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DIPARTIMENTO DI ECONOMIA INTERNATIONAL BUSINESS AND DEVELOPMENT Cooperation and Competition A mong F irms Prof. Ales - PowerPoint PPT Presentation

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DIPARTIMENTO DI ECONOMIA INTERNATIONAL BUSINESS AND DEVELOPMENT Cooperation and Competition A mong F irms Prof. Alessandro Arrighetti Barka Saida Putifarri Jasmine Academic year 2013/2014. STRATEGIC ALLIANCES AND FAILURE RISKS. Strategic Alliances.

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Cooperation and CompetitionAmongFirms

Prof. Alessandro Arrighetti



Academicyear 2013/2014

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)

Why too many alliances end in divorce medcof 1997

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

Strategic business fit
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.

Volvo renault alliance

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…

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.


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

Capability daewoo general motors
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)

Is it also a m atter of s trategic f it
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)


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


Multi-partner selection

  • More complex;

  • Minimum level of compatibility;

  • Disruption of established patterns of compatibility  shift in influence positions


  • 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

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)


1) commitmenton resources and effort to the alliance on a continuingbasis

2) howreadily the partner willleave the alliancewhenunexpecteddifficultiesarise





How badly the prospective

partners need the alliance

How strongly people

believe in the alliance



In case of creation of a multiple-alliance

Itisunlikelythatallprospectivepartnerswillhave the samelevel of committment to a proposedalliance:

Keyroles → high committment

Minor roles → lowcommittment



In case of a single firmjoining an alliance

Itisunwise to commit to an allianceif some alliancememberssee the newcomerasundesirable or easilyexpendable



Focus → building committmentthatwillendurewellbeyond the alliancecurrently under consideration




Volvo renault
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

Volvo renault1
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

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

Volvo renault2
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...





Pragmatic point

of view


point of view



Dominanceisdesirable → when strong leadership isneeded and the interests of allmembers are closelyrelatedto those of the leadingfirm

Dominanceisundesirable → if the leadfirmislikely to be opportunistic



Oneorganizationis a centralindependent companies who

hubaroundwhich the othershave come together to share

are clustered = non-equalityskillsand costs = equality








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

Fujitsu tandem anamartic
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

Fujitsu tandem anamartic1
Fujitsu, Tandem & Anamartic

Apparentadvantages for Anamartic: two strong partnerswhowouldsupply input and market


  • 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

Fujitsu tandem anamartic2
Fujitsu, Tandem & Anamartic

The alliancefailedcompletely in 1993.



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

Thank you