A Comparative Study of the
Motivations behind SAs and JVs
across different phases of the
Industry Lifecycle
Drivers and Motives for SAs and JVs
Strategic Alliances

 Acquisition of technology and joint
R&D for major innovations a...
The Stages of the Industry Lifecycle
Product Innovation vs. Process Innovation
Characteristics of Different Phases
The Introduction Phase
Introduction
When is an industry in introduction stage ?
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





In the introduction stage of the life cycle, an indust...
Introduction
What are the types of strategic alliances?
Exploitative Commercial Alliance
 Start-ups may enter into exploi...
Industry: Microprocessor
History





The year was 1979.
Atari introduced a coin-operated version of Asteroids.
3COM, ...
Strategic Alliance: ARM
Drivers for the Alliance

Resources to
design the
processor Apple
needed in form
of cash infusion
...
Industry: Fuel-Cell Vehicles
Roadblocks in Development







The partnerships come after the failure of electric ca...
Strategic Alliance: Daimler, Ford & Renault
Characteristics of Collaboration








Collaboration expected to lead...
Identification of Similarities and Differences within the Introduction Phase

Differences

The technology was
in nascent s...
The Growth Phase
Introduction
When is an industry in growth?

Characteristics

 A sector of the economy experiencing a
higher-than-average...
Industry: Telecom
Industry Characteristics




50

40

Second Largest Telecom Network after China
The no. of Telephone ...
Joint Venture: Indus Towers
The Joint Venture




Drivers for the JV

Indus Towers Ltd. is a joint venture of
Airtel, V...
Industry: Indian Pharmaceuticals
Industry Characteristics
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

20




Globally, pharma companies are facing pressure f...
Strategic Alliance: Merck-Sun Pharma
The Alliance



Drivers for the Alliance

Alliance forged in 2011
To develop, manuf...
Industry: Indian Construction
Industry Characteristics
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

15
10





Growing contribution to gross domestic product...
Joint Venture: Sahara-Turner Construction
The Joint Venture



Drivers for the JV

Sahara Turner Construction Limited fo...
Identification of Similarities and Differences within the Growth Phase

Resource
Drivers

Similarities

Cost
Drivers

Stra...
The Maturity Phase
Introduction
When is an industry in mature phase?

 An industry where growth is either
saturated or is at the same/slower...
Industry: US Airlines
Industry Characteristics
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





Period under Consideration: 1997 – 2011
Healthy operating marg...
Strategic Alliance: Star Alliance
The Alliance

Drivers for the Alliance

 Alliance forged in 1997 – “The Airline
Network...
Industry: Automotive Industry (US)
Industry Characteristics

Projected Growth

 Period under Consideration: 2011 –
Presen...
Strategic Alliance/Joint Venture: GM & PSA Peugeot
The Joint Venture




Long-term and broad-scale global strategic alli...
Identification of Similarities and Differences within the Mature Phase

Focus on cost
reduction from
sourcing
Means to
exp...
The Decline Phase
Introduction
When is an industry in decline?

 An industry where growth is either
negative or is not growing at the
broad...
Industry: Newsprint
Industry Characteristics
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


Period under Consideration: 2000 - 2010
US Newspaper Industry was a ...
Strategic Alliance: Yahoo! Newspaper Consortium
The Alliance



Drivers for the Alliance

Alliance forged in 2006
Effort...
Industry: Book Publishing
Industry Characteristics
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Period under Consideration: 2010 - present
Most books are publis...
Joint Venture: Penguin – Random House JV
The Joint Venture




Drivers for the JV

Two of the world’s biggest English-la...
Identification of Similarities and Differences within the Decline Phase

Differences
The Internet and
evolution of
technol...
Overall Similarities
and Differences
Benefits of SA/JV in Different Phases
Introductory
Phase






Resource shortage
compensated
by
partners
Partnering
wi...
A Comparative Study of the
Motivations behind SAs and JVs
across different phases of the
Industry Lifecycle
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Motivations behind Strategic Aliiances and Joint Ventures across different phases of the Industry Lifecycle

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Motivations behind Strategic Aliiances and Joint Ventures across different phases of the Industry Lifecycle

