Strategic Alliance
Cooperation and
competition among firms
Prof. Alessandro Arrighetti
Lentini Giusy Erika
Martorana Giuseppe
Reale Simone Luca
We are going to talk about …
• What is a strategic Alliance?
• Types of Strategic Alliances
• Reasons to make a Strategic Alliance
• Factors of Risks/Success
• Trends
• The italian case
Strategic Alliance
• The greater change in corporare culture
• Conventional definition
• Other definition oriented about the aimed and role, or
oriented about duration and upon particular activities
Strategic alliance
• Much of the discussion regarding allaiances has typically
focused on alliances between two company, but in the last
years there was a trend toward multi- company alliances
• As an example a six-company strategic alliance was formed
between Apple- Sony – Motorola-Philips – AT&T – Matsushita
• Anyway in general we can say that companies are forming
alliance to obtain technology, to gain access to specific
market, to reduce financial risks, to achieve or ensure
competitive advantages
Strategic alliance
• Factors that must be considered in order to achieve
and enhance the strategic alliance over the time
Types of alliances
• An Alliance can take many form, but every alliance is
different and has its own story, that adapt it to specific
situation.
• We want to summarize the form of alliance in 4
examples:
• Transaction : this includes Network, Temporary alliance.
• Relationship based on particular contract: Licensing,
Franchising
• Relationship based on sharing resources: Consortia ,
Joint ventures..
• Form of integration: merger and acquisition
Types of alliances
• There is a debate about what really is a strategic
alliance or a simply alliance or partnership
• Are not considered really strategic alliance
merger and acquisition
• Also the transaction are not considered strategic
alliance
Types of alliances
While the alliance is strategic when :
• Duration is over 5 years;
• There is contribution of the best resources and
capabilities;
• Shared objectives and strategies;
• Create a competitive advantage over rivals;
• Willingness to share the "core competencies"
Joint Ventures
• In this category includes joint ventures ,which is the most
common form of strategic alliance.
• A business arrangement in which two or more parties agree
to pool their resources for the purpose of make a specific
task. This task can be a new project or any other business
activity. In a joint venture (JV), each of the participants is
responsible for profits, losses and costs associated with it.
However, the venture is its own entity, separate and apart
from the participants' other business interests.
Why a company looks for a strategic
alliance?
1. Access to specific markets;
2. Acquiring means of distribution;
3. Gaining access to new technology, and converging technology;
4. Learning and internalization of tacit, collective and embedded
skills;
5. Obtaining economies of scale;
6. Achieving vertical integration;
7. Diversifying into new businesses;
8. Reducing financial risk;
9. Cost sharing, pooling of resources;
10. Developing products, technologies, resources;
11. Risk reduction and risk diversification;
12. Developing technical standards;
13. Overcoming barriers.
Obtain new technologies:
Do you remember the CD-R?
In the 80s the development of the CD would have allowed the creation
of a disk with a capacity of more than 600 MB of data.
The initial project born thanks to the cooperation between
Philips and DuPont who later decide to retire due to the huge initially
investment and Philips has to look for another partner to develop the project.
The compact disc was designed with a global standard by virtue of a series of
alliances:
1- between Philips and Sony which not only contributed to the planning of the cd and
sound reproduction, but with its presence in the alliance dissuaded other Japanese
producers from seeking alternative solutions;
2- to spread the usage of the cd and the standard, Philips ceded the production
licensing in exchange of modest royalties;
3- Philips and DuPont made a 50-50 joint venture to produce and sell optics
components for the audio-video market;
4- Philips and Sony jointly launched the mini-CD.
Enter into an alliance can be the best way to establish standard of
technology in the sector especially for those companies who can not
provide the technology that they need to compete on the market on
their own.
Obtaining economies of scale:
Dividing fixed cost of production and
distribution, seeking to improve the volume.
The case of Nestlé-Haagen Dazs
Häagen-Dazs is an ice cream brand that has
franchises throughout the United States and
many other countries around the world.
In 1999 Nestlé announced an alliance for production and marketing
with Haagen Dazs.
«We belive we can grow better togther than separately» said a
Haagen Dazs spokenperson
Nestlé would contribute its frozen dessert technology, while Haagen
Dazs would contribute to distribution through the network of point of
sale with its name.
«Anticipating a play»
In many sectors, the first company to enter the market with a
new product achieves advantages that are difficult for the
competition to overcome.
In 2000 Alcatel and Fujitsu made a joint venture in order to develop
3G systems, with particular focus on producing network systems.
Fujitsu get an advantageous position and dominates the local cellular
phones market and Alcatel plans to use its experience in Europe.
