Dr.Youzhen Zhao FDU

Evolution of International Business

Ch 6 International Strategic Alliance

Dr.Youzhen Zhao FDU

Dr.Youzhen Zhao FDU

Dr.Youzhen Zhao FDU

Fiat Cinquecento Trepiuno Concept

Dr.Youzhen Zhao FDU

Ford Ka

Dr.Youzhen Zhao FDU

Fiat Cinquecento

Ford Ka

Dr.Youzhen Zhao FDU

International Strategic Alliances at a Glance

Over the past few decades, there has been an enormous increase in the formation of international strategic alliances and in the research efforts devoted to understanding alliances.

Examples: NUMMI (New United Motor Manufacturing, Inc. ) , joint venture between GM and Toyota (1984)

Joint development of visual memory products between Du Pont and Sony

Know-how exchange between Motorola and Toshiba to manufacture micro processors

Dr.Youzhen Zhao FDU

Agenda for this chapter

•External Network of firms

•What is a strategic alliance?

•Main forms and features of strategic alliances

•Trends of strategic alliances

•Motivations of strategic alliances

•Industries with the vast majority of strategic alliances

•The facilitating concepts of strategic alliances

•Risks and costs of strategic alliances

•Building cooperative ventures

•Managing cooperative ventures

•Concluding comments

Dr.Youzhen Zhao FDU

External Network

Globalisation and technological changes have

heralded an array of new inter-firm collaborative forms

Traditional inter-firm collaborative forms

– long-established

– between conventionally organised, hierarchically structured

firms

New inter-firm collaborative forms

– flexible and dynamic forms of collaborations

– featured by international strategic alliances and dynamic,

flexible business networks

Dr.Youzhen Zhao FDU

– Strategic alliances are links formed between two-

or-more independent companies which choose

to carry out a project or specific activity by

coordinating the necessary skills and resources,

rather than

• pursuing the project or activity on their own, taking

on all the risks and confronting competition alone

• merging their operations or acquiring entire business

units

What are strategic alliances?

Dr.Youzhen Zhao FDU

International Strategic Alliances

Main forms of strategic alliances

Technical training

Supplier / buyback arrangement

Production / assembly arrangement

Patents licensing

Franchising

Know-how licensing

Management / Marketing services

Non-equity cooperative arrangement (in exploration, research partnership, development, co-production)

Equity joint ventures

More

involvement

and

interaction

Dr.Youzhen Zhao FDU

International Strategic Alliances

Main features of strategic alliance

– flexible and dynamic

• project specific

• the preservation of autonomy

• highly reversible

Dr.Youzhen Zhao FDU

Trends of strategic alliances

Strategic alliances

are increasingly between firms in industrialized

countries.

focus frequently on the creation of new products and

technologies rather than the distribution of exiting ones.

often occur during industry transitions when

competitive advantages are shifting and the very basis for

building and sustaining competitive advantages is being

defined.

Dr.Youzhen Zhao FDU

Motivations of Strategic Alliances

a. Technology Exchange : R&D collaboration innovations are increasingly based on interdisciplinary and inter-

industry advances

the necessary capabilities and resources are often beyond the scope

of a single company

shorter product life cycles increase both the time pressure and risk

exposure while reducing the potential payback of massive R&D

investment

b. Global Competition

--- Coalitions of smaller partners to compete more effectively

against a global common enemy rather than each other.

Dr.Youzhen Zhao FDU

Motivations of Strategic Alliance

c. Industry Convergence

--- Computers , telecommunication and components

--- Bio and chip technologies

d. Economies of Scale and Reduction of Risk

--- Pool resources and concentrate activities to raise scale of

activity or rate of learning within the alliance

--- Share and leverage the specific strengths and capabilities

--- mutual gains , save cost of duplication

e. Alliance as an Alternative to Merger

Dr.Youzhen Zhao FDU

Dr.Youzhen Zhao FDU

Example: Cell Phone Business

Dr.Youzhen Zhao FDU

Competition Pressure

Dr.Youzhen Zhao FDU

Strategic alliance between Nokia and Microsoft

(Feb. 11, 2011)

Nokia CEO , Stephen Elop (left) and Microsoft CEO , Steve Ballmer (right)

Dr.Youzhen Zhao FDU

International Strategic Alliances

Over 70% of strategic alliances are between rival companies, mainly in high-tech and capital intensive industries

Six industries account for the vast majority of alliances:

– automobiles

– aerospace

– telecommunications

– computer

– electrical products

– airline

Dr.Youzhen Zhao FDU

International Strategic Alliances

These industries are all characterized by the

following features

– Appreciable entry barriers

– Globalisation pressure

– Scale and scope economies

– Rapid technological change

– High risk

– Declining product life cycle

Dr.Youzhen Zhao FDU

The Facilitating concepts of strategic alliances

--- Triad power concept

emphasizing the need to develop significant positions in

the three key markets of U.S.A , Western Europe and Japan

--- Stick - to - your - knitting

urging managers to disaggregate the value chain and focus

investments , efforts on those tasks in which the company

has a significant competitive advantage.

Dr.Youzhen Zhao FDU

The Risks and Costs of Strategic Alliances

--- one partner using the collaboration as a way of

developing competitive advantages over the other

--- additional management costs from the higher levels of

strategic and organizational complexity

Dr.Youzhen Zhao FDU

Building Cooperative Ventures

Partner Selection : Strategic and Organizational

Analysis

Escalating Commitment : Thrill of the Chase

Alliance Scope : Striving for Simplicity & focus

(adequate to get the job done) and Flexibility

Dr.Youzhen Zhao FDU

Managing Cooperative Ventures

Managing the Boundary : Structuring the Interface

Managing Knowledge Flows : Integrating the Interface Fully exploit the learning potential

Prevent the outflow of any info. or knowledge not wishing to share

Providing Strategic Direction : The Governance Structure

Dr.Youzhen Zhao FDU

Concluding Comments

Easy but often not the best solution

Alliances need not be permanent

Flexibility is key

An internal knowledge network :

Basis for learning

Dr.Youzhen Zhao FDU

Case Study

Eli Lilly in India:

Rethinking the joint venture strategy

(HBS case database, Product number: 904M16-

PDF-ENG) –Richard Ivey School of Business,

the University of Western Ontario

(also on the textbook)