4-1 1 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation

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Some Definitions

Reasons for Alliances

Types of Alliances

Bus. Level Alliances

Corp. Level Alliances

International Cooperation

Risks with Cooperation

Managing Cooperation

Network Strategies

Chapter Three:

The External Environment

Chapter Three:

The External Environment

© 2 0 0 9

Hitt, Ireland, Hoskission, Rowe & Sheppard

Strategic Management

N o

t e sChapter Ten:

Cooperative Strategy

Competitiveness & Globalization

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Types of Alliances






Network Strategies

The Strategic Management Process

Chapter 5: Bus.-Level Strategy

Chapter 6:Competitive Dynamics

Chapter 7:Corp.-Level

Strategy

Chapter 8:Acquisition & Restructuring

Chapter 9:International

Strategy

Chapter 10:Cooperative

Strategy

Strategy Formulation

Chapter 11:Corporate

Governance

Ch. 12: Org. Structure & Controls

Chapter 13:Strategic

Leadership

Chapter 14:Org. Renewal & Innovation

Strategy Implementation

StrategicActions

Ch. 1: Strat. Mgmt. & Com-petitiveness

Ch. 2: Strat. Mgmt . &

Performance

Chapter 3:The External Environment

Chapter 4:The Internal Environment

Strategic Competitiveness

Strategic Mission & Strategic Intent

Strategic Objectives & Inputs

Chapter 10:Cooperative

Strategy

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Cooperative StrategyKnowledge Objectives:

1. Explain cooperative strategies & why they are used.

2. Define & discuss three types of strategic alliances.

3. Name the business-level and corporate-level cooperative strategies & describe their use.

4. Note the importance of cross border strategic alliances as an international cooperative strategy.

5. Describe the risks of cooperative strategies.

6. Depict methods to manage cooperative strategies.

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Some Definitions

A strategy where firms work together to achieve a shared objective.

Develop

Manufacture

Distribute

Goods

Services

are combined to pursue mutual

interests to

where their

Core CompetenciesCapabilitiesResources

Strategic Alliances Partnerships between firms

A Cooperative Strategy

Some Definitions

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Standard Cycle Market

* Gain market power.* Gain access to complementary resources.

* Overcome trade barriers.* Meet competitive challenge.* Pool resources for large projects.* Learn new business techniques.

Fast Cycle Market * Share risky R&D expenses.

* Overcome uncertainty.

* Maintain market leadership.* Form an industry technology standard.* Speed-up product, service or market entry.

* Gain access to a restricted market.* Establish franchise in a new market.* Maintain market stability.

Slow Cycle Market

Reasons for Alliances by Market Type


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OMERS & Apax Partners purchase of Nelson.

Blackberry services used on wireless devices worldwide.

Cuisine de France & Tim Horton’s Maidstone Bakeries.

Types of Strategic Alliances

Create an independent firm is created by equally joining assets from 2 other firms (50-50).

Joint Venture

Partnership where partners do not own equal shares. Equity Strategic Alliance

Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing).

Non-Equity Strategic Alliance

Types of Alliances

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Complementary Alliances

Diversification Alliances

Synergistic Alliances

Franchising

Competition Reduction Alliances

Competition Response Alliances

Uncertainty Reduction Alliances

Types of Strategic Alliances

Business-Level

Corporate-Level

Types of Alliances

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Partnerships built on the complementary aspects of firms to make each more competitive.

Supplier Value Chain

Buyer Value Chain

Include dist., supplier or out-sourcing alliances where firms rely on upstream partners

Japanese manufacturers rely on close relationships with and among suppliers to implement Just-In-Time inventory systems

Vertical Alliance

Vertical Complementary Alliances

or downstream partnersto build competitive advantage.

Business Level Strategic Alliances


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Used to increase the strategic competitiveness of the partners

Horizontal Alliance

Buyer Value Chain Buyer Value Chain

Horizontal Complementary AlliancesBusiness Level Strategic Alliances

For example: Marketing agreements between Various Airlines


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Explicit Collusion: When firms directly negotiate production output & pricing agreements in order to reduce competition.

