Building Alliances
Firm A
Key Functional Areas
• R&D
• Marketing
• Production
• Logistics
• Service
Transparency 9-1
Firm B
Cooperative Modes
• Joint
• Coordinated
• Complementary
• Independent
Structure and Control
• Org. Structure
• Centralization
• Formalization
Types of Strategic Alliances
Complementary Alliances
BusinessLevel
Competition Reduction Alliances
Competition Response Alliances
Uncertainty Reduction Alliances
Transparency 9-2
Types of Strategic Alliances
BusinessBusinessLevel
Level
Complementary
Complementary Alliances
Alliances
Competition
Competition Reduction
Reduction Alliances
Alliances
Competition
Competition Response
ResponseAlliances
Alliances
Uncertainty
Uncertainty Reduction
Reduction Alliances
Alliances
Diversification Alliances
CorporateLevel
Synergistic Alliances
Franchising
Transparency 9-3
Business-Level Strategic Alliances
Complementary Strategic Alliances
Supplier Value Chain
Partnerships that build on the
complementarities among firms
that make each more competitive
Buyer Value Chain
Transparency 9-4
Vertical
Alliance
Business-Level Strategic Alliances
Complementary Strategic Alliances
Firm A’s Value Chain
Firm B’s Value Chain
Complementary
Alliance
FedEx and Laura Ashley:
“outsourcing” outbound
logistics
Transparency 9-5
Business-Level Strategic Alliances
Complementary Strategic Alliances
Used to increase the strategic competitiveness of the partners
Other Firm’s Value Chain
Transparency 9-6
Horizontal
Alliance
Your Firm’s Value Chain
Business-Level Strategic Alliances
Pooling Strategic Alliances
Used to increase the strategic competitiveness of the partners
Other Firm’s Value Chain
Horizontal
Alliance
Your Firm’s Value Chain
Marketing agreements between Delta and SwissAir
Transparency 9-7
Business-Level Strategic Alliances
Competition Reduction Strategies
Avoiding competition by using tacit collusion such as price
fixing
OPEC
Transparency 9-8
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
Transparency 9-9
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
Transparency 9-10
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).
Transparency 9-11
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
Transparency 9-12
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
Transparency 9-13
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
Transparency 9-14
McDonald’s or Century 21
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
Transparency 9-15
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
Transparency 9-16
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 firm’s
goods or services (without equity sharing)
Transparency 9-17
Chrysler’s supplier network
Developing Alliances
• Purpose
– Motivations
– Goals
– Value Chain activities involved
• Contributions of Partners
–
–
–
–
Cash
Technology
Brand name
Other Assets
Transparency 9-18
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?
Transparency 9-19
Managing Cooperative Ventures
Managing the Boundary
CoManaged
by Parents
Independent
Legal Org.
Managing Knowledge Flows
Firm A
Firm B
Alliance
Strategic Direction
Firm A
Transparency 9-20
Firm B
Alliance