AGENDA

CREATING VALUE THROUGH
HORIZONTAL ALLIANCES

CREATING VALUE THROUGH
VERTICAL ALLIANCES
BYU, Marriott School
Professor Jeff Dyer
The Scope of Inter-corporate
Linkages
Contractual Agreements
Traditional
Contracts
Nontraditional
Contracts
Equity Arrangements
No New Firm
Arm’s-length
Buy/Sell
Contracts
Joint Research
Minority
Equity
Investments
Franchising
Joint Product
Development
Equity
Swaps
Licensing
Long-term
Sourcing
Agreements
Crosslicensing
Joint Manufacturing
Creation of Entity
Dissolution
of Entity
Nonsubsidiary JV
JVs
Subsidiaries
of MNCs
Mergers and
Acquisitions
Fifty-fifty
Joint Ventures
Unequal
Equity
Joint
Ventures
Joint Marketing
Shared
Distribution/
Service
Strategic Alliances
Standard Setting/
Research Consortia
Based on: Yoshino and Rangan, 1995
BYU, Marriott School
Professor Jeff Dyer
AlliancesHow far have we come?
“Alliances are mere transitional devices and because of
this they are destined to fail”
Michael Porter
“Many so-called alliances between Western companies
and their Asian rivals are little more than
sophisticated outsourcing arrangements -- the traffic
is almost entirely one way”
Hamel, Doz, and Prahalad
“Avoid alliances like the plague.”
Reich and Mankin
BYU, Marriott School
Professor Jeff Dyer
Alliances Growing as a Source of Revenue
Alliances as a Percentage of Revenue for
Top 1,000 U.S. Public Corporations
30%
25%
20%
15%
10%
5%
0%
1980
1985
1990
1995
1998
Source: Columbia University, European Trade Commission, Studies by BA&H,
AC.1983-1987, 1988-1993, 1994-1996, 1999
BYU, Marriott School
Professor Jeff Dyer
Total business conducted
through alliances
50%
40%
40%
30%
30%
20%
20%
10%
3-5%
0%
1990
2000
2005
2010
Source: EIU Global Executive Survey
Andersen Consulting, Warren Company
BYU, Marriott School
Professor Jeff Dyer
Why Seek a Partner?

Reduce Risks
–
–
–

Size or Uncertainty
Associated with Project
Preempt Competitors
Flexibility/Option Value

Learning
–
–
–
Acquire New Skills
Gain Market Knowledge
and Experience
Monitor Competition
Gain Efficiency
Economies of Scale and/or
 Politics
Scope
– Sensitive Industries
– Speed to Market
– Regulations
 Access Complementary
– Market Access
Skills
– New market entry; synergysensitive skills
–
Objectives of Horizontal Alliances

Reduce Risks
–

Gain Efficiency
–

E.g.,; Autobody and Composites Consortiums (GM, Ford,
Chrysler); Fuji-Xerox
Access Complementary Skills
–

E.g.., McDonalds and Disney (share advertising costs)
Learning (Development & Innovation)
–

E.g., Oil Drilling JVs (spread risk and cost of drilling)
E.g., Apple-Sony partnership to develop Powerbook;
Politics
–
E.g.,: Otis-Tianjin JV in China (Otis allowed to enter China)
BYU, Marriott School
Professor Jeff Dyer
But There are Costs in Collaboration



Coordination Costs
– Management Time
– Redundant Structures
– Communication Programs
– Control Systems
Loss of Competitive Position
– Leakage of Knowledge
– Reduced Flexibility
– Create a Potential Competitor
Exposure
– Loss of Bargaining Power with Others
– Lower Market Valuation due to Loss of Control Premium
Challenges for Horizontal Alliances



Leveraging each partner’s resources while
protecting proprietary know-how; many horizontal
alliances are inherently learning races.
Building trust with potential competitors;
simultaneously cooperating and competing (Coopetition)
Less ability to “control” partner decisions (relative
to supplier alliances).
BYU, Marriott School
Professor Jeff Dyer
Favorable Conditions for
Horizontal Alliances

The partner’s strategic goals converge while their
competitive goals diverge.
–

The size, market power, and skills/resources of partners is
modest compared with industry leaders; an attempt to
catch up.
–

(e.g., Philips and Du Pont collaborate to mfg. compact disks;
neither invades the other’s market)
(e.g., Japanese chipmakers collaborate to develop chips; U.S.
automakers collaborate on autobody and battery technology).
Each partner believes it can learn from the other and at the
same time limit access to proprietary skills
–
(e.g., Xerox and Fuji alliance; Xerox gets access to Japanese
market and technology in Japan; Fuji participates in copier
business; Fuji believes it can protect film business while Xerox
believes it can protect worldwide copier business)
BYU, Marriott School
Professor Jeff Dyer
The Logic for Joint Ventures




Alliance objective is characterized by a high
degree of uncertainty, such as R&D alliances
(need incentives to bring best technology)
Desire to create a “new culture” (resources,
processes, values) that fit the new
opportunity.
Desire to limit liability of parent companies.
Superior way to measure alliance
performance (separate P&L)
BYU, Marriott School
Professor Jeff Dyer
Keys to Horizontal Alliance Success





Identify Partners with:
– Strategic Fit: Compatible resources, assets, and capabilities
– Cultural Fit: Compatible cultures and work processes
Establish clear performance objectives & monitor performance
– for the alliance and requirements for each partner; make
technology transfer dependent on meeting performance
requirements
Develop plan to learn from partners
– Invest in absorbing key skills/technology from partners while
protecting protect proprietary knowledge/skills as much as possible.
Use appropriate “governance” mechanisms
– Build trust and align the incentives of partnering firms (e.g., joint
stock ownership is superior to legal contracts for eliciting
knowledge transfer).
Create a “Strategic Alliance” function in your firm
– Assign responsibility to acquire and codify knowledge with regard to
effective alliance management practices.
BYU, Marriott School
Professor Jeff Dyer
High
Low
Strategic Fit
The Importance of Strategic
and Cultural Fit
Good Commercial
Compatibility but
Organizational
Integration
Difficult
No
Redeeming
Value
Low
Optimal
Strategic
Alliance
Solution
Compatibility
but few
Synergies
HOWEVER,
Remember
that it is the differences
between the organizations
that drive the formation
of the alliance
High
Organization/Cultural Fit
BYU, Marriott School
Professor Jeff Dyer