Strategic Technology Alliances

Prasada Reddy

Centre for Entrepreneurship

University of Oslo, Norway

Strategic Alliance: Concept

• Strategic alliance is a web of agreements whereby two or more partners share the commitment to reach a common goal by pooling their resources together and coordinating their activities (Teece, 1992).

• Alliances take a variety of forms ranging from non-equity agreements associated with one-way or two-way licensing, through to joint venture agreements, equity participation or a consortium.

• The activities range from pre-competitive, basic research agreements to competitive R&D and technology cooperation and manufacturing and marketing (i.e. covering the whole value chain from R&D to commercialization process (Chesnais, 1988).

Why Strategic Alliance? 1

• Two Schools of thought:• 1) ‘Competitive forces’ school (Porter, 1980): A

firm’s performance is mainly dependent on the structure of the industry within which it operates, such as the forces of entry barriers, substitutes, bargaining power of suppliers and buyers, and intra-industry rivalry.

• A firm’s decision to form alliances is moulded by external forces rather than by the firm’s managerial, technical, marketing and other resources.

Why Strategic Alliance? 2

• 2) ‘Resource-based’ analysis: It treats the firm as a collection of sticky and difficult-to-imitate resources and capabilities. The resources may be physical, such as product designs and production processes, or intangible such as brand equity and management know-how (Mowery et al, 1998).

• The sale and acquisition of such resources through arms-length market transactions are difficult to organize and are vulnerable to high risks of failure (Teece, 1982).

• This school sees alliances as mechanisms designed to combine the features of markets and intra-firm organization and thus, facilitates the firm’s access to capabilities (Kogut, 1988).

Types of Alliance 1

• Three groups (Forrest and Martin (1992):• 1) Technology development alliances: to

enhance the R&D capability of the firm to ensure its competitiveness in the rapidly evolving field of knowledge relevant to its focus.

• 2) Commercialization alliances: to provide the firm with and expanded manufacturing and marketing capabilities.

• 3) Financial alliances: to help provide the firm with the capital needed to support it technology acquisition and commercialization strategies.

Types of Alliance 2

• Mowery (1992):Four types of technology focused alliances:

• 1) those involving collaboration among firms in research alone;

• 2) those relating to the exchange of ‘proven’ technologies within a single product line or across multiple products (e.g. cross-licensing in microelectronics);

• 3) joint development of one or more products (e.g. common in electronics and biotechnology); and

• 4) collaboration across different functions, with one firm providing a new product or process for marketing, manufacture or application in a foreign market by another.

Reasons for Technology Alliances

• The extremely high costs and risks of R&D in high-tech industries;

• Quick pre-emption strategies on world scale, even at the cost of loss of potential monopoly profits;

• Technology transfer and complementarity;• Exploration of new markets and market niches;• Reducing the time lag between discovery and market

introduction; and• Monitoring the evolution of technologies and

opportunities (Hagedoorn and Schakenraad, 1989).

Why SAs - Decision Tree 1

• 1) How easily can one protect know-how and thus appropriate easily the benefits of the work in the form of rents?

• 2) Is there a dominant design?• 3) What is the speed with which a proto-type can be

developed?• 4) How important are complementary assets (i. e. assets

that a company needs to have access to in order to commercialize its product, process or system)?

• 5) Are these complementary assets specialized, or available on a competitive basis? Can the company put the suppliers of the complementary assets in competition with each other? (De Meyer, 1999)

Why SAs - Decision Tree 2

• Figure 1: (De Meyer, 1999)• If one can easily protect one’s know-how and that the

DD is not yet known, the complementary assets do not play a significant role and the innovator has time to develop its concepts and be successful, if it is well connected to the market.

• If DD is known, then the focus should be on complementary assets. If they are not important, the innovator is in driving seat. If they are important, the innovator may have to contract for access or enter into partnership, but he cannot do it from a position of strength.

Why SAs - Decision Tree 2

• Figure 1: (De Meyer, 1999)• If it is difficult to protect one’s know-how and that

the DD is not yet known, the speed of proto-type development becomes important. If the innovator can bring out very fast successive proto-types, it can succeed if it has good market contact. This is needed to develop the DD through sequence of proto-types and pilot products (e.g. development of Internet-based products).

Why SAs - Decision Tree 2

• Figure 1: (De Meyer, 1999)• Following the path of weak protection, with the

DD known, one has to consider the importance of complementary assets and their availability. If they are not important, the innovator is in driving seat. If they are important, the innovator may have to contract for access or enter into partnership, but he cannot do it from a position of strength.