Often illegal types of cooperative strategy which are used to reduce competition.

Tacit Collusion: When several firms in an industry indirectly coordinate production and pricing decisions by observing each others competitive actions & responses.

e.g. the OPEC petroleum cartel

e.g. Gas Stations at an intersection

Competition Reduction Alliances



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Firms join forces to respond to a strategic action of other competitors.

Competition Response Strategies

In mobile Internet, France Telecom & Microsoft’s WiFi alliance as a response BT Group’s use of Bluetooth.

Many insurance companies use this strategy for large policies.

Alliances can be used to hedge against risk & uncertainty.

Uncertainty Reduction Strategies

7 insurers covered the WTC for $4.7 Billion.



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Network Strategies

Create economies of scope between 2+ firms, creating synergy across multiple businesses between firms.

Synergistic Strategic Alliances

Allows firms to grow with relatively strong centralized control without significant capital investments.

Franchising

Name a fast food establishment.

The purchase of Telestat by a variety of investors.

Allows a firm to expand into a new product or market area without an acquisition.

Diversifying Alliances

OMERS moves into a range of infrastructure projects.

Corporate-level Strategic Alliances

Corporate Level Strategic Alliances



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Host partner knows local market & customs.

However....

International Cooperative Strategies Allows risk sharing via lower investment.

International alliances can be difficult tomanage due to differences in management styles, cultures or regulatory constraints.

Must gauge partner’s strategic intent soThey do not gain access to important technology and become a competitor.

International CooperationInternational Cooperation

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Network Strategies

Network strategies involve a group of interrelated firms that work for the common good of all.

Dynamic Networks

Network Strategies

The types of networks are:

Stable Networks

Built for the exploitation of economies available between firms.

Used in industries characterised by frequent product innovations & short product life cycles.

Network StrategiesNetwork

Strategies

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Competitive Risks with Cooperative Strategies

While cooperative systems offer advantages, there are also major risks associated with them:

Misunderstanding partner’s strategic intent.

Poor contract development.

Failure of partners to make complementaryresources available.

Being held hostage through specificinvestments made with partner.

Misrepresentation of partners’ competencies.

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Network Strategies

Competitive Risks

Inadequate contracts

*

Holding alliance partner’s specific investments hostage

*

Risk & Asset Management Approaches

Detailed contracts and monitoring

*

Misrepresentation of competencies

*

Partner fails to use complementary resources

*

Developing trusting relationships

*

Outcome

Value Creation

Detailed contracts & monitoring

*

Developing trusting relationships

*

Managing Cooperative Strategic Risks

Holding alliance partner’s specific investments hostage

*

Inadequate contracts

*

Misrepresentation of competencies

*

Partner fails to use complementary resources

*


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Network Strategies

The Strategic Management Process

Chapter 5: Bus.-Level Strategy

Chapter 6:Competitive Dynamics

Chapter 7:Corp.-Level Strategy

Chapter 8:Acquisition & Restructuring

Chapter 9:International Strategy

Chapter 10:Cooperative Strategy

Strategy Formulation

Chapter 11:Corporate Governance

Ch. 12: Org. Structure & Controls

Chapter 13:Strategic Leadership

Chapter 14:Org. Renewal & Innovation

Strategy Implementation

StrategicActions

Ch. 1: Strat. Mgmt. & Com-petitiveness

Ch. 2: Strat. Mgmt . & Performance

Chapter 3:The External Environment

Chapter 4:The Internal Environment

Strategic Competitiveness

Strategic Mission & Strategic Intent

Strategic Objectives & Inputs

Chapter 10:Cooperative Strategy

Documents

4-1 1 17 Some Definitions Reasons for Alliances Types of Alliances Bus. Level Alliances Corp. Level Alliances International Cooperation Risks with Cooperation