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Alliances and NetworksAlliances and Networks

Alliances and why they formAlliances and why they form

Markets or HierarchiesMarkets or Hierarchies

Embedded OrganisationsEmbedded Organisations

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Trends in European BusinessTrends in European Business

Concentration and Consolidation of Concentration and Consolidation of IndustryIndustry

Easier Circulation of GoodsEasier Circulation of Goods Better Access to MarketsBetter Access to Markets More International Outlook and StrategiesMore International Outlook and Strategies Brands Becoming ‘Multi-Local’Brands Becoming ‘Multi-Local’ More Competitive Sources of SupplyMore Competitive Sources of Supply Consumer Convergence (?)Consumer Convergence (?)

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Forces Shaping AlliancesForces Shaping Alliances

Globalisation of Markets and Globalisation of Markets and the Need for Scalethe Need for Scale

Blurring of Industry BoundariesBlurring of Industry Boundaries Scarce Resources Scarce Resources Intensifying CompetitionIntensifying Competition Barriers to EntryBarriers to Entry

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Doz and Hamel (1998)Doz and Hamel (1998)

““Two competitive races are being Two competitive races are being run: one for the world and one for run: one for the world and one for

the future”the future”

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Alliances Cover a Wide FieldAlliances Cover a Wide Field

Collaborative Collaborative AdvertisingAdvertising

R&D PartnershipsR&D Partnerships Technology Technology

TransferringTransferring Shared DistributionShared Distribution Co-operative BiddingCo-operative Bidding Lease Service Lease Service

AgreementsAgreements

Cross ManufacturingCross Manufacturing Resource VenturingResource Venturing Shared Staff & Shared Staff &

FacilitiesFacilities Internal Spin-offsInternal Spin-offs Cross LicensingCross Licensing Government and Government and

Industry PartneringIndustry Partnering

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Types of Collaborative RelationshipsTypes of Collaborative Relationships

Closeness of Nature ofRelationship Relationship

Outsourcing

Partnership

Alliance

Ownership

Outsourcing

Short-termPartnership

Long-termPartnership

PermanentPartnership

Joint Venture

Vertical Integration

LOW

HIGH

Contractual purchase of goods and services

Short-term focus with co-ordinatedactivities and planning between partners

Long-term focus with integration ofactivities between partners

Permanent arrangements with partnerswith highly integrated systems

Shared ownership in an operationwith a collaborator or partner(s)

Full ownership of the operationcorporate parent

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Strategic AlliancesStrategic Alliances

UnderstandObjectives,Drivers andValue Creation

Strategic Alliances

•Acquisition not possible•Cross-border•Financial limitations

•Evolutionary approach•Opportunity for learning•Skills transfer•Co-operation

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Primary Alliance DriversPrimary Alliance Drivers

Pooled Resources Search for Critical Mass

Individual Firm Capabilities

Low High

GlobalisationPressures

High

Low

Channel Access Global IndustryMarket Penetration Leadership

Increasing Complexity

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Primary Alliance Drivers

Pooled Resources Search for Critical Mass

Individual Firm Capabilities

Low High

GlobalisationPressures

High

Low

Channel Access Global IndustryMarket Penetration Leadership

•Automotive•Chemicals & Energy•Consumer Products

•Telecoms•Computers•Electronics

•Steel•Paper•Utilities

•Healthcare•Environmental•Areospace/Defence

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Strategic AlliancesStrategic Alliances

A Universal DefinitionA Universal Definition::

Strategic Alliances refer to co-operative Strategic Alliances refer to co-operative agreements between companies, which may agreements between companies, which may be competitors, to share or transfer skills be competitors, to share or transfer skills and resources to meet mutually agreed and resources to meet mutually agreed goals. Such alliances may or may not goals. Such alliances may or may not involve shared equity stakes.involve shared equity stakes.

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Alliances can have varying formsAlliances can have varying forms

Loose collaborative venturesLoose collaborative ventures LicensingLicensing Technology sharingTechnology sharing Equity participating Equity participating Joint venturesJoint ventures

Different forms have differing risk/reward factorsAlliances and Networks can be created in different parts of the value chain - Horizontal and Vertical Alliance.See fig 7.1 in Chp 7 of de Wit and Meyer.

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The Firm

Suppliers

EntrantsSubstitutesOutsiders

Competitors

Buyers

IndirectHorizontal

DirectHorizontal

Political /LegalForces

TechnologicalForces

SocioculturalForces

EconomicForces

VerticalDownstream

Alliances

VerticalUpstreamRelations

The firm and its relationshipsThe firm and its relationships

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AlliancesAlliances

The inter-relationships between partners can The inter-relationships between partners can be tight or loose depending upon the nature be tight or loose depending upon the nature and type of alliance and type of alliance

Alliances can be formed in any part of the Alliances can be formed in any part of the value chain - Vertical Alliances and value chain - Vertical Alliances and Horizontal AlliancesHorizontal Alliances

Alliances can be formed for tactical as well Alliances can be formed for tactical as well as strategic reasonsas strategic reasons

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Typology of Business AlliancesTypology of Business Alliances

Competitive Alliances Collaborative Ventures

Cartels Co-operatives

Parties

Competitors Non-competitors

Orientation

Strategic

Operational

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Alliance Motivations - complex and Alliance Motivations - complex and interrelatedinterrelated

Reasons for Alliance formation is complexReasons for Alliance formation is complex

we can look at this in a variety of ways:we can look at this in a variety of ways: Survival and Competitive AdvantageSurvival and Competitive Advantage Trigger mechanisms - organisationally Trigger mechanisms - organisationally

generated or environmentally derivedgenerated or environmentally derived Key Variables - internal and external Key Variables - internal and external

motivesmotives

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Alliance OrientationsAlliance Orientations

Operational orientationOperational orientation Strategic orientationStrategic orientation

Develop with examples.. Retailing, Sony-Phillips, Airbus, One World etc.

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Purposes of AlliancesPurposes of Alliances

Strategic

Operational

AlliancePurpose

Diversification

Protection againstExternal Threats

Strategic Intent

Growth Opportunities

Resource Efficiency

Increase AssetUtilisation

Enhance CoreCompetence

ClosePerformance Gap

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Alliance PartiesAlliance Parties

Strategic

Operational

AlliancePurpose

Suppliers

PotentialSuppliers

Potential Customers

Customers

Exisiting Competitors

PotentialCompetitors

IndirectCompetitors

New Entrants

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Why Alliances 1Why Alliances 1

Sharing fixed costs and associated risks of Sharing fixed costs and associated risks of NPD and R&D and linked with opening and NPD and R&D and linked with opening and creating new marketscreating new markets

Alliances can be seen as a method of Alliances can be seen as a method of bringing together complementary resources bringing together complementary resources and skills that neither partner could easily and skills that neither partner could easily adoptadopt

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Why Alliances 2Why Alliances 2

Alliances can be seen as a way of creating Alliances can be seen as a way of creating critical mass to exploit economies of scale that critical mass to exploit economies of scale that individual partners do not enjoyindividual partners do not enjoy

Alliances can be seen as creating Alliances can be seen as creating countervailing power in a marketcountervailing power in a market

Alliances can be seen as an alternative method Alliances can be seen as an alternative method of market entryof market entry

A form of market control by creating networksA form of market control by creating networks

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The Dual Purpose of Strategic The Dual Purpose of Strategic AlliancesAlliances

Co-operativeCo-operative Upstream/downstream Upstream/downstream

division of labourdivision of labour Fill out product lineFill out product line Limit investment risk of Limit investment risk of

new market entrynew market entry Create critical massCreate critical mass Develop new skillsDevelop new skills Assist s/t restructuringAssist s/t restructuring

CompetitiveCompetitive Learn new skillsLearn new skills Accelerate diffusion of Accelerate diffusion of

new standardsnew standards Deny technology and Deny technology and

learning to partnerlearning to partner Encircle competitionEncircle competition Control market accessControl market access Form clusters of learningForm clusters of learning

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Webs of AlliancesWebs of Alliances

Frequently firms:Frequently firms:– Will have more than one alliance partnerWill have more than one alliance partner– Operate within more than one allianceOperate within more than one alliance– Operate a mixed alliance strategy - vertically with Operate a mixed alliance strategy - vertically with

suppliers and horizontally with competitorssuppliers and horizontally with competitors Network organisationsNetwork organisations Webs of AlliancesWebs of Alliances E-commerce hubsE-commerce hubs

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Firms Alliances and ConstellationsFirms Alliances and Constellations

Single Firm Group of Firms

Pair of Firms

Triad of Firms

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Web of Alliances 1- AT&TWeb of Alliances 1- AT&T

AT &T

Globalisation CapabilitiesPartnerships Partnerships

Korea, Hong Kong NovellSingapore

Mexico (ALFA) NCR

Sweden (Telia) McCraw

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Starbucks alliancesStarbucks alliances

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Apple Computers Asahi

Chemical Industry

Ericsson

GEC Alstholm

General Electric

LSI Logic of Canada

Motorola

National Semiconductor

OlivettiRhone- Poulenc

Samsung

SGS-Thomson

Siemens

Sun Microsystems

Telic Alcatel

Thompson Consumer Electronics

Time Warner

United Technologies

TOSHIBA'S CIRCLE OF FRIENDS

Toshiba’s “Circle of Friends”

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JS. DOCKS

DOCKS

ESSELUNGA DELHAIZE

RETAIL CONSORTIUM

I.G.D

GBINMO

SHAWS

GIANT

LAURA ASHLEY

SEDD ALLIANCE

LOOSE

SUPPLIERS SUPPLIERS WITH EQUITY STAKE

Figure 3: J.SAINSBURY'S WEB OF ALLIANCE

SECRETARIAT

Joint-Venture

Full Ownership

Partial Ownership

Partial Ownership

Co-marketingAgreements

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Alliance Failure RatesAlliance Failure Rates

66 percent of cross-border alliances ran into 66 percent of cross-border alliances ran into serious managerial problems within the first serious managerial problems within the first two yearstwo years

A further 19 percent reported mixed resultsA further 19 percent reported mixed results On average over the first 4 years On average over the first 4 years

approximately 50 percent were deemed approximately 50 percent were deemed failuresfailures

Source: Bleeke and Ernst (1991)Source: Bleeke and Ernst (1991)

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Conclusions 1Conclusions 1

Alliances are generally successful on a Alliances are generally successful on a global scaleglobal scale

Allying with competitors is a reality but Allying with competitors is a reality but our evidence is that a form of market our evidence is that a form of market control is evidentcontrol is evident

Alliances can lead to acquisition by one of Alliances can lead to acquisition by one of the partiesthe parties

The extended enterprise era has startedThe extended enterprise era has started

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Conclusions 2

The creation of e-commerce (B2B) hubs for The creation of e-commerce (B2B) hubs for procurement can be seen as an increasingly procurement can be seen as an increasingly common phenomena in the auto industry and in common phenomena in the auto industry and in other sectors. other sectors.

Thus we are seeing rival e-hubs competing Thus we are seeing rival e-hubs competing with each other centred around a lead company with each other centred around a lead company controlling a network of suppliers and co-controlling a network of suppliers and co-operating with a network of competitors.operating with a network of competitors.

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Finally - Strategic ChallengesFinally - Strategic Challenges

Will the alliance create value and for whom?Will the alliance create value and for whom? Will the alliance stand the test of time ?Will the alliance stand the test of time ? Will the partners reconcile conflicting priorities Will the partners reconcile conflicting priorities

and concerns?and concerns? How will each partner mange its growing web of How will each partner mange its growing web of

alliances?alliances? How to develop capabilities in managing How to develop capabilities in managing

alliances?alliances?