DIPARTIMENTO DI ECONOMIA
INTERNATIONAL BUSINESS AND DEVELOPMENT
Cooperation and Competition Among Firms
Prof. Alessandro Arrighetti
Barka Saida
Putifarri Jasmine
Academic year 2013/2014
STRATEGIC ALLIANCES AND
FAILURE RISKS
Strategic Alliances
“It is the risks and problems that need to be analysed
more fully to determine the why over 60% of strategic
alliances fail”
(elmuti, kathawala 2001, 207)
“poor selection of alliance partners is among
the most important reasons for alliance failures”
(Medcof, 1997)
«Why too Many Alliances End in Divorce?»
(Medcof, 1997)
STRATEGIC FIT
THE FOUR C’S
1. CAPABILITY
2. COMPATIBILITY
3. COMMITMENT
4. CONTROL
Strategic Business Fit
Does the alliance have a good business strategy
rationale?
Partners should understand each other's strategic
reasons for forming the alliance
Complementarity of strengths and weaknesses is desirable.
Volvo – Renault Alliance
“…make a good fit because Volvo's strengths in larger cars, gasoline
technology, and
northern European
and
American markets
complemented Renault's strengths in small cars, diesel engines and
southern European and American markets”
(Medcof 1997, 226)
But the story ends up in another way…
Strategic Fit
Multi-partner alliance  Does each prospective partner
bring something of strategic value to the alliance, and
does that value justify the associated costs  ex. increase in
coordination costs, complementarity or overlapping?
In case of new partner to extant alliance  Will the member
disturb/disrupt the current strategic balance of the
alliance?
Long-term  will entering a particular alliance lead to the
organization being perceived as part of a winning 'team',
with good prospects for the future?
 The need for an organization to strategically position
itself in the evolving field of alliance activity
“USAir Files for Divorce from Partner British
Airways Airlines: The carrier wants to end its alliance
after finding rival American in Brits' arms”
(LA times, July 1996)
Some Facts:
1. British Airways became USAir's largest shareholder in 1993 by buying a 24% stake;
2. In June 1996, British Airways and American parent AMR Corp. announced plans to
combine operations by sharing passengers; coordinating fares, schedules and ticketing; and
pooling profits on some routes;
3. USAir replied with a lawsuit seeking damages;
4. British Airways said it has offered to include USAir in its proposed alliance with
American
5. Some Wall Street analysts speculated that USAir's suit is a bargaining ploy to extract
better terms in such a three-way arrangement.
6. USAir is said to have been anxious to get out of the alliance with BA because
the alliance has not done much for it.
Costly and acrimonious end to an alliance that
has positioned both partners badly in the battle for the
crucial transatlantic market.
Conclusion:
Capability
•
Does each of the prospective partners have the ability to
carry out their roles in the alliance?
•
Multiple-Partner selection: Is the alliance as an
entity capable? Will members operate effectively
as a team?
•
Long-term alliance: It asks whether a particular
alliance presents an opportunity for the organization
to acquire and/or improve capabilities that will
be useful for future alliance activities
Technical knowledge
business and Management skills
Capability
Daewoo – General Motors

Alliance established to make the Pontiac LeMans in South
Korea for the South Korean and American markets;
A capability matter…?
“During the messy divorce proceedings, GM
took the position that the poor quality of the
cars and their sporadic availability were
responsible for poor sales performance”.
(Medcof 1997, 727)
Is it also a Matter of Strategic Fit?

Yes!
The companies had different goals
“a recent study found that a lack of understanding of
the partnership’s goals, scope, or roadmap was the
number-one cause of failure during the first hundred
days”
(Frost & Sullivan, 4)
Compatibility
•
Compatibility among people & compatibility among the
operating procedures of the partners;
•
Critical compatibility factors: company size, culture,
strategy, governance mechanisms, willingness to
collaborate, and trust  may dissolve the relationship;
•
Incompatibility  unworkable relationship
•
Smoothing operational disharmonies can be frustrating,
costly and time-consuming work
Compatibility
Multi-partner selection
 More complex;
 Minimum level of compatibility;
 Disruption of established patterns of compatibility
 shift in influence positions
Long-term
 Universal compatibility: ability to work effectively and
flexibly at the operational level with any and all alliance
partners
 A track record of effective alliances will strengthen the
reputation of the firm as an alliance partner
Compatibility: Volvo-Renault
?
Incompatible cultures
“the French and Swedish companies were never able to
overcome language, cultural, and geographic barriers in
the interest of achieving a fully integrated partnership”
(Frost&Sullivan, 5)
Commitment
1) commitment on resources and effort to the alliance on a continuing
basis
2) how readily the partner will leave the alliance when unexpected
difficulties arise
Pragmatic
commitment
How badly the prospective
partners need the alliance
Psychological
commitment
How strongly people
believe in the alliance
Commitment
MULTIPLE-PARTNER SELECTION
In case of creation of a multiple-alliance
It is unlikely that all prospective partners will have the same
level of committment to a proposed alliance:
Key roles → high committment
Minor roles → low committment
Commitment
MULTIPLE-PARTNER SELECTION
In case of a single firm joining an alliance
It is unwise to commit to an alliance if some alliance
members see the newcomer as undesirable or easily
expendable
Commitment
LONG-TERM ALLIANCE STRATEGY
Focus → building committment that will endure well beyond the
alliance currently under consideration
REPUTATION
IS
ESSENTIAL!
Volvo & Renault




