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Strategic Alliances. Introduction / Chapter 1 Harbison and Pekar. Introduction. Companies start to form strategic alliance with another to be able to compete in new environment.
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Strategic Alliances Introduction / Chapter 1 Harbison and Pekar
Introduction Companies start to form strategic alliance with another to be able to compete in new environment. Strategic alliances produced ROI of nearly 17 percent, which is 50 percent more than the average ROI that the companies produce overall. In 1980, the revenue from alliances was 2 percent, and it had grown to 21 percent in 1997 and expected to be 45 percent in 2020. Executives change their perspective from “I own this!” to “We must work together to grow!”
The Rationale for Alliances Corporate alliances are not new What is new in the 1990s is the accelerating implementation of strategic alliances, their scope and how they stand apart from cartels, keiretsu, joint ventures, and other business relationships
The new reality Three major forces create this unsettling new reality: The globalization of markets The search for capabilities as technology blurs industry boundaries Scarce resources and intensifying competition for markets
The new reality (cont.) There is always a gap between what the company would like to achieve and what the company is able to achieve Competition is no longer confined within a single nation’s borders. “If you think you can go it alone in today’s global economy, you are highly mistaken,” Jack Welch, chief executive of General Electric Rapid technology shifts and changing markets motivate companies to tailor products and services, management is under pressure to act faster while using fewer resources. So in this new environment, it is necessary to absorb new knowledge and capabilities to strengthen core competencies
The Example of Oracle System • Oracle System, the database software leader, has alliance partner in nearly all kind of business • Adopted new vocabulary to describe alliance activities • Coopetition • Complementarity
The Growth of Capabilities Enable each of them to gain competitive advantages, enhance customer value, drive market, and also fill critical capability gaps Mazda built compact cars for Ford and Ford was able to leverage its Mazda relationship by arranging for Mazda-designed car to be built in Taiwan Mazda as lesson on how to create profitable vehicles for small market Mazda perspective, the alliance offer a path to survive in a crowded field of Japanese automakers.
Defining Strategic Alliance 2 Types of Alliance: 1). Transactional alliances and their characteristics; They generally last less than 5 years The partners do not share critical capabilities The relationship does not involve control and is usually contract driven The partners do not share a common strategy or act in unison; they remain at arm’s length
Transactional alliances (cont.) Among the many forms of transactional alliances are collaborative advertising, collaborative marketing, shared distribution and cross-licensing Collaborative advertising Collaborative marketing Shared distribution Cross-licensing
Strategic alliances 2). Strategic alliances and their characteristics; A commitment of at least 10 years A linkage based on equity or on shared capabilities A reciprocal relationship with a shared strategy in common An increase in the companies’ value in the marketplace, placing pressure on competitors A willingness to share and leverage core capabilities
Strategic Alliance Objectives 1. Risk sharing • The company could not afford the high risk of investment. • Example: Kodak and its 4 competitors develop the new Advanced Photo System technology. 2. Economies of scale • Industry with high fixed cost faces strong pressure on cost reduction through economies of scale. • Example: British Airway and American Airline cut cost
Strategic Alliance Objectives (cont.) 3. Market segment access • Lack of understanding in customer preferences and poor distribution system. • Example: Wal-Mart and Cifra promote products in Mexican market. 4. Technology access • Companies are collaborated to emerge a new technology. Companies have limitation in terms of time and resources to develop a new technology. • Example: IBM, Motorola, and Apple Computer an alternative to Microsoft Window. • .
Strategic Alliance Objectives (cont.) 5. Geographic access • The company finds it difficult to penetrate in a foreign market where there appeals to be an opportunity to sell the product. • Example: Anheuser-Busch (U.S.) and Kirin (Japan) strengthen the position in other’s home markets. 6. Handling of funding constraints • The company is facing a very large cost of developing new products. • Example: Pentagon contract for fighter aircrafts high return too costly for one company to do alone form alliance even with rivals.
Strategic Alliance Objectives (cont.) 7. Skills leverage • Because other companies able to provide you with the skill, expertise, and capabilities at a lower cost than that if company develop it internally. • Example: IBM and NTT (Japanese telecommunication) develop a personal handy phone system. 8. Value-added barriers • Want to increase the level of competition in the industry by improving skills. This will lead to greater barriers for new entrants to enter the industry. • Example: The Washington Post Company and Russian publisher Russian version of Newsweek magazine.
