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DEFINITIONS
1. Strategic Alliance is a mutually beneficial long-term formal relationship
formed between two or more parties to pursue a set of agreed upon goals or
to meet a critical business need while remaining independent organizations.It is a synergistic arrangement whereby two or more organizations agree to
cooperate in the carrying out of a business activity where each brings
different strengths and capabilities to the arrangement.
The term strategic alliance can in fact mean many different things, but
the commonly used meaningentails a joint cooperative effort by two or
more companies working towards agreed upon goals. The parties are
typically in the same or related industries and are looking for strategic
synergies in allying with a party in one or more of the following areas:
Joint product development
Joint research
Distribution arrangement
Co-marketing arrangement
Investment by one company in the stock of another company, typically for a
minority position
Licensing of patent or other intellectual property
The alliance can be structured as a separate entity joint venture, with both
parties making the agreed upon contributions (whether capital, technology,or services). More often, however, an alliance is promulgated as a
contractual arrangement or a series of interdependent agreements.
2. Strategic alliance is a specific form of collaboration between two or more
companies. Strategic alliances with stronger overseas partners can provide a
means of overcoming the problems of small size and lack of resources faced
by some US companies.
The term "strategic alliance" can mean many things. In its broadest sense, it
can apply to virtually any form of collaboration between two or more firms,including one or more of the following activities:
Design contracts
Technology transfer agreements
Joint product development
Purchasing agreements
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Distribution agreements
Marketing and promotional collaboration
Intellectual advice
For our purposes, the term strategic alliance encompasses a more specific
type of company relationship than the joint venture or a typical exporter-
distributor or licensing arrangement. A strategic alliance might be entered
into for a one-off activity, or it might focus on just one part of a business, or
its objective might be new products jointly developed for a particular
market.
Generally, each company involved in the strategic alliance will benefit by
working together. The arrangement they enter into may not be as formal as a
joint venture agreement. Alliances are usually consummated with a written
contract, often with agreed termination points, and do not result in thecreation of an independent business organization. The objective of a
strategic alliance is to gain a competitive advantage to a companys strategic
position. When you are a small company, a strategic alliance can allow you
to graft your whole business onto the superior manufacturing, marketing and
distribution structures of an established international company.
Characteristics of a Strategic Alliance
Compared to other types of company-to-company relationship, strategic
alliances often have the following characteristics:
Usually a non-equity, loosely structured relationship
Each partner retains its business independence
One Company will take a lead role in any contract or marketing and
the others will be "partners" in the work. They could work as sub
contractors or suppliers to the main company
The alliance can be struck between companies which would normally
be considered competitors
The relative size of the partners is not a significant factor Each partner must contribute distinctive "core strengths" eg
technology, manufacturing capacity, access to distribution
Strategic alliances can be combined with other agreements, such as licensing
of technology
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Strategic alliances come in all shapes and sizes, and include a wide range of
cooperation, from contractual to equity forms.
Various terms have been used to describe forms of strategic partnering.These include international coalitions (Porter and Fuller, 1986), strategic
networks (Jarillo , 1988) and, most commonly, strategic alliances.
Definitions are equally varied. An alliance may be seen as the joining of
forces and resources, for a specified or indefinite period, to achieve a
common objective.
Types of strategic alliances
Contractual:
Licensing
o Cross-licensing
Franchising
Joint R&D
Management Contract
Turnkey project
Equity:
New entity
o Independent Joint venture
o Dependent Joint Venture of Multinational Corporation
Existing entity
o Purchase of equity share
o Equity swap
Stages of Alliance FormationA typicalstrategic alliance formation process involves four steps:
Strategy Development: Strategy development involves studying the
alliances feasibility, objectives and rationale, focusing on the major
issues and challenges and development of resource strategies for
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production, technology, and people. It requires aligning alliance
objectives with the overall corporate strategy.
Partner Assessment: Partner assessment involves analyzing a
potential partners strengths and weaknesses, creating strategies for
accommodating all partners management styles, preparing
appropriate partner selection criteria, understanding a partners
motives for joining the alliance and addressing resource capability
gaps that may exist for a partner.
Contract Negotiation: Contract negotiations involves determining
whether all parties have realistic objectives, forming high caliber
negotiating teams, defining each partners contributions and rewards
as well as protect any proprietary information, addressing termination
clauses, penalties for poor performance, and highlighting the degree to
which arbitration procedures are clearly stated and understood.
Alliance Operation: Alliance operations involves addressing seniormanagements commitment, finding the caliber of resources devoted
to the alliance, linking of budgets and resources with strategic
priorities, and measuring and rewarding alliance performance
Benefits of Strategic Alliances
Strategic alliances can be valuable and beneficial tools to implement
corporate goals. While no single alliance may provide solutions for meeting
all corporate goals, alliances, when properly structured, can provide thefollowing benefits:
Access to New Distribution Channels
An alliance can be structured to grant a company access to new distribution
channels that may otherwise be difficult or costly to penetrate on its own.
Access to New Technology
Many alliances are formed to enable one company to obtain access or rights
to new technology through license or other contractual arrangements
allowing Increase in capital for research and product development and yetlower risk (Innovation)
Access to Capital
A prime motivation for smaller emerging companies is the ability to access
new capital for growth, for development of new products or services, or for
entry into new lines of business. This is typically structured as license
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payments or investment in the stock of the emerging company. Valuations of
the company in such corporate partnering arrangements may be higher than
available in venture capital financings.
Access to International Markets. In an increasingly global economy,
multinational alliances that grant access to international markets can be a
significant benefit. Allying with a company that is already doing business or
stationed in a foreign country, that understands the market and the culture,
and that has existing business operations in the foreign country, can often be
much more efficient and successful than attempting to enter those markets
on the companys sole initiative.
Reduction of Cost and Uncertainty
Allying with a partner may reduce the significant cost and uncertainty of
pursuing a new market, product, or service. Often, the company may be
unable to expand on new initiatives without the backing and assistance of a
strategic ally, Allowing Decrease in product lead times and life cycles (timepressures)
Access to Manufacturing
. An alliance can provide a company access to manufacturing capabilities,
expertise, or capacity.
Enhancing the Ability to Compete
An alliance can provide a company enhanced ability to compete in its
existing markets and in new markets.
Enhanced Credibility
Under an appropriate alliance, a start-up or emerging company may
enhance its credibility (e.g., to the markets or to the potential investors).
Access to New or Existing Products
An alliance can provide a company with access to new or existing products.
Pharmaceutical companies in particular enter into strategic alliances with
biotechnology companies to place them in a preferred position for access to
new products.
Rapidly achieve scale, critical mass and momentum (Economies of Scale
- bigger is better)
Ability to bring together complementary skills and assets that neithercompany could easily develop on its own
Providing added value to customers
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Disadvantages of Strategic Alliances
There are a number of potential disadvantages to strategic alliances:
Lack of Total Control
By nature, most strategic alliances require a measure of shared control over
goals and method of implementation of the alliance. The lack of total control
of the direction of the business venture can cause significant problems if
there is a disagreement with the partner on fundamental decisions that arise
during the course of the venture.
High Rate of Failure
Notwithstanding good intentions by both sides in the start of an alliance,
there is a high rate of failure in such transactions. The failures often come asa result of corporate cultural differences, unrealistic expectations, inability to
agree on direction or on major decisions, or the inability of one party to
bring to the alliance the anticipated benefits (e.g., technology, marketing,
distribution) in the manner contemplated