategic Alliances

• Rapid technological developments, shorten product
  life cycles, and the high cost of the associated
  research and developments foster strategic
  alliances
• Strategic alliances could be effective ways to
• diffuse new technologies rapidly
• enter new markets
• bypass governmental restrictions
• learn quickly from the leading firms in a given
  field

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Strategic Alliances Across Industries
Determining Strategic Alliance/Separation
Trade-Off
Market Access
Easy Difficult
High Low Need for seeking cost advantage through
scale operations/joint RD
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Strategic Alliances Along the Technological Life
Cycle

• Introductory Stage
• A propensity toward cooperation will be naturally
  high in the introductory stage of the
  technological life cycle.
• The participating members bring complementary
  skills and resources to the emerging industry.
• They may speed up its development by ensuring
  that these skills and resources are combined
  early and at a low transaction cost.
• Development Phase
• The propensity toward cooperation reaches its
  maximum value in development phase.

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Strategic Alliances Along the Technological Life
Cycle

• Maturity
• The markets are already established.
• The technologies are better known, and learning
  needs are fewer on both the demand and supply
  side.
• No equity collaborative ventures will be pursued
  in order to revitalize the technological
  trajectories and stabilize market structure.
• There will be also an attempt by the firms to
  reap residual oligopolistic rents by transferring
  technology to other parts of the world market.

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Strategic Alliances Along the Technological Life
Cycle

• Declining Phase
• During the full development and declining phase,
  the number of agreements concluded will
  drastically decrease.
• Reduced appropriateness of technology and the
  growing competitive pressures will induce firms
  to internalize the control of specialized
  complementary assets by means of internal growth,
  mergers and acquisitions.
• Technological opportunities are exhausted.
• Firms will resort to divestments and write-offs
  to rationalize the market structure.

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Cross Border Strategic Alliances

• In the past, firms from developed countries
  formed alliances with firms in developing
  countries to gain market access.
• More and more alliances today involve from
  developed countries who team up to served whole
  regions or the whole world market.
• These alliances complement each partners
  competitive strengths and provide a learning
  opportunity to both firms.

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Cross Border Strategic Alliances

• Although cross border alliances pose many
  challenges, they are in fact viable vehicles for
  international expansion
• Alliances between strong and weak companies may
  fail.
• Ability to evolve beyond initial expectations and
  objectives is the sustainable hallmark of
  successful alliances.
• After meeting the partners goals, alliances
  often terminate with an acquisition by one of the
  parents.

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Strategic Alliances

• Strategic alliances frequently are more difficult
  to operate than wholly owned business ventures.
• The challenge lies in the creation of new types
  of managerial capabilities.
• More than one party is usually involved in the
  decision making, often leading to slower, more
  complex decision making.
• Challenge of merging of different corporate
  cultures.
• The parent firms may have different, even
  ultimately, conflicting strategic intents.

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In Conclusion

• Rapid changes in technology and market conditions
  induce firms to search for more flexible
  structures and new forms of organization jointly
  based on internal growth and the establishment of
  external networks
• Strategic alliances tend to be most prevalent in
  industries where two factors operate
• Importance of seeking cost advantage through
  scale operation and/or joint RD
• New market access