  1. 1. A Comparative Study of the Motivations behind SAs and JVs across different phases of the Industry Lifecycle
  2. 2. Drivers and Motives for SAs and JVs Strategic Alliances  Acquisition of technology and joint R&D for major innovations and market advantage  Assembling of complementary resources to achieve or improve global competitiveness  Industry convergence requiring interdisciplinary skills and interindustry cooperation  Risk reduction when development costs are very high and results are uncertain  Access to markets when governments’ policies demand alliance with a domestic firm  Co-opting competitors or teaming up against a particular competitor Joint Ventures: Partners’ Expectations Domestic Partner Foreign Investor Acquisition of technology Market expansion and added profits Introduction of new products Access to raw materials Increased productivity Decrease exposure and risk New management techniques Easier contacts with government Access to new markets Smoother relations with workforce Training of personnel Use local managerial and professional talent
  3. 3. The Stages of the Industry Lifecycle
  4. 4. Product Innovation vs. Process Innovation
  5. 5. Characteristics of Different Phases
  6. 6. The Introduction Phase
  7. 7. Introduction When is an industry in introduction stage ?     In the introduction stage of the life cycle, an industry is in its infancy New, unique product offering has been developed & patented, thus beginning a new industry It may be a small entrepreneurial company or a proven company which used research and development funds and expertise to develop something new Marketing refers to new product offerings in a new industry as "question marks" because the success of the product and the life of the industry is unproven and unknown What are its Characteristics ?     Few competitors No threat from substitutes because the industry is so new The power of buyers is low because those who require the product are prepared to pay to get hold of supplies that are limited. Suppliers exert some power, because volumes purchased are still low and the industry is relatively unimportant for suppliers. What are the motivations for firms to enter into a Strategic Alliance?    Strategic necessities: In highly competitive and emergent industries, new ventures consider strategic alliances either to pioneer innovative technologies, or to move away from a vulnerable position Internal resources: The intellectual capital of a new venture represents an important determinant of alliance formation, since the possession of valuable resources is a necessary condition for the attraction of suitable partners Social opportunities: The social connections of the founding team, along with endorsement by reputable organizations – such as venture capitalists – facilitate start-ups’ involvement in strategic alliances In a way, alliance making presents an inherent paradox for new ventures, since strategic alliances are set up to access external resources, yet internal resources are needed to set up strategic alliances. Sources: http://www.inc.com/encyclopedia/industry-life-cycle.html Comi, A and Eppler, M. J. (2009) ‘Building and Managing Strategic Alliances in Technology-Driven Start-Ups: A Critical Review of Literature’
  8. 8. Introduction What are the types of strategic alliances? Exploitative Commercial Alliance  Start-ups may enter into exploitative commercial alliances with the purpose of accessing the resources necessary to introduce technological innovations to the final market  An exploitative propensity generally leads to the constitution of strategic alliances with downstream partners, such as large companies excelling at product commercialization. Explorative Technological Alliances  Explorative technological alliances enable new ventures to advance innovation, either by pooling together complementary resources or internalizing the partner’s knowledge.  An explorative propensity usually leads to the formation of strategic alliances with horizontal partners in a similar positioning along the industry value-chain, or with upstream partners such as universities and government labs What are the challenges for firms to enter into Strategic Alliance?    In comparison to large companies, start-ups usually possess fewer technological resources to barter with potential partners, and cannot engage in collaborative agreements at multiple stages of the value chain. Besides, the limited social capital of new ventures is likely to restrain the attraction of valuable partners, and the lack of prior work-related ties may further limit the opportunities for collaborative engagement. The small size of management functions in new ventures also bears a negative influence on partnership formation, since small functions usually have less extensive connections with potential partner organizations. When the management function is small, top executives are also pressed with short-term operating matters, thus lacking the time to bring about collaborative relationships. Source: Comi, A and Eppler, M. J. (2009) ‘Building and Managing Strategic Alliances in Technology-Driven Start-Ups: A Critical Review of Literature’
