51-53 A - Strategic Alliances.ppt

Strategic
Alliances
9-1
Copyright © 2008 Pearson Prentice Hall. All rights reserved.
Chapter 9

Strategic Management & Competitive Advantage – Barney & Hesterly 2
Strategic Alliances
9-2
Mission Objectives
External
Analysis
Internal
Analysis
Strategic
Choice
Strategy
Implementation
Competitive
Advantage
The Strategic Management Process
Corporate Level
Strategy
Which Businesses
to Enter?
• Vertical Integration
• Diversification
• Strategic Alliances
• mode of entry

Strategic Alliances
9-3
Strategic Alliances Defined
Strategic Alliance:
Any cooperative effort between two or more
independent organizations to develop,
manufacture, or sell products or services

Strategic Alliances
9-4
Motivation for Strategic
Alliances
• Technology Exchange
• Global Competition
• Industry Convergence
• Economies of Scale and Reduction of Risk
ADDED

Strategic Alliances
9-5
Motivation for Alliances
Create economic value by:
• accessing complementary resources and capabilities
• leveraging existing resources and capabilities
An alliance is an organizational form of exchange
that:
• should produce a gain from trade due to
some comparative or absolute advantage
Implication: Choose partners that are better at
something than you are (complementary resources)

Strategic Alliances
9-6
Motivation for Strategic
Alliances
• Technology Exchange
• Global Competition
• Industry Convergence
• Economies of Scale and Reduction of Risk
ADDED

Strategic Alliances
9-7
Reasons for Strategic
Alliances
• Gain access to new markets
• Enter new businesses
• Introduce new products
• Overcome trade barriers
• Avoid predatory competition
• Gain access to complementary resources
• Pool resources, skills, and risk capital
• Share risk
• Share R & D expenses ADDED

Strategic Alliances
9-8
Sources of Interfirm Synergies that
can Motivate Strategic Alliances
• Exploiting economies of scale
• Learning from competitors
• Managing risk and sharing costs
• Facilitating tacit collusion
• Low-cost entry into new markets
• Low-cost entry into new industries and
new industry segments
• Managing uncertainty ADDED

Strategic Alliances
9-9
Three Types
Of
Alliances
Nonequity
Alliance
Contracts
• licensing
• supply &
distribution
agreements
Joint
Venture
Equity
Alliance
Cross Equity
Holdings
• partners own
stakes in
eachother
Joint Equity
Holdings
• independent
firm is
created

Strategic Alliances
9-10
ADDED

Strategic Alliances
9-11
How Strategic Alliances Create Value
Improve Current Operations
Shaping the Competitive Environment
Facilitating Entry and Exit
Value
Creation

Strategic Alliances
9-12
Improving Current Operations
Exploiting economies of scale
• a partner brings increased market share
and/or manufacturing capacity
Learning from partners
• a partner brings technology and/or
market knowledge
Risk and cost sharing
• a partner bears a portion of the risk and/or
cost of the alliance

Strategic Alliances
9-13
Shaping the Competitive Environment
Facilitating technology standards
Facilitating tacit collusion
• partners may agree on a standard and avoid
a market battle for the standard
• partners may communicate within an alliance
in subtle, legal ways whereas the same
communication between competitors outside
an alliance would be illegal

Strategic Alliances
9-14
Facilitating Entry and Exit
Low-cost entry into new industries
Low-cost exit from industries
Managing uncertainty
Low-cost entry into new geographic markets
• a partner provides instant access and legitimacy
• a partner is an informed buyer
• alliances may serve as ‘real options’
• partners provide local market knowledge, access,
and legitimacy with governments and customers

Strategic Alliances
9-15
Challenges to Value Creation and Allocation
Incentives to Misappropriate Value (Cheat)
An alliance is an exchange context in which:
• partner inputs may be difficult to monitor
• actual value creation may be difficult to monitor
• value appropriation (allocating the value) may be:
• difficult to monitor
• subject to power dynamics

Strategic Alliances
9-16
Challenges to Value Creation and Allocation
Three Forms
of
Misappropriating
Value
Adverse
Selection
Moral
Hazard
Holdup
misrepresenting
the value of inputs
providing inputs
of lesser value
than promised
exploiting the transaction-
specific investment of
partners

Strategic Alliances
9-17
In economics, the hold-up problem (or
commitment problem) is central to the theory of
incomplete contracts, and shows the difficulty in
writing complete contracts. A hold-up problem
arises when two factors are present:
1.Parties to a future transaction must make
noncontractible relationship-specific investments
before the transaction takes place.
2.The specific form of the optimal transaction (such
as quality-level specifications, time of delivery, what
quantity of units) cannot be determined with
certainty beforehand.
ADDED

Strategic Alliances
9-18
The hold-up problem is a situation where two
parties may be able to work most efficiently by
cooperating but refrain from doing so because
of concerns that they may give the other party
increased bargaining power and thus reduce
their own profits.
When party A has made a prior commitment to
a relationship with party B, the latter can 'hold
up' the former for the value of that commitment.
The hold-up problem leads to severe economic
cost and might also lead to underinvestment.
ADDED

Strategic Alliances
9-19
Sustained Competitive Advantage
Are strategic alliances rare?
As a form of organizing economic exchange, NO!
The sources of value creation within alliances
may be rare.
However,
• firms may form a combination of complementary
resources within an alliance that is rare
• the stock of such complementary resources may
be limited so that first movers have a rare combination

Strategic Alliances
9-20
Sustained Competitive Advantage
Are strategic alliances costly to imitate?
As a form of organizing economic exchange, NO!
However,
The resource combinations that create value in
alliances may be very costly, if not impossible,
to imitate if:
• the organizational form per se is easily duplicated
• the value creating combination depends on
social complexity (trust), causal ambiguity,
and/or historical uniqueness

Strategic Alliances
9-21
Organizing Strategic Alliances
Governance Responses to the Challenges of
Value Creation and Allocation
Explicit Contracts
& Legal Sanctions
Equity Investments
Joint Ventures
Formal/Codified
• imposes costs
for cheating
• creates mutual
understanding
• conflict resolution
• aligns interests of
partners through
ownership of
independent firm
• aligns interests of
partners through
ownership in
each other
• direct effect • indirect effect

Strategic Alliances
9-22
Trust Firm Reputations
Informal
• the shadow of the
future constrains
cheating
• may allow partners
to exploit opportunities
that would be infeasible
with other mechanisms

Strategic Alliances
9-23
These responses are not mutually exclusive:
• contracts may be used with equity investments
and joint ventures along with firm reputation
and trust
• reputation and trust come into play in every type
of alliance
Reputation and trust may be sources of competitive
advantage because they are costly to imitate

Strategic Alliances
9-24
International Expansion
Alliances may be attractive because:
• local market knowledge is usually critical
• governments may require a local partner
• international expansion may be:
• fraught with uncertainty
• high risk
• expensive
• alliance investment may be more easily reversed
than internal development or acquisition

Strategic Alliances
9-25
Summary
• create alliances that will produce gains
from trade—complementary resources
• identify the sources of value creation
• assess the likelihood of challenges to value
creation and allocation
• adopt appropriate governance responses to
the challenges to value creation and allocation
Successful alliance managers will:

Strategic Alliances
9-26
Summary
Alliances may generate competitive advantage if:
• combinations of complementary resources
meet the VRIO criteria
• governance responses meet the VRIO criteria
The Big Challenge of Strategic Alliances:
Maximizing gains from trade while
minimizing the threat of cheating

Strategic Alliances
9-27
THANK YOU

51-53 A - Strategic Alliances.ppt

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