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Strategic Alliances


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Strategic Alliances

  1. 1. Strategic alliances Eslsca – MBA - April 2011 By: Mohamed Khalifa Ibrahim International Marketing
  2. 2. Definitions <ul><li>A strategic Alliance is an agreement for cooperation among two or more independent firms to work together toward common objectives. Unlike in a joint venture, firms in a strategic alliance do not form a new entity to further their aims but collaborate while remaining apart and distinct . (1) </li></ul><ul><li>A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations, partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk. (2) </li></ul>1- D. Cravens, N. F. Piercy, Strategic marketing, 9 th edition McGraw hill 2- David C. Mowery, Joanne E. Oxley, Brian S. Silverman, Strategic Alliances and Interfirm Knowledge Transfer (1996) Strategic Management Journal, Vol. 17, Special Issue: Knowledge and the Firm (Winter, 1996), pp. 77-91
  3. 3. Definitions <ul><li>An alliance is a close, collaborative relationship between two or more entities that share complementary assets and strengths to create increased value for their customers and their own organizations that could not be accomplished independently. (1) </li></ul>1- Association of strategic alliances professionals 2002 2- Economist Intelligence Unit Global Survey 3- Charles Bartling Total business conducted through alliances (2) A co-operative arrangement between two or more parties who combine their strengths to achieve compatible objectives whilst retaining their individual identities and share the risks and rewards. (3)
  4. 4. Strategic alliances <ul><li>Maintaining a competitive edge and marketing leadership is more than just a challenge, it is a necessity. For companies to remain strong during the 2000's, it is essential to find opportunities for leveraging and expanding their core competencies into leading edge markets. (1) </li></ul>In Average, each fast-growing company is engaged in 5 different types of strategic alliance (1) 1- Columbia University, European Trade Commission, Studies by BA&H, AC.1983-1987, 1988-1993, 1994-1996, 1999 EIU Global Executive Survey Andersen Consulting, Warren Comp. Alliances as Percentage of Revenue for Top 1,000 U.S. Public Corporations (1)
  5. 5. Strategic alliances 1- Economist Intelligence Unit Global Survey EIU/KPMG international 2005. 2- Booz-Allen & Hamilton 1999 Survey of Top 2000 US & European firms Types of partnerships CEO will rely on for increasing market share (1) Priorities for major companies (2)
  6. 6. Motives <ul><li>There are a number of reasons why alliances are formed. It is important to be clear about the purpose and objectives of an alliance before seeking partners and entering into negotiations. </li></ul><ul><li>In the new economy, strategic alliances enable business to gain competitive advantage through access to a partner's resources, including markets, technologies, capital and people. </li></ul><ul><li>Teaming up with others adds complementary resources and capabilities, enabling participants to grow and expand more quickly and efficiently. Especially fast-growing companies rely heavily on alliances to extend their technical and operational resources. </li></ul><ul><li>Allowing each partner to concentrate on activities that best match their capabilities. </li></ul><ul><li>Learning from partners & developing competences that may be more widely exploited elsewhere </li></ul><ul><li>Many fast-growth technology companies use strategic alliances to benefit from more-established channels of distribution, marketing, or brand reputation of bigger, better-known players. However, more-traditional businesses tend to enter alliances for reasons such as geographic expansion, cost reduction, manufacturing, and other supply-chain synergies. </li></ul><ul><li>As global markets open up and competition grows, midsize companies need to be increasingly creative about how and with whom they align themselves to go to the market.  </li></ul>
  7. 7. Motives <ul><li>Reducing risks. </li></ul><ul><li>Less expensive access to needed competencies and complementary resources </li></ul><ul><li>Credibility. </li></ul><ul><li>Test new strategies. </li></ul><ul><li>Reduce/share costs. </li></ul><ul><li>Provide access to more potential customers. </li></ul><ul><li>To broaden service offerings and increase customer satisfaction. </li></ul><ul><li>Gain foothold in international marketplace </li></ul><ul><li>Innovate in the industry </li></ul><ul><li>Establish a unique position in the market </li></ul><ul><li>Boost market presence </li></ul><ul><li>Provide added value to customers </li></ul><ul><li>Expand customer base </li></ul><ul><li>Access knowledge & expertise beyond company borders </li></ul><ul><li>Increase sales and profitability </li></ul><ul><li>Reduce overhead through sharing costs or outsourcing completely </li></ul><ul><li>Enhance R&D capability and to conduct R&D </li></ul><ul><li>Strengthen reputation in the industry as a result of associating with world class organizations. </li></ul><ul><li>Extend product offerings </li></ul><ul><li>Speed entry into particular market </li></ul><ul><li>Secure position as front runner in marketplace </li></ul><ul><li>Provide marketing </li></ul><ul><li>Establish advantageous Purchaser/Supplier relationships </li></ul><ul><li>Set up Distribution Networks </li></ul><ul><li>Augment selling effort </li></ul><ul><li>Manufacture cost effectively </li></ul>
