Building Alliances

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Building Alliances
Firm A
Firm B

• Key Functional Areas
• RD
• Marketing
• Production
• Logistics
• Service

• Cooperative Modes
• Joint
• Coordinated
• Complementary
• Independent

• Structure and Control
• Org. Structure
• Centralization
• Formalization

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Types of Strategic Alliances
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Types of Strategic Alliances
Complementary Alliances
Competition Reduction Alliances
Business-Level
Competition Response Alliances
Uncertainty Reduction Alliances
Diversification Alliances
Corporate-Level
Synergistic Alliances
Franchising
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Business-Level Strategic Alliances
Complementary Strategic Alliances
Supplier Value Chain
Partnerships that build on the complementarities
among firms that make each more competitive
Vertical Alliance
Buyer Value Chain
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Business-Level Strategic Alliances
Complementary Strategic Alliances
Firm As Value Chain
Complementary Alliance
Firm Bs Value Chain
FedEx and Laura Ashley outsourcing outbound
logistics
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Business-Level Strategic Alliances
Complementary Strategic Alliances
Used to increase the strategic competitiveness of
the partners
Horizontal Alliance
Other Firms Value Chain
Your Firms Value Chain
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Business-Level Strategic Alliances
Pooling Strategic Alliances
Used to increase the strategic competitiveness of
the partners
Horizontal Alliance
Your Firms Value Chain
Other Firms Value Chain
Marketing agreements between Delta and SwissAir
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Business-Level Strategic Alliances
Competition Reduction Strategies
Avoiding competition by using tacit collusion
such as price fixing
OPEC
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Business-Level Strategic Alliances
Competition Reduction Strategies
Avoiding competition by using tacit collusion
such as price fixing
OPEC petroleum cartel
Competition Response Strategies
Firms join forces to respond to a strategic
action of another competitor
DirecTV Time Warner for exclusive
programming PowerPC IBM, Apple, Motorola
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Business-Level Strategic Alliances
Competition Reduction Strategies
Avoiding competition by using tacit collusion
such as price fixing
OPEC petroleum cartel
Competition Response Strategies
Firms join forces to respond to a strategic
action of another competitor
DirecTV has agreement with Time Warner for
exclusive programming
Uncertainty Reduction Strategies
Alliances can be used to hedge against risk and
uncertainty
Biotechnology--pharmaceutical partnerships
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Equity and Non-equity Alliance Options

• From Options Theory
• In high-tech industries, innovation is uncertain.
• Alliance partners want a way out if alliance is
  not profitable
• After a specified time period, equity or
  contractual alliance is formed (or, partners walk
  away).

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Corporate-Level Strategic Alliances
Diversifying Alliances
Allows a firm to expand into a new product or
market area without an acquisition
Samsung Group joins with Nissan to build new autos
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Corporate-Level Strategic Alliances
Diversifying Alliances
Allows a firm to expand into a new product or
market area with an acquisition
Samsung Group joins with Nissan to build new autos
Synergistic Strategic Alliances
Create economies of scope between two or more
firms, creating synergy across multiple
businesses between firms
Sony shares development with many small firms
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Corporate-Level Strategic Alliances
Diversifying Alliances
Allows a firm to expand into a new product or
market area with an acquisition
Samsung Group joins with Nissan to build new autos
Synergistic Strategic Alliances
Create economies of scope between two or more
firms, creating synergy across multiple
businesses between firms
Sony shares development with many small firms
Franchising
Allows firms to grow and relatively strong
centralized control without significant capital
investments
McDonalds or Century 21
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Types of Strategic Alliances
Joint Venture
Independent firm is created by the joining assets
from two other firms where each firm contributes
at least 20-25
NUMMI
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Types of Strategic Alliances
Joint Venture
Independent firm is created by the joining assets
from two other firms where each firm contributes
at least 15-20
Equity Strategic Alliance
Partnership where one partner owns less than
15-20
Ford and Mazda Automotive
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Types of Strategic Alliances
Joint Venture
Independent firm is created by the joining assets
from two other firms where each contributes 50
of the total
Dow Corning from Dow Chemical and Corning Inc.
Equity Strategic Alliance
Partnership where the two partners do not own
equal shares
Chrysler and Mitsubishi Automotive
Non-Equity Strategic Alliance
Contract is given to supply, produce or
distribute a firms goods or services (without
equity sharing)
Chryslers supplier network
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Developing Alliances

• Purpose
• Motivations
• Goals
• Value Chain activities involved
• Contributions of Partners
• Cash
• Technology
• Brand name
• Other Assets

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Developing Alliances

• Structure
• Contributions
• Organizational structure
• Leadership
• Strategic direction
• Partner Roles and Responsibilities
• Value chain activities
• Integration of activities
• Termination
• Dissolution vs. Acquisition vs. Spin-off?

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Managing Cooperative Ventures

• Managing the Boundary
• Managing Knowledge Flows
• Strategic Direction

Co-Managed by Parents
Independent Legal Org.
Firm A
Firm B
Alliance
Firm A
Firm B
Alliance