Understanding Business Strategy Concepts & Cases

1. Understanding Business StrategyConcepts & Cases Part 3: Strategy Chapter 9: Creating and Maintaining Alliances

2. Chapter 9: Creating and Maintaining Alliances • A strategic alliance is a type of cooperative strategy the purpose of which is to develop a competitive advantage • Equity alliances, e.g. joint venture • Nonequity alliances

3. Developing Strategic Alliances • A very popular strategy • Help firms grow and have a major impact on partner firms • What reasons can you think of that would cause firms to form alliances?

5. Business-Level Strategic Alliances • Vertical strategic alliances • Relationship between buyers and suppliers • Produce products • Most effective when trust exists between partners • Trust sustains transfer of technological knowledge • May manage supply chain rather than pricing strategy

6. Business-Level Strategic Alliances • Horizontal strategic alliances • Enhance the capabilities of the partners to compete in their markets • A response to competitor’s actions • A response to substantial uncertainty • Requires a smaller investment of capital • Explicit collusion v. tacit collusion • Most difficult to manage and sustain because partners are also competitors

7. Corporate-Level Strategic Alliances • Diversification by alliance • E.g. China’s SAIC Motorcorp & Nanjing Automobile Corp. • Synergy by alliance • E.g. Coca-Cola and Cargill • Franchising • E.g. MacDonald’s

8. International Strategic Alliance • Some countries require that firms form joint ventures with local firms in order to enter their markets • Foreign firms need knowledge and perhaps other resources to understand and compete effectively in the newly entered markets

9. International Strategic Alliance • Different cultures and a lack of trust can hinder the transfer of knowledge or sharing of other resources necessary to make an alliance successful

10. Managing Risk • Development of trust • Educating about cultural differences • Refusing to assume about partner’s competencies • Using contracts to guard against opportunistic behavior • E.g. Disney and Pixar

11. Managing Strategic Alliances

12. Managing Strategic Alliances • 1. Even if the firm has a unit with the overall responsibility of managing its network of alliances, a manager or sponsor should be named for each alliance (and a similar person should be named by the partner). These managers keep each other informed of major alliance activities, resource allocations, and outcomes. • 2. The organization should analyze the alliance’s priority within its resource allocations and ensure the commitment needed for each alliance to succeed.

13. Managing Strategic Alliances • 3. A clear plan for implementing the alliance should be created and activated after the partners have agreed to the alliance. • 4. The means for analyzing the performance of the alliance and distribution of performance outcomes to the partners should be clearly established. • 5. In the evaluation of an alliance’s value, the partners’ partners in other alliances should be considered.