  8. 8. Success factors <ul><li>The success of any alliance may depend heavily on effectively matching the capabilities of the participating organizations and achieving the full commitment of each partner to the alliance. The benefits and the trade-offs in the alliance must be favorable for each of the partners; the contribution of one partner should fill a gap in the other partner’s capabilities. Weak alignment of objectives, performance metrics, and clashes of corporate cultures can all undermine alliance effectiveness. (1) </li></ul><ul><li>It could be summarized to (2) : </li></ul><ul><li>Trust </li></ul><ul><li>Senior Management Support </li></ul><ul><li>Ability to Meet Performance Expectations </li></ul><ul><li>Clear Goals </li></ul><ul><li>Partner Compatibility </li></ul><ul><li>Commitment to long-term win – win relationship and results </li></ul>1- D. Cravens, N. F. Piercy, Strategic marketing, 9th edition McGraw hill 2- Judith M. Whipple, Robert Frankel Strategic Alliance Success Factors, Journal of Supply Chain Management, Summer, 2000
  9. 9. Mistakes <ul><li>Low commitment (no champion, minimal executive support) </li></ul><ul><li>Poor operational planning/integration </li></ul><ul><li>Strategic weakness (diverging strategies/under-developed value added proposition, unclear strategic return on investment) </li></ul><ul><li>Rigidity/poor adaptability </li></ul><ul><li>Focus on internal alliance issues, and not the customer mission </li></ul><ul><li>Not enough preparation time </li></ul><ul><li>Hidden agenda leading to distrust </li></ul><ul><li>Lack of understanding of what is involved </li></ul><ul><li>Unrealistic expectations </li></ul><ul><li>Fails the ‘public perception test’ & damages your reputations </li></ul><ul><li>Complex to manage </li></ul><ul><li>Reactive, not prepared & proactive </li></ul><ul><li>Overdependence </li></ul><ul><li>Legal problems </li></ul>
  10. 10. Pyramid Of Alliances
  11. 11. Types of alliances <ul><li>There are many types of strategic alliances: </li></ul><ul><li>Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. </li></ul><ul><li>Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. </li></ul><ul><li>Non-equity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage. </li></ul>
  12. 12. Types of alliances <ul><li>Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries. Sometimes formed between company and a foreign government, or among companies and governments </li></ul><ul><li>Vertical Alliances are relationships between organizations in different industries. This is a type of alliance most commonly found in the service sector where collaboration of expertise can be coordinated to offer complete solutions to clients. </li></ul><ul><li>Horizontal Alliance include firms from the same industry. Alliances are usually used to achieve scale, to adjust for seasonal changes or handle niche areas of expertise. </li></ul>
  13. 13. Types of alliances <ul><li>Based on the description by Michael Porter and Mark Fuller, classifies alliances (according to purpose) as follows: </li></ul><ul><li>Technology development alliances like research consortia, simultaneous engineering agreements, technology commercialization agreements, licensing or joint development agreements. </li></ul><ul><li>Operations and logistics alliance which involves either pooling the cost of establishing manufacturing facilities or taking advantage of an existing investment in a country by a local firm. </li></ul><ul><li>Marketing, sales and service alliances in which a company makes use of the marketing infrastructure etc. of another company, in the foreign market for its products. This may help easy penetration of the foreign market and preemption of potential competitors. </li></ul><ul><li>Multiple activity alliance which involves two or more types of alliances. While marketing alliances are often single country alliances, as international firms take on different allies in each country, technology development and operations alliances are usually multi-country since these kinds of activities can be employed over several Countries. </li></ul>
  14. 14. Examples Successful alliance (Starbucks –Kraft) Unsuccessful alliance (Dockers and American Pacific Enterprises) Starbucks and Kraft had an alliance where Starbucks coffee will be distributed through Kraft only, Both companies will benefit: Starbucks gains quick entry into 25,000 supermarkets in USA, supported by the marketing muscle of 3,500 Kraft salespeople and Kraft tops off its coffee line with the best-known premium brand and gains quick entry into the fast-growing premium coffee segment. Dockers and American Pacific Enterprises (APE) which is working in bedding ensembles, sheets, towels and bath accessories industries, had an alliance, where APE will sell towels and bed accessories with Dockers name on it. There was no benefit for Dockers, but American Pacific Enterprises needed a strong brand image, this unbalanced alliance Lead to a big disaster for Dockers, eventually as their brand image was severely damaged due to this awkward partnering with unrelated products. Leading to eventually ending this alliance .
  15. 15. <ul><li>Thank you </li></ul>