Evolution of International Business Ch 6 International Strategic Alliance
Fiat Cinquecento Trepiuno Concept
Ford Ka
Fiat Cinquecento Ford Ka
International Strategic Alliances at a Glance Over the past few decades, there has been an enormous increase in the formation of international strategic alliances and in the research efforts devoted to understanding alliances. Examples: NUMMI (New United Motor Manufacturing, Inc. ), joint venture between GM and Toyota (1984) Joint development of visual memory products between Du Pont and Sony Know-how exchange between Motorola and Toshiba to manufacture micro processors
Agenda for this chapter External Network of firms What is a strategic alliance? Main forms and features of strategic alliances Trends of strategic alliances Motivations of strategic alliances Industries with the vast majority of strategic alliances The facilitating concepts of strategic alliances Risks and costs of strategic alliances Building cooperative ventures Managing cooperative ventures Concluding comments
External Network Globalisation and technological changes have heralded an array of new inter-firm collaborative forms Traditional inter-firm collaborative forms long-established between conventionally organised, hierarchically structured firms New inter-firm collaborative forms flexible and dynamic forms of collaborations featured by international strategic alliances and dynamic, flexible business networks
What are strategic alliances? Strategic alliances are links formed between twoor-more independent companies which choose to carry out a project or specific activity by coordinating the necessary skills and resources, rather than pursuing the project or activity on their own, taking on all the risks and confronting competition alone merging their operations or acquiring entire business units
International Strategic Alliances Main forms of strategic alliances Technical training Supplier / buyback arrangement Production / assembly arrangement Patents licensing Franchising More involvement and interaction Know-how licensing Management / Marketing services Non-equity cooperative arrangement (in exploration, research partnership, development, co-production) Equity joint ventures
International Strategic Alliances Main features of strategic alliance flexible and dynamic project specific the preservation of autonomy highly reversible
Trends of strategic alliances Strategic alliances are increasingly between firms in industrialized countries. focus frequently on the creation of new products and technologies rather than the distribution of exiting ones. often occur during industry transitions when competitive advantages are shifting and the very basis for building and sustaining competitive advantages is being defined.
Motivations of Strategic Alliances a. Technology Exchange : R&D collaboration innovations are increasingly based on interdisciplinary and interindustry advances the necessary capabilities and resources are often beyond the scope of a single company shorter product life cycles increase both the time pressure and risk exposure while reducing the potential payback of massive R&D investment b. Global Competition --- Coalitions of smaller partners to compete more effectively against a global common enemy rather than each other.
Motivations of Strategic Alliance c. Industry Convergence --- Computers, telecommunication and components --- Bio and chip technologies d. Economies of Scale and Reduction of Risk --- Pool resources and concentrate activities to raise scale of activity or rate of learning within the alliance --- Share and leverage the specific strengths and capabilities --- mutual gains, save cost of duplication e. Alliance as an Alternative to Merger
Example: Cell Phone Business
Competition Pressure
Strategic alliance between Nokia and Microsoft (Feb. 11, 2011) Nokia CEO, Stephen Elop (left) and Microsoft CEO, Steve Ballmer (right)
International Strategic Alliances Over 70% of strategic alliances are between rival companies, mainly in high-tech and capital intensive industries Six industries account for the vast majority of alliances: automobiles aerospace telecommunications computer electrical products airline
International Strategic Alliances These industries are all characterized by the following features Appreciable entry barriers Globalisation pressure Scale and scope economies Rapid technological change High risk Declining product life cycle
The Facilitating concepts of strategic alliances --- Triad power concept emphasizing the need to develop significant positions in the three key markets of U.S.A, Western Europe and Japan --- Stick - to - your - knitting urging managers to disaggregate the value chain and focus investments, efforts on those tasks in which the company has a significant competitive advantage.
The Risks and Costs of Strategic Alliances --- one partner using the collaboration as a way of developing competitive advantages over the other --- additional management costs from the higher levels of strategic and organizational complexity
Building Cooperative Ventures Partner Selection : Strategic and Organizational Analysis Escalating Commitment : Thrill of the Chase Alliance Scope : Striving for Simplicity & focus (adequate to get the job done) and Flexibility
Managing Cooperative Ventures Managing the Boundary : Structuring the Interface Managing Knowledge Flows : Integrating the Interface Fully exploit the learning potential Prevent the outflow of any info. or knowledge not wishing to share Providing Strategic Direction : The Governance Structure
Concluding Comments Easy but often not the best solution Alliances need not be permanent Flexibility is key An internal knowledge network : Basis for learning
Case Study Eli Lilly in India: Rethinking the joint venture strategy (HBS case database, Product number: 904M16- PDF-ENG) Richard Ivey School of Business, the University of Western Ontario (also on the textbook)