  9. 9. Industry: Microprocessor History     The year was 1979. Atari introduced a coin-operated version of Asteroids. 3COM, Oracle, and Seagate were founded. The Motorola 68K and Intel 8088 were released. Hermann Hauser and Chris Curry, with the support of a group of students and researchers from Cambridge University’s many laboratories, set up Acorn Computers to make personal computers in Cambridge, England. Formation of Joint Venture (JV) •1985: Acorn Computer Group developed the world's first commercial RISC processor •1987: Acorn's ARM processor debuts as the first RISC processor for low-cost PCs •1987: Apple entered the PDA market and had produced the first Newton, based on the AT&T low power processor called ‘Hobbit. 1990: Advanced RISC Machines (ARM) spins out of Acorn and Apple Computer's collaboration efforts with a charter to create a new microprocessor standard. VLSI Technology becomes an investor and the first licensee JV •John Stockton, Research Fellow of VLSI Technology infected the design team with a passion for ARM Source: Levy, M., ‘The History of The ARM Architecture: From Inception to IPO’ IP Licensing Model
  10. 10. Strategic Alliance: ARM Drivers for the Alliance Resources to design the processor Apple needed in form of cash infusion VLSI Technology becomes an investor and the first licensee Current Alliances Required a processor that can handle Newton’s OS Current Scenario   ARM Holdings plc is the world's leading semiconductor intellectual property (IP) supplier. Designs are used in more than 95% of the world's mobile phones. Share Price: ARM Holdings plc (LON:ARM) Source: http://www.cpushack.com/2010/10/26/how-the-newton-and-arm-saved-apple-from-death/ http://www.arm.com
  11. 11. Industry: Fuel-Cell Vehicles Roadblocks in Development       The partnerships come after the failure of electric cars to meet sales expectations, despite heavy subsidies worldwide Although hybrids have gained ground, more is needed to meet the new emissions targets The research has shown that the FCV will emit less than half as much carbon dioxide as conventional gasoline-powered vehicles do now They would also release less carbon dioxide than electric vehicles when electric vehicles are charged in parts of the U.S. that rely heavily on coal power High development cost Long Time-to-market Strategic Alliance   French-Japanese-German partnership began in April 2010, with three “pillar projects” primarily focused on Europe In January 2013, Daimler AG, Ford Motor Company and Nissan Motor Co., Ltd., have signed a unique threeway agreement for the joint development of common fuel cell system to speed up availability of zeroemission technology and significantly reduce investment costs. Source: http://www.reuters.com/article/2013/07/02/us-autos-fuelcell-hydrogen-idUSBRE9610JO20130702 http://www.greencarcongress.com/2013/09/20130912-daimlernissan.html
  12. 12. Strategic Alliance: Daimler, Ford & Renault Characteristics of Collaboration        Collaboration expected to lead to launch of world’s first affordable, mass-market fuel cell electric vehicles as early as 2017 Unique collaboration across three continents and three companies will help define global specifications and component standards Sends clear signal to suppliers, policymakers and the industry to encourage the further development of hydrogen infrastructure worldwide The goal of the collaboration is to jointly develop a common fuel cell electric vehicle system while reducing investment costs associated with the engineering of the technology Each company will invest equally towards the project The strategy to maximize design commonality, leverage volume and derive efficiencies through economies of scale will help to launch the world’s first affordable, mass-market FCEVs as early as 2017 The partners plan to develop a common fuel cell stack and fuel cell system that can be used by each company in the launch of highly differentiated, separately branded FCEVs, which produce no CO2 emissions while driving Recent Developments    Toyota says it will unveil a hydrogen fuel-cell-powered sedan later this year that will go on sale in 2015 On July 2,2013, GM and Honda have announced partnerships to commercialize the technology The prototypes that GM and Toyota built a few years ago cost well over $1 million each. Now Toyota says its goal is to sell its fuel-cell sedan for less than $100,000 Source: http://www.daimler.com/dccom/0-5-7171-1-1569731-1-0-0-0-0-0-12037-0-0-0-0-0-0-0-0.html http://www.reuters.com/article/2013/07/02/us-autos-fuelcell-hydrogen-idUSBRE9610JO2013070 http://www.technologyreview.com/news/516711/why-toyota-and-gm-are-pushing-fuel-cell-cars-to-market/
