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Strategic Alliances

Learn about the benefits, challenges, and types of strategic alliances, with case studies on Amazon.com's successful alliances with Toys “R” Us, Borders, and potential partnership with Wal-Mart.

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Strategic Alliances

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  1. Strategic Alliances Presented by: Kari Hughes April 23, 2001

  2. What is a strategic alliance? • Union to promote common interests • Work together towards a common goal • Means of survival in competitive market

  3. Why form an alliance? • Too difficult or too costly to pursue objectives on own • Maintain individuality while benefiting from team efforts • Bridge gap between firm’s strategy and its resources & capabilities

  4. “Sum is greater than its parts” • Access to new services or new markets • Pool resources from within and outside particular industry • Forge a new competitive advantage

  5. Challenges • Seen as risky; high level of failure risk (as high as 50%) • Disagreements on control issues • Culture clashes • Alliance partners more interested in pursuing their self-interest than common interest of alliance • Managing alliances more complicated b/c of additional factor of managing the partner firm

  6. Types of alliances Licensing Funded research Shared distribution Product-bundling Joint venture Equity alliance

  7. Amazon.com’s alliances • In August of 2000 Amazon.com and Toys “R” Us teamed up to create a co-branded website • On April 11, 2001 Amazon.com and Borders Group announced an agreement to re-launch Borders.com as a co-branded website powered by Amazon.com’s e-commerce platform • Recent rumors about Amazon.com and Wal-Mart aligning in which Amazon would become Wal-Mart’s e-commerce supplier

  8. Snapshot of Companies

  9. Toys “R” Us alliance • Toysrus.com in collaboration with Toys “R” Us, Inc. identifies, buys and manages inventory • Amazon.com handles site development, order fulfillment, and customer service, housing both Toysrus.com’s and its own inventory in Amazon.com’s U.S. distribution centers • Amazon.com receives warrants entitling it to acquire 5% of Toysrus.com • Goal is to maximize operating efficiencies and provide meaningful benefits to consumers • After teaming with Amazon, Toys “R” Us tripled its sales in the fourth quarter last year

  10. Toys “R” Us alliance • Jeff Bezos, Amazon.com founder and CEO said, “By joining with Toys “R” Us, we’re bringing customers an even greater and more diverse product selection and teaming up with the world’s leading resource for toys, games and baby products.” • John Eyler, CEO of Toys “R” Us, Inc. said, “Together, we will be the global leader for toys and children’s and babies’ products on the Internet.”

  11. Borders alliance • The site will remain a separate entity, but will be co-branded with Amazon, which will book all the Borders.com sales • Amazon will manage Borders’ underlying technology, inventory, and customer service • The site will feature Amazon.com’s books and music offerings, including CD’s, videos, and DVDs • Amazon.com’s website will continue to operate independently • Borders CEO Greg Josefowicz said, “This alliance allows Borders to offer our customers the convenience of an online shopping option with the added benefits that will emerge through our new association with Amazon.com.”

  12. Wal-Mart alliance • If rumors are true, Amazon would become Wal-Mart’s e-commerce supplier, assisting Wal-Mart with online ordering, warehousing, and fulfillment • Amazon would receive a cash injection and a percentage of the sales it makes through Wal-Mart • Some analysts thought the deal would be a perfect fit given Wal-Mart’s failed attempts at building a strong Web presence and given recent rumors that Amazon has been fighting off bankruptcy

  13. Discussion • Even if Borders.com triples its sales like Toys “R” Us did after the co-branding, it would not be enough to increase the growth of Amazon’s books, music and video segment. So what’s in it for Amazon to form an alliance with Borders? • The Toys “R” Us deal experienced some problems in the fall when the merchandise that Amazon received caused a back up at the warehouses, which caused a disruption in shipments of all merchandise categories. What potential problems might arise if the Wal-Mart deal goes through? • How would the Wal-Mart deal affect Amazon’s alliance with Toys “R” Us, which currently operates a co-branded retail toy website, especially considering Wal-Mart is the top seller of toys in the United States?

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