The strategic alliance can have the scope of utilizing
the pioneering experience of one of the partners.
If this experience is brought to the alliance, it confers
the advantages on the other partners as well.
«To go fast, go alone. To go far, go together»
African proverb
While many organizations often rush to jump on the bandwagon of
strategic alliances, few succed.
Today the true failure rate of alliances generally is estimated probably in
the range of 25-30%. In earlier reports estimates of up to 70% (kaimbach and
Roussel,1999) have been made, which is quite strange considering how much
organizations are investing in alliances.
Risks and problems facing strategic alliances
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Clash of cultures and «incompatible personal chemistry»;
Lack of trust;
Lack of clear goals and objective;
Lack of coordination between management teams;
Differences in operating procedures and attitudes among partners;
Relational risk;
Performance risk;
• Clash of cultures and «incompatible personal chemistry»;
Cultural clash is probably one of the biggest problems that corporations in
alliances face today.
«This cultural problems consist of language, ego and different attitudes to
business » Kilburn 1999
US companies tend to evaluate performance on the basis of profit, market
share and specific financial benefits. Japanese companies tend to evaluate
primarly on how an operation helps build its strategic position, particularly
by improving its skills.
• Lack of trust;
• Lack of clear goals and objective;
• What will happen if one company is successful and the other
experiences a failure?
Building trust is the most important and most difficult aspect of a
successful alliance.
Alliance need to be formed to enhance trust between individuals.
• In today business world, many strategiec alliances are formed
for the wrong reasons.
Many company enter into alliances to combat industry
competitors. Corporate manangement feels this type of action
will deter competitors from focusing on their company.
On the contrary the alliance may put the companies in the
spotlight causing more competition.
• Lack of coordination between management teams;
Action taken by subordinates that are not congruent with top-level
management can prove particularly disruptive, especially in
instances where companies remain competitors in spite of their
strategic alliance.
• Relational risk;
Relational risk is concerned with the probability that partner firms
lack commitment to the alliance and that their possible
opportunistic behavior could undermine the prospect of an alliance.
Liz Claiborne (now Fifth & Pacific Companies Inc. is a fashion company founded in
1976 that designs and markets a wide range of women's and men's apparel,
accessories and fragrance products.) and Avon where partners in a joint venture. After
Avon acquired Parfum Stern, a high-end cosmetics firm, Liz Claiborne regarded Avon
as a direct competitor and their relationship began to deteriorate and the joint
venture was acquired by Liz Claiborne.
Partner firms are more interested in pursuing their self interest than
the common interest of the alliance.
• Performance risk;
Performance risk is the probability that an alliance may fail even
when partner firms commit themselves fully to the alliance.
The source of performance risk include:
• environmental factors such as government policy changes, war and
economic recession;
• market factors such as competition and demand fluctuations;
• Internal factors such a lack of competence in critical areas;
Success factors for strategic alliances
What does it take for strategic alliances to succeed?
According to Technology Associates and Alliances
• Senior management commitment
The commitment of the senior management of all companies involved in
a strategic alliance is a key factor in the alliance’s success.
The full commitment of senior management is important to implement,
monitor, manage the alliance both to receive resources the alliance
need and to convince others of the importance of the alliance and
demostrate a strong leadership role.
Ohmae,(Japanese organizational theorist,1992) said that
«when Americans and European come to Japan, they all want 51 percent. That’s
the magic number because it ensures majority position and control over
personnel, brand decisions and investment choices.
But good partnership, like good marriages, doesn not work on the basis of
ownership or control. It takes effort and commitment from both sides if either
is to realize the hoped-for benefits»
• Partner selection
• Similarity of management philosophies
The best way to have success in an alliance is to select an appropriate
partner and itemizing the «rules» of the alliance. Yet done correctely,
they help ensure a higher quality, longer lasting relationship.
Companies, to best succed, form partnership with those companies
whose management philosophies, strategies and ideas are most similar
to their own.
The relatioship between KLM and Northwest Airlines has been described by KLM president as
a classic clash of culture, a collision of two diametrically opposed philosophies.
The European way of KLM is based on the belief that investments should be prudent and
long-term while the US way of Northwest is based on the belief that sharp deal-making
including leveraged buy-outs can boost stock prices and work well with a sound operating
strategy.
The philosophical difference were due to cultural differences.
In order to ensure the best chance of success companies should seek
partners who do have similar philosophies.
• Effective and strong management team
• Frequent performance feedback
A Mckinsey study found
management. As alliance
more acute and difficult
alliances may be to move
then move towards more
talent is acquired.
that 50% of allinaces fail due to poor
complexity rises, the challenge become
to drive. The best strategy to grow via
slowly, starting from simple alliances and
complex ones as alliance experience and
In order for strategic alliances to succeed, their performance must
be continually assessed and evaluate against the short and long-term
goals and objective for the alliance in order to mantain high level of
commitment, interdependence and trust, communication quality and
information sharing.
• Clearly defined,shared goals and objectives
The airlane industry has seen many obstacle in recent years.
Simon Heale, managing director of Pacific Airways, said that alliances will
not be advantageous if the partners do not have a clear focus on the goals.
He also mentioned that an airlane may not be able to keep standards
consistent when it has a franchisee alliance.
Consumer will associate the small franchisee with the international airlane
and expect the same standars. When the standards are not delivered this
leads to negative repercussions for the brand.
It has been increasingly difficult to form a successful alliance in the airline
industry.
• Communication between partners
Communication is an essential attribute for the alliance to be
successfull. Without effective communication between partners the
alliance will dissolve as a result of doubt and mistrust.
The two airline company, KLM and Northwest airlane, lack of
communication, together with clash of culture, generated bad blood
and mistrust.
Why alliances are more common now?
Strategic alliances have evolved during the course
of the years
The drive to create alliances has evolved quickly
over the last few decades
Evolution of factors leading to alliances
The future of Strategic alliances
«It is easy to predict that various factors will contribute to the diffusion of alliances in
the coming years as well» (Anna Claudia Pellicelli - Professor of Strategic Marketing –
University of Torino - 2003)
• Acceleration of the rhythms of technological innovation and shortening of product
life cycles.
• The convergence of technologies and the “permeability” of borders between
sectors and between markets.
• Progress in telecommunications.
• Strong improvements in R&D costs, new product launches, tools and systems.
• The collapse of many barriers to competition, on account of deregulation,
privatization and globalization.
• The interest of governments in attracting foreign capital and technologies without
ceding control of local companies to foreigners
The trends
«More than 20.000 corporate alliances have been
formed worldwide over the past two years and
the number of alliances in the USA has grown by
25% each year since 1987». (Farris, 1999).
R&D Partnerships in Pharmaceutical
Biotechnology (1975-79)
R&D Partnerships in Pharmaceutical
Biotechnology (1980-84)
R&D Partnerships in Pharmaceutical
Biotechnology (1985-89)
R&D Partnerships in Pharmaceutical
Biotechnology (1990-94)
R&D Partnerships in Pharmaceutical
Biotechnology (1995-99)
The Italian case
Antonio Majocchi is an Associate Professor of
International Business and Management at the
Faculty of Economics, University of Pavia.
International agreements developed
by Italian firms in the 2000-2008
period.
Database of 1068 agreements.
577 - joint ventures
491 – other agreements
Foreign firms participated by Italian
firms. Production sector
Types of alliances
• The joint venture covers approximately 58% of
our sample;
• Italian companies with over 500 employees
cover 79% of the sample;
• Medium-sized enterprises account for 18%;
• Small businesses - fewer than 50 employees only reach the 3% of the case analyzed.
Development of alliances during the
period analyzed
Geographical distribution
Why?
The location is a factor which impacts on the choices
of the mode of entry.
China: external constraints
preference
USA: absence of constraints
preference
Sectoral distribution
Other Services
• UNCTAD, 1991
80s
40%
FDI
• UNCTAD, 2010
Today
60%
FDI
The aims
The aims
• Alliances aimed at achieving the objectives of reduction of risk;
• Alliances designed to achieve economies of scale through the
sharing of resources and activities ;
• Alliances to promote the exchange of knowledge in general and
the technological knowledge in particular;
• "Strategic " alliances to improve the competitive position in the
market;
• Alliances aimed at overcoming the government barriers to trade
by partnering with local businesses;
• Alliances to promote the international expansion of firms with
poor or limited international experience ;
• Alliances such as " almost vertical integration " and characterized
by complementarity of pooled resources .
Conclusions
Joint venture and other agreements are largely
used by italian firms
BUT
Are analyzed big firms
Conclusions
The High-research intensity sectors cover JUST
the 1%.
Thank you for
attention
Martorana Giuseppe
Lentini Giusy Erika
Reale Simone Luca
Sources:
http://www.ux1.eiu.edu/~cfyak/Articles/An%20overview%20of%20st
rategic%20alliances.pdf
http://www.impresaprogetto.it/sites/impresaprogetto.it/files/articles
/1-2010_wp_majocchi.pdf
EADI Workshop “Clusters and global value chains in the north and the
third world” Facoltà di Economia Strategic Alliances
Anna Claudia Pellicelli