  13. 13. Identification of Similarities and Differences within the Introduction Phase Differences The technology was in nascent stage for both industries Alliances and JVs to create innovative product for existing markets Alliance and JVs to reduce the time to develop and market newer technology Microprocessor: Exploitative alliance to create new microprocessor technology Fuel-Cell Vehicles: Explorative alliance to pool together complementary resources Microprocessor: Alliance with downstream partner excelling at commercialization of product Fuel-Cell Vehicles: Alliance with horizontal partners in similar positioning along value chain Similarities
  14. 14. The Growth Phase
  15. 15. Introduction When is an industry in growth? Characteristics  A sector of the economy experiencing a higher-than-average growth rate  Companies across such industries exhibit solid earnings and revenue figures  Referred to as ‘Sunrise’ industry  Increased costs on research and development  Market acceptance  Increased ROI  Declining costs of production  Stiff competition Common Examples of Industries in Growth Various Possible Strategies          Telecom Biotechnology Solar Power Retail Pharmaceuticals E-Commerce Mining Healthcare Infrastructure        Capture Market Share Beat the competition Product Differentiation Innovation Value-Creation Segment Expansion Brand Expansion
  16. 16. Industry: Telecom Industry Characteristics    50 40 Second Largest Telecom Network after China The no. of Telephone users touched 897 million Total Market Size: USD 64 Billion  Urban M/Share: 61%  Rural M/Share: 39% 30 20 40.4 CAGR(%) 2002-07 26.8 18.1 2007-12 2012-17 10 0 The Industry in Growth      Govt. policies and TRAI have provided a conducive environment for Telecom operators. Sector has become more competitive while enhancing the accessibility of Telecom services. Increasing network coverage and lowering tariffs have increased the subscriber growth. Internet subscribers have increased to 164 million Mobile internet subscribers stand at 143 million Major Alliances Demand Drivers      Industry Trends       Indus Towers NTT DOCOMO and Tata Teleservices Ltd. Telenor and Unitech Increasing Subscriber base Mobile Value-Added Services Mobile Number portability Newer Telecom Technologies like 3G,4G Decreasing cost of Smartphones  Prudent Regulatory policies National Telecom Policy 2012 proposes unified licensing, full MNP and free roaming Telecom penetration is expected to increase to 70% from the current 41%. The Green Telecom initiative aims at reducing the carbon footprint for Telecom industry and TRAI is in consultation since 2010.
  17. 17. Joint Venture: Indus Towers The Joint Venture    Drivers for the JV Indus Towers Ltd. is a joint venture of Airtel, Vodafone and Idea incorporated in Nov, 2007. Provides Shared Telecom infrastructure to Telecom Operators. Operates in 15 circles out of the total 22 telecom circles. Strategic Focus Economies of Scope Economies of Scale Opex Savings Market Share Additional Towers Network Capacity & Coverage Streamline Operations Sharing of Operating Costs Entry into segments like TV & Radio Tower Consolidation Lower Cost per Tower Telecom Companies can focus more on corecustomer facing business The Current Scenario    Of every 5 calls made in India 3 are made through an Indus site. Cost savings of $3 Billion have been recognized due to sharing of telecom infrastructure Numerous awards & recognition like the Greentech Safety Award
  18. 18. Industry: Indian Pharmaceuticals Industry Characteristics    20   Globally, pharma companies are facing pressure from governments and taxpayers alike for reducing prices of drugs and initiating outcome-based pricing Global firms impacted by decline in R&D productivity, increasing drug discovery costs, patent cliff Emerging Indian market offers ray of hope due to: Large domestic market  Product Development Skills  Scientific Talent Major Alliances    Bayer-Zydus Cadilla Lilly-Lupin Novartis-USV 12.5 2002-07 2007-12 15.1 10 Period under Consideration: 2002 - 2012 Indian Pharma industry globally 3rd largest in terms of volume and 13th largest in terms of value Total Market Size: 1233 billion  Domestic Consumption: 600 billion (48.6%)  Exports:633 billion (51.4%) 0 CAGR (%) The Industry in Growth  13 2012-17 Linear (CAGR (%)) Demand Drivers      Growing and Ageing Global Population Growing Sick Population Rising incidence of non-communicable diseases Improve access to Healthcare Higher Affordability Industry Trends     One of the main ways MNCs enter the Indian market is through acquisitions However, given the scarcity of assets, valuations in the sector have increased manifold Companies are now exploring other ways of collaboration through alliances and partnerships Partner Selection: needs more thorough operational due diligence
