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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DIPARTIMENTO DI ECONOMIA
INTERNATIONAL BUSINESS AND DEVELOPMENT
Cooperation and CompetitionAmongFirms
Prof. Alessandro Arrighetti
STRATEGIC ALLIANCES AND FAILURE RISKS
“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)
«WhytooManyAlliances End in Divorce?» (Medcof, 1997)
Partners should understand each other's strategic reasons for forming the alliance
Complementarity of strengths and weaknesses is desirable.
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”
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)
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
business and Management skills
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)
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
“the French and Swedish companies were never able to overcome language, cultural, and geographic barriers in the interest of achieving a fully integrated partnership”
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
LONG-TERM ALLIANCE STRATEGY
Focus → building committmentthatwillendurewellbeyond the alliancecurrently under consideration
Volvo & Renault
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
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
LONG-TERM ALLIANCE STRATEGY
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
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
Apparentadvantages for Anamartic: two strong partnerswhowouldsupply input and market
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