DIPARTIMENTO DI ECONOMIA INTERNATIONAL BUSINESS AND DEVELOPMENT Cooperation and Competition A mong F irms Prof. Aless

1. DIPARTIMENTO DI ECONOMIA INTERNATIONAL BUSINESS AND DEVELOPMENT Cooperation and CompetitionAmongFirms Prof. Alessandro Arrighetti BarkaSaida PutifarriJasmine Academicyear 2013/2014

2. STRATEGIC ALLIANCES AND FAILURE RISKS

3. Strategic Alliances “poor selection of alliance partners is among the most important reasons for alliance failures” (Medcof,1997) “It is the risks and problemsthat need to be analysed more fully to determine the why over 60% of strategic alliances fail” (elmuti, kathawala 2001, 207)

4. «WhytooManyAlliances End in Divorce?» (Medcof, 1997)

5. 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.

6. 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” (Medcof1997, 226) But the story ends up in another way…

8. “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 lawsuitseeking 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. Conclusion: Costly and acrimonious end to an alliance that has positioned both partners badly in the battle for the crucial transatlantic market.

9. Capability Doeseach 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

10. CapabilityDaewoo – 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)

11. Isitalso 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)

12. Compatibility Compatibility among people & compatibility among the operating proceduresof 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

13. 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

14. 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)

15. Commitment 1) commitmenton resources and effort to the alliance on a continuingbasis 2) howreadily the partner willleave the alliancewhenunexpecteddifficultiesarise Pragmatic commitment Psychological commitment How badly the prospective partners need the alliance How strongly people believe in the alliance

16. Commitment MULTIPLE-PARTNER SELECTION In case of creation of a multiple-alliance Itisunlikelythatallprospectivepartnerswillhave the samelevel of committment to a proposedalliance: Keyroles → high committment Minor roles → lowcommittment

17. Commitment MULTIPLE-PARTNER SELECTION In case of a single firmjoining an alliance Itisunwise to commit to an allianceif some alliancememberssee the newcomerasundesirable or easilyexpendable

18. Commitment LONG-TERM ALLIANCE STRATEGY Focus → building committmentthatwillendurewellbeyond the alliancecurrently under consideration REPUTATION IS ESSENTIAL!

19. 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

20. Volvo & Renault • Thencame the transition from the alliance to the merger... • Objectives: create a more hierarchicalstructure & make the decision-makingprocessfaster • 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

21. Volvo & Renault • Opposition on bothsides • The merger neverhappened and the strategicalliancewasdissoluted in 1994 • Failure to understandsixkeypoints: 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

22. 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...

23. Control TWO PARTNER ALLIANCE Pragmatic point of view Psychological point of view NEITHER PARTY SHOULD DOMINATE Dominanceisdesirable → when strong leadership isneeded and the interests of allmembers are closelyrelatedto those of the leadingfirm Dominanceisundesirable → if the leadfirmislikely to be opportunistic

24. Control MULTIPLE-PARTNER SELECTION Oneorganizationis a centralindependent companies who hubaroundwhich the othershave come together to share are clustered = non-equalityskillsand costs = equality MODULAR ALLIANCE VIRTUAL ALLIANCE VS

25. Control LONG-TERM ALLIANCE STRATEGY The first 3 Cs (capability, compatibility, committment) are importantcontributors to the fourth C (control) Mechanism of control → must be evaluated to determineifitwillallow the firm to attainitsstrategicobjectives in the long-termperspective

26. CASE STUDY

27. 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

28. Fujitsu, Tandem & Anamartic Apparentadvantages for Anamartic: two strong partnerswhowouldsupply input and market Reality: • Fujitsu fixed a pricethat made the sales to Tandem unprofitable • Anamarticexpendedall of itsresearchresouces in the development of Tandem'sinterface and so couldn'trealizeotherproducts for new customers • The manufacturing and marketing agreementsat the base of the alliancedeprivedAnamartic of anyreal control and the company went down

29. Fujitsu, Tandem & Anamartic The alliancefailedcompletely in 1993. Why?

30. Conclusion

31. 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/fi-29750_1_british-airways BrunerR., 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%20alliances.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-Daewoo-Alliance-Jed-Estanislao Floyd C. (1998) Collaborating with Competitors on Technology Development. www.adlittle.com Frost, Sullivan. GrowthProcess Toolkit: Strategic Partnerships, acceleratinggrowththroughPrincipled Partner Selection and ProactiveRelationship Management. [online] www.frost.com MedcofJ.W. (1997) WhytoomanyAlliances End in Divorce. Elsevier Science Ltd Vol.30 No.5

32. Thankyou…