The document summarizes different types of strategic alliances that firms can engage in for innovation purposes, including licensing, joint ventures, and franchising. It discusses the reasons for using strategic alliances, such as improved access to capital, shared risks, and technology transfers. It also notes some of the risks of strategic alliances, such as loss of competitive knowledge, conflicts, and reduced control. Specific examples are provided of different alliance structures like trademark licensing and their benefits and concerns.

1. Slide 7.1
Lecture 4
Strategic alliances and networks
Chapters 2 & 7
You are required to investigate websites on
innovation policy and small business
innovation
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.2
Government facilitation of innovation
• What roles can governements play?
• Governments have a key role:
– as financiers of R&D,
– as purchasers
– setting strategic direction towards critical
industries (eg green)
– fostering enterpreneurial spirit
– infrastructure eg ports if exports are the focus
– as a purchaser it brings certainty and ensures
cashflow
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

2. Slide 7.3
Indirect support for innovation
• Tax exemptions
• Subsidies
• Loan guarantees
• Protection
• Societal action: education, information
dissemination
• Regulation of competition
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.4
Business environment
• The business environment must be conducive
to innovation
• Need macroeconomic stability
• Quick short term returns
• Availability of credit in the economy
• State of national and foreign competition – a
protected market can send wrong signals and
leads to creation of oligopolies eg banking
•
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

3. Slide 7.5
How can “Marketing” facilitate
innovation?
• Discuss
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.6
Strategic alliances
1. Introduction
2. The fall of the go-it-alone strategy
3. The rise of the octopus strategy
4. Forms of strategic alliances
5. Reasons for entering alliances
6. Risks and limitations with strategic alliances
7. Licensing
8. Critical success factors
9. Case study: The film industry
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

4. Slide 7.7
Learning objectives
• Understand the reasons for increasing use of
strategic alliances
• Recognise different forms of strategic alliance
• Identify factors critical to the success of strategic
alliances
• Appreciate the risks and limitations of strategic
alliances
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.8
Introduction
• Collaborating with suppliers and customers is
not new
• The intensity of competition is increasing
• The nature of collaboration is different
• Nowhere is this more evident than in new
product development
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

5. Slide 7.9
The fall of the go-it-alone strategy
• Increased levels of competition
• Increased complexity of products and
production
• Widening technology base
• Dramatically shortened product life-cycles
• Pressure to reduce NPD time
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.10
The rise of the octopus strategy
• Sharing resources
• Facilitate the achievement of strategic objectives
• Provide opportunities to expand into new markets by
sharing skills and resources.
• A lack of trust often lies at the heart of an unwillingness
to engage in any form of cooperation.
• The element of trust can be highlighted through the
use of the ‘prisoner’s dilemma.’
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

6. Slide 7.11
Forms of strategic alliances
Strategic alliances can occur intra-industry or inter-industry.
Faulkner (1995); Conway and Stewart (1998) identify seven
generic types of strategic alliance:
1. Licensing
2. Supplier relations
3. Joint venture
4. Collaboration (non-joint ventures)
5. R&D consortia
6. Industry clusters
7. Innovation networks
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.12
Reasons for entering a strategic alliance
Reasons Examples
1 Improved access to capital and European Airbus to enable companies to
new business compete with Boeing and MacDonnell
Douglas
2 Greater technical critical mass Industry alliance formed between US
microchip manufacturers to compete with
Japanese
3 Shared risk and liability Sony-Ericsson
4 Better relationships with strategic European Airbus
partners
5 Technology transfer benefits Customer-supplier alliances, e.g. VW
and Bosch.
6 Reduce R&D costs GEC and Siemens 60/40 share of
telecommunications joint venture: GPT
7 Use of distribution skills Disney and Pixar
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

7. Slide 7.13
Reasons for entering a strategic
alliance (Continued)
8 Access to marketing NMB, Japan and Intel; NMB has
strengths access to Intel’s marketing
9 Access to technology IBM gained access to Apple’s user
interface technology
10 Standardization Attempt by Sony to get Beetamax
technology as industry standard.
Also Microsoft Windows
11 By-product utilisation GlaxoSmithkline and
Matsushita, Cannon, Fuji
12 Management training Use of management & IT consultancies
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.14
Risks and limitations with
strategic alliances
It can lead to:
• competition rather than cooperation,
• loss of competitive knowledge,
• conflicts resulting from incompatible cultures and
objectives,
• reduced management control,
• increased complexity,
• loss of autonomy,
• information asymmetry.
It may harm a firm’s ability to innovate.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

8. Slide 7.15
Licensing
• Licensing is granting another business permission to use
your intellectual property.
• Payment of a fee in return for access to the technology.
• Very often the technology in question will be protected by
patents.
• Level of involvement varies considerably.
• Mutual self-interest is key driver.
• Product, manufacturing process and brand, which is
protected by patents; or a product or service, which is
protected by a trademark or copyright.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.16
Licensing (Continued)
• Licensing is the main income generator for many firms
e.g. Microsoft, BTG, etc.
• It helps businesses and universities generate income
from their intellectual property through the licensing of
technology to third parties.
• N.B. Licences to competitors constitute a high
percentage of all licences extended; e.g. (MS-DOS).
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

9. Slide 7.17
Licensing (Continued)
Licensing brand names
• A growing area of business e.g.:
• All England Club and use of Wimbledon Trademarks
JCB
Harley-Davidson
Disney
• Brands, trademarks and the internet
e.g. domain names – www.3m.com
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.18
Licensing (Continued)
• Negotiate with care . . .
The licensee must be careful to evaluate the need for
and the benefits likely to accrue from the technology
before making the commitment to pay.
• How advantageous is the technology?
Many patents can be legally breached with sufficient
R&D investment.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

10. Slide 7.19
Licensing (Continued)
Other reasons for licensing are (Rothberg, 1976):
• to avoid or settle patent infringement issues
• to diversify and grow through the addition of new
products
• to improve the design and quality of existing products
• to obtain improved production or processing technology
• to ensure freedom of action in the company’s own R&D
programme (patents held by other companies may
inhibit R&D activities).
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.20
Licensing (Continued)
Other reasons for licensing are (Rothberg, 1976):
• to save R&D expense and delay
• to eliminate the uncertainty and risk involved in
developing alternative processes and technology
• to accommodate customer needs or wishes
• to qualify for government and other desirable contracts.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

11. Slide 7.21
Critical success factors
• Creating knowledge sharing routines
– Codifiable knowledge, ‘know-what’
– Tacit knowledge, ‘know-how’
• Choosing complementary partners
– Strategic complementarity
• Assets, distinctive resources
– Organisational complementarity
• Decision processes, information/control systems, culture
• Building and managing co-specialised assets
– New assets created as a result of the alliance
• Establishing effective governance processes
– Formal (legal, financial), informal (trust)
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.22
Case study: The film industry
• The Hollywood film industry and the role of
knowledge network organisations
• Industry clusters and networks
• Independent film making and the $60 billion porn
industry in the San Fernando Valley
• The nature of film making and the project-based
enterprise
• End of the film, end of the enterprise
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

12. Slide 7.23
Licensing
The licensor permits the licensee (i.e.the
recipient firm) to use its intellectual
property in exchange for a royalty
payment.
Intellectual property may include:
patents
trademarks
copyrights
technical know-how. 23
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.24
Assessment of licensing
Advantages of licensing
no capital investment, knowledge, or
marketing strength
huge profit potential; costs recovered
minimal risk of government intervention
a stage in internationalisation
preempt market entry before competition
increasing intellectual property rights
protection
24
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

13. Slide 7.25
Assessment of licensing
Disadvantages of licensing
The licensor may not gain sufficient
international marketing experience.
The licensor may create its own competitor.
25
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.26
Principal issues in negotiating
licensing agreements
The scope of the rights conveyed
product and/or patents rights
Compensation needs to cover:
transfer costs
R&D costs
opportunity costs.
26
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

14. Slide 7.27
Principal issues in negotiating
licensing agreements
Licensee compliance
export control regulations
confidentiality of the intellectual property
record keeping and provisions for audits
Dispute resolution
The term, termination and survival of
rights must be specified.
27
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.28
Trademark licensing
Some names and characters can be
traded, including:
logos
literary characters
sports teams
movie stars.
Trademarks can appear most anywhere,
including:
clothing
games and toys
28
beverages. Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

15. Slide 7.29
Franchising
A licensing arrangement where the
franchisor grants the franchisee the right
to do business in a prescribed manner.
The major forms of franchising include:
manufacturer-retailer systems
manufacturer-wholesaler systems
service firm-retailer systems.
29
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.30
Benefits of franchising
Market potential
Financial gain
Saturated domestic markets
Reduces the risk by implementing a
proven concept
Governmental perspective
Franchising requires little outflow of foreign
exchange, and most profits remain within the
country.
30
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

16. Slide 7.31
Franchising concerns
Companies need to know what their
special capabilities are.
The need for standardisation
Protection of the total business system
Local competition may emerge quickly with
an imitation of the product being offered.
Government intervention or restrictions
(e.g. royalty remissions)
Selection and training of franchisees
31
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.32
Types of ownership: Joint
ventures
Disadvantages of joint ventures
Many governments that require joint venture
formation are inexperienced in FDI.
Maintaining the joint venture relationship
may be difficult.
Degrees of loyalty to the venture may vary.
Profit accumulation and distribution may
cause disagreements.
32
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

17. Slide 7.33
Types of ownership: Joint
ventures
Strategic alliances are a form of joint
venture where two or more companies
enter a formal or informal collaborative
networking partnership to achieve a given
project or objective.
help develop markets
spread risk
allow companies to gain strength through
technology transfers 33
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
Slide 7.34
Types of ownership: Joint
ventures
Recommendations
Find the right partner. Partners should have
the right mix of complementary benefits.
The agreement must outline provisions for
contingencies.
The agreement must allow for changes in
the business environment.
34
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008