strategic alliances chapter 7 april 5 2006 dr ellen a drost
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Strategic Alliances Chapter 7 April 5, 2006 Dr. Ellen A. Drost. Objectives. Why Strategic Alliances Defining strategic alliances and networks A comprehensive model of strategic alliances and networks Debates and extensions. Basic foreign expansion entry decisions.

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objectives
Objectives
  • Why Strategic Alliances
  • Defining strategic alliances and networks
  • A comprehensive model of strategic alliances and networks
  • Debates and extensions
basic foreign expansion entry decisions
Basic foreign expansion entry decisions
  • A firm contemplating foreign expansion must make three decisions:
    • Which markets to enter
    • When to enter these markets
    • What is the scale of entry
strategic alliances
Strategic Alliances
  • WHY STRATEGIC ALLIANCES?
  • A. Spread and reduce costs
  • B. Specialization
  • C. Competition
  • D. Vertical integration
  • E. Horizontal integration
  • F. Knowledge
alliances are popular
Alliances are popular
  • WHAT ARE THE ALTERNATIVES TO ALLIANCES?
  • Develop capability internally
  • Buy inputs/technology
  • Merger or acquisition
international alliances
International Alliances
  • WHY INTERNATIONAL ALLIANCES?
  • A. Gain location specific assets
  • B. Overcome Government restrictions
  • C. Diversification
  • D. Minimize exposure to risk
structuring the alliance to reduce opportunism
Structuring the alliance to reduce opportunism

WHAT FORM SHOULD THE ALLIANCE TAKE?

Contracts ----------------------------------------------------------------------Equity

Marketing Consortium Wholly Owned R&D Joint Venture

Turnkey

License

Franchise

Short-term -----------------------------------------------------------------------Long-term

 ---------------------difficult to control

difficult to monitor

difficult to enforce

difficult to negotiate

alliances versus joint ventures
Alliances versus Joint Ventures
  • Not all strategic alliances are joint ventures.
    • A joint venture (JV) is a new organization—a “corporate child” created by two or more parent firms which hold partial equity ownership in the new venture.
      • Sony Ericsson
    • A non-JV alliance is two (or more) firms working together—“getting married” but not having “children.”
      • Renault is a strategic investor in alliance with Nissan. Both operate independently and they have not created a new firm.
strategic networks
Strategic Networks
  • Overall, strategic alliances and networks are cooperative interfirm relationships
  • Strategic alliances formed by multiple firms to compete against other such groups and against traditional single firms
  • Also known as constellations
    • Star Alliance: United, Lufthansa, Air Canada, SAS, etc.
    • Sky Team: Delta, Air France, Korean Air, etc.
    • One World: American, British, Cathay Pacific, Qantas, etc.
type of alliances
Type of alliances
  • Contracts
  • Turnkey Projects
    • Contractor agrees to handle every detail of project for foreign client
  • Licensing
    • Agreement where licensor grants rights to intangible property to another entity for a specified period of time in return for royalties
  • Franchising
    • Franchiser sells intangible property and insists on rules for operating the business
  • Joint Ventures
    • Equity participation
  • Wholly Owned Subsidiaries
    • Greenfield versus acquisition
a three stage decision model of strategic alliance and network formation
A Three-Stage Decision Model of Strategic Alliance and Network Formation

Source: Adapted from S. Tallman & O. Shenkar, 1994, A managerial decision model of international cooperative venture formation (p. 101), Journal of International Business Studies, 25 (1): 91–113.

managing the alliance
Managing the alliance
  • WHAT ABOUT PARTNER SELECTION?
    • Differences can create value
    • Similarities minimize cost
debate 1 learning race versus cooperative specialization
Debate 1: Learning Race versus Cooperative Specialization
  • Learning race view: Very influential
    • Assumption 1: Acquiring partner “know-how” is cost effective
    • Assumption 2: Other partners are passively being exploited
  • Cooperative specialization view: More realistic?
    • Learning races do exist, but they represent more of the pathologies rather than the norms
    • Mutual hostage taking can reduce such pathologies
    • Preventing spillovers can also reduce problems
debate 2 majority jvs as control mechanisms vs minority jvs as real options
Debate 2: Majority JVs as Control Mechanisms vs. Minority JVs as Real Options
  • The “high control versus low control” debate in Chapter 6: Unresolved
  • One additional benefit of minority JVs: Real options
    • The more uncertain the conditions, the higher the value of real options
    • Minority JVs have great real options value, especially in uncertain, emerging economies
    • SIA 7.4: Anheuser-Busch’s minority JVs in emerging economies (e.g., Brazil, China, Mexico, Philippines)
debate 3 alliances versus acquisitions
Debate 3: Alliances versus Acquisitions
  • Problems with M&As (see Chapter 9)
    • Too final: hard to undo
    • Too expensive
    • Extensive problems with post-merger integration
  • Many large MNEs have an M&A function (department), which focus exclusively on M&As
    • A combined “mergers, acquisitions, and alliances” function may be advisable – Table 7.5
acquisition and green field pros cons
Pro:

Quick to execute

Preempt competitors

Possibly less risky

Con:

Disappointing results

Overpay for firm

Optimism about value creation

Culture clash.

Problems with propose synergies

Pro:

Can build subsidiary it wants

Easy to establish operating routines

Con:

Slow to establish

Risky

Preemption by aggressive competitors

Acquisition and Green-field- pros & cons

Greenfield

Acquisition

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