It took three years to perfect a plan merging the two auto
companies into a $40 billion alliance. It took less than three
months for their dream deal to collapse
1990  the two companies agreed to establish a strategic
alliance with the following key points: cross-share holdings, joint
production, R&D agreements, supervisory boards
Reasons for the alliance: desire to exploit potential synergies in
joint product development, quality and manufacturing & combine
complementary firms in order to create a firm able to compete at
global level
The priority in the first phase was given to cooperation, not
ownership
Volvo & Renault




Then came the transition
from the alliance to the
merger...
Objectives: create a more
hierarchical structure &
make the decision-making
process faster
Facts: Renault-volvo RVA
owned 65% by Renault
and 35% by Volvo
Main reasons: competitive
advantage, exploitation of
operating efficiencies in
procurement, R&D
improvement, achievement
of substantial financial
strength to meet future
capital requirements
Volvo & Renault
Opposition on both sides

The merger never happened and the strategic alliance was
dissoluted in 1994

Failure to understand six key points:
1) alliances demand alignment, but breed misalignment
2) beware of path dependency
3) tinkering with the alliance contract is tempting, but highly
risky
4) alliances need a coach, guide and visionary
5) blending businesses might appear easy, blending cultures is not
6) time is a double-edged sword

Volvo & Renault


The “dark side” of strategic alliances: failure is built into the alliance
process; the premise must be dealing with both BUSINESS &
RELATIONSHIP
This has been an object lesson for Europe; anybody considering a
trans-European merger should think long and hard about whose
national pride and economic interests could be hurt...
Control
TWO
PARTNER
ALLIANCE
Pragmatic point
of view
Psychological
point of view
NEITHER PARTY
SHOULD DOMINATE
Dominance is desirable → when strong leadership is needed and
the interests of all members are closely
related to those of the leading firm
Dominance is undesirable → if the lead firm is likely to be
opportunistic
Control
MULTIPLE-PARTNER SELECTION
MODULAR
ALLIANCE
VS
One organization is a central
hub around which the others
are clustered = non-equality
VIRTUAL
ALLIANCE
independent companies who
have come together to share
skills and costs = equality
Control
LONG-TERM ALLIANCE STRATEGY
The first 3 Cs (capability, compatibility, committment)
are important contributors to the fourth C (control)
Mechanism of control → must be evaluated to determine if it will
allow the firm to attain its strategic objectives in the long-term
perspective
CASE STUDY
Fujitsu, Tandem & Anamartic
1) 1980s → Anamartic
established an alliance with
Fujitsu and Tandem
2) Fujitsu → sole supplier of an
important wafer memory
component of a product that
used A's technology
3) Tandem → agreed to use that
precise product as a
component in its own
products, given that A would
develop a necessary interface
device
Fujitsu, Tandem & Anamartic
Apparent advantages for Anamartic: two strong partners who would
supply input and market
Reality:
 Fujitsu fixed a price that made the sales to Tandem
unprofitable
 Anamartic expended all of its research resouces in the
development of Tandem's interface and so couldn't realize other
products for new customers
 The manufacturing and marketing agreements at the base of the
alliance deprived Anamartic of any real control and the company
went down
Fujitsu, Tandem & Anamartic
The alliance failed completely in 1993.
Why?
Conclusion
References
Behr P., and Faiola A. (1996) USAir Files for Divorce from Partner British Airways.
Airlines: The carrier wants to end its alliance after finding rival American in Brits'
arms. Los Angeles Times [online] http://articles.latimes.com/1996-07-31/business/fi29750_1_british-airways
Bruner R., Spekman R. (1998) The Dark Side of Alliances: Lessons from Volvo-Renault.
European Management Journal Vol.16 No.2 April
Dwyer P. (1993) Why Volvo Kissed Renault Goodbye. www.businessweek.com
Elmuti D., Kathawla Y. (2001). An Overview of Strategic Alliances. [online]
http://www.ux1.eiu.edu/~cfyak/Articles/An%20overview%20of%20strategic%20allianc
es.pdf
Estanislao, J., (2011). Case Report - The General Motors and Daewoo Alliance. [online]
http://www.scribd.com/doc/50850436/Case-Report-The-General-Motors-and-DaewooAlliance-Jed-Estanislao
Floyd C. (1998) Collaborating with Competitors on Technology Development.
www.adlittle.com
Frost, Sullivan. Growth Process Toolkit: Strategic Partnerships, accelerating growth
through Principled Partner Selection and Proactive Relationship Management. [online]
www.frost.com
Medcof J.W. (1997) Why too many Alliances End in Divorce. Elsevier Science Ltd Vol.30
No.5
Thank you…