  19. 19. Strategic Alliance: Merck-Sun Pharma The Alliance   Drivers for the Alliance Alliance forged in 2011 To develop, manufacture and commercialize new combinations and formulations of innovative, branded generics in the Emerging Markets Strategic Focus Marketing Expertise Innovative Product Development Cost Savings Market Access Entry into the high growth emerging market for Merck and developed market for Sun Proven low cost manufacturing capabilities of Sun Pharma Merck had proven expertise in broad geographic commercial footprint Sun Pharma Advanced Research Company Ltd (SPARC) proprietary platform technology Merck wellversed with Clinical Trials Regulatory Approvals Sun could focus on core product development activities The Current Scenario   Sun Pharma crossed the coveted twobillion dollar mark in revenues in March 2013 Sun Pharma crossed ₹ 1 lakh crore mark (around US $ 16 billion) in market capitalization in 2013
  20. 20. Industry: Indian Construction Industry Characteristics    15 10    Growing contribution to gross domestic product (GDP)—from 5.1 % in 2001–02 to 7.9 % in 2010– 11 Globally the construction market is expected to grow at 5.1 % and 4.7 % during 2010–15 and 2015–20 In India it is expected to grow at 9.9 % and 7.6 % By 2020, India is expected to emerge as the world’s third-largest construction market Growth in nuclear families Rapid Urbanization Government support for schemes affordable 2010-15 7.6 0 Demand Drivers    9.9 5 The Industry in Growth  9 2005-10 Period under Consideration: 2005-2013 Highly fragmented industry Total Market Size: 248,000 crore CAGR (%) Linear (CAGR (%)) Industry Trends    housing 2015-20 Few restrictions on foreign direct investment (FDI) for infrastructure projects Tax holidays for developers of most types of infrastructure projects, some of which are of limited duration Opening up of the infrastructure sector for Public Private Partnerships (PPPs)
  21. 21. Joint Venture: Sahara-Turner Construction The Joint Venture   Drivers for the JV Sahara Turner Construction Limited formed in 2012 Plan to undertake $25 billion worth projects of Sahara Prime City over the next two decades Strategic Drivers Cost Optimization Risk Drivers Leverage Resources Market Penetration Estimated that $ 500 billion – $ 1 trillion will be spent on total infrastructure in India In next 10 years Sahara – Land, Local Market Knowledge, Asset Base of $25.94 billion Turner – Technology, 110 years of experience Share Uncertainty/Unpr edictability Share Operational Risks Share Technology Development Risks   Sharing of operating costs which are traditionally high in construction sector Long Term Competitive Positioning Scalability The Current Scenario 8 projects in progress Development and construction planned for 21 cities
  22. 22. Identification of Similarities and Differences within the Growth Phase Resource Drivers Similarities Cost Drivers Strategic Drivers Market Drivers Differences Construction: Higher perceived Demand risk Pharmaceuticals & Telecom: Lower perceived Demand risk
  23. 23. The Maturity Phase
  24. 24. Introduction When is an industry in mature phase?  An industry where growth is either saturated or is at the same/slower rate than at the broader rate of economic growth  The products/processes in the industry are standardized and the players compete mainly on price basis Characteristics        Demand is saturated/slow-growing Players too willing to discount Eroding margins, profits, and returns Cost-cutting to stay ahead Consolidation of competitors Incremental Innovation Reinvestment rate is low Examples of Industries in Maturity     Aviation Industry (US) Oil and Gas FMCG Retail (US) Various Possible Strategies  Strategic innovation  Prime focus shifts to controlling costs  Image differentiation through Complementary services  Consolidation amongst the players  Achieve Economies of Scale  Incremental Innovation: Limited opportunity for product and process innovation
  25. 25. Industry: US Airlines Industry Characteristics       Period under Consideration: 1997 – 2011 Healthy operating margins between 1997-99 Companies started collaborating Growth in passenger traffic was slowing down Price of Crude increase post 2000 Post 2000 the margins started to decline Source: Marketline
  26. 26. Strategic Alliance: Star Alliance The Alliance Drivers for the Alliance  Alliance forged in 1997 – “The Airline Network for Earth”  Initially started with 5 members and subsequently grown to 28 Increase Revenues Economies of Scale Joint Sourcing Price Collusion Collusion on pricing routes dominated by the JV Cost reduction in the material/supplies obtained from suppliers Increase negotiating power Achieved in marketing, creating corporate deals Attract passengers from non-aligned carriers Double hubs used to create funnel routes Improve the operating load The Current Scenario  The alliance currently comprises of 28 members  United (founder member), US Airways and Continental Airlines are now a part of this alliance
  27. 27. Industry: Automotive Industry (US) Industry Characteristics Projected Growth  Period under Consideration: 2011 – Present  Comprises of trucks, passenger cars and motorcycles  Volumes have increased at 4%  Witnessed a serious contraction in 200809 but market has recovered since then  Firms mainly look forward to Merger and Acquisitions Source: Marketline Porter’s Five Forces Source: Marketline
  28. 28. Strategic Alliance/Joint Venture: GM & PSA Peugeot The Joint Venture   Long-term and broad-scale global strategic alliance that will leverage the combined strengths and capabilities of the two companies GM and PSA Peugeot through this Joint Venture will purchase commodities, components and other goods and services from suppliers with combined annual purchasing volumes of approximately $125,000 million Drivers for the JV Sharing Knowledge Sharing of vehicle platforms, components and modules for product development Reduce Cost of Sourcing Explore new Opportunities Reduce Emissions The alliance would also focus on reducing carbon emissions To develop new global projects to broaden their alliance and seize new opportunities. Exploring opportunities in growth markets including Latin America and Russia, which represent priority regions for both Formation of a global purchasing joint venture to cut down sourcing cost The Current Scenario  GM will take responsibility for developing both the new C3 Picasso and Meriva MPVs to replace Peugeot 208, Citroen C3and Vauxhall Corsa by 2016
  29. 29. Identification of Similarities and Differences within the Mature Phase Focus on cost reduction from sourcing Means to explore new growth opportunities Combining forces would reduce the investment on R&D Differences Similarities Airlines: No focus on reduction of R&D Automotive: Reduce the R&D spend of each firm
  30. 30. The Decline Phase
  31. 31. Introduction When is an industry in decline?  An industry where growth is either negative or is not growing at the broader rate of economic growth  As the industry becomes challenged by new industries that produce technologically superior substitute products Common Examples of Industries in Decline          Railroad Steel (US) Newsprint Photofinishing Book Publishing DVD, Game and Video Rentals Garments (US) Wired Telecommunications Salt mining Characteristics      Costs become counter-optimal Sales volumes decline Profitability diminishes Decreasing demand Competitors start exiting Various Possible Strategies  Prime focus shifts to controlling costs  Re-inventing products and services  Identifying and focussing on growth segments within the industry  Diversification  Mergers, consolidations, alliances and joint ventures  Divestiture  Make a quick exit!
  32. 32. Industry: Newsprint Industry Characteristics     Period under Consideration: 2000 - 2010 US Newspaper Industry was a USD 50 billion business (2002) and employed 400,000 people 80% of revenues from print advertising Companies started adopting a cost leadership strategy The Industry in Decline        Changing readership habits as readers turned to the Internet The economic crisis severely impacted the industry Print advertising revenues plummeted Development of new journalism startups was rampant, aided by low entry costs on the Internet Between 2008 and 2010, eight major newspaper chains declared bankruptcy (E.g.: The Tribune, Sun Times Media Group, etc.) Many smaller newspapers moved to Web-only publications Newspaper publishing companies were forced to choose an optimal configuration of services and activities to survive
  33. 33. Strategic Alliance: Yahoo! Newspaper Consortium The Alliance   Drivers for the Alliance Alliance forged in 2006 Effort to combine the newspapers’ unmatched local news and advertising reach with the technologies and audience of Yahoo!, to arrest the decline in the newsprint industry Paid Search Classifieds on the web Content Distribution Graphic ads Industrial Evolution Entry into the emerging industry trend Newspapers would use Yahoo!’s adserving, targeting and inventory management Newspapers to integrate Yahoo!’s paid search across their sites Classifieds and job-related advertisements posted on Yahoo! Hotjobs Newspaper content to be fully integrated within local news modules delivered across Yahoo! verticals The Current Scenario   The Consortium is currently comprised of 36 holding companies and over 800 newspapers and drives 2 billion monthly page views and 100 million monthly unique visitors (2013) Estimated consortium sales: USD 300 million (2013)
  34. 34. Industry: Book Publishing Industry Characteristics    Period under Consideration: 2010 - present Most books are published by a small number of very large book publishers, but thousands of smaller book publishers exist The US Book Publishing industry is worth USD 28 billion and employs 78,561 people with an annual CAGR of -1.4% (2008-13) The Industry in Decline        Frightening rise of the e-book and e-book reader markets Shipments of e-book readers to triple between 2010 and 2014 The Association of American Publishers reported that in Q1FY13, e-books outsold hardbound books for the 1st time (USD 282.3 million vs. USD 229.6 million) Ease-of-access of delivery of e-books have made Amazon and Barnes & Noble the leaders in Internet retailing E-publishing set to take centre-stage soon! Sales of brick-and-mortar book stores dropping Established publishers are desperately seeking a sustainable way forward
  35. 35. Joint Venture: Penguin – Random House JV The Joint Venture   Drivers for the JV Two of the world’s biggest English-language book publishers, Penguin and Random House formed this JV. The owner of Random House will have 53% of the venture with Penguin’s owner, Pearson, having 47% Each company retains certain ‘exclusive’ rights and there are a variety of rules to protect each party No. 1 Publishing Company Combined success Better scale of operations Greater resources Stronger Platform Together, they felt they could take on the e-book business more effectively Would leverage each other’s resources to invest in rich content and emerging markets Combining forces would give them the scale they need to compete with the growing challenges to their business Aim for combined commercial success in what they do best The JV would surge ahead of rival Hachette to become the biggest publisher in the world The Current Scenario    The Joint Venture was completed on 1st July, 2013 and would employ more than 10,000 people worldwide The JV aims to publish more than 15,000 new titles every year across 250 imprints Estimated annual revenue of JV: USD 3.9 billion
  36. 36. Identification of Similarities and Differences within the Decline Phase Differences The Internet and evolution of technology adversely affected both industries Alliances and JVs were sought as a means of survival Combining forces was felt to be the best way forward Newspaper: Alliance done to merge with the emerging technology Books: JV done to take-on the emerging trends Newspaper: Consortium served as a means to assist several players Books: JV done only between 2 major players to become the largest, assisting only both of them Similarities
  37. 37. Overall Similarities and Differences
  38. 38. Benefits of SA/JV in Different Phases Introductory Phase     Resource shortage compensated by partners Partnering with reputed firms to facilitate process of development Reduced failure risk in new industry Increased resources to develop the product and/or the market Growth Phase     Increased market access and rural penetration Savings in operating expenses due to sharing of resources Alliance helps in increasing the strategic focus of the partners Collaboration helps in achieving economies of Scale and Scope Maturity Phase       Cost reduction from sourcing Price Collusion amongst the alliance partners Reducing investment risk of the players Gain economies of scale Gain market power and be more competitive Acquire new capabilities Decline Phase     SAs and JVs are done as a means of survival Methods to either align with or take on the emerging technologies/trends which are causing the industry to decline Interdependence for mutual benefits Cost cutting is a key to survival
  39. 39. A Comparative Study of the Motivations behind SAs and JVs across different phases of the Industry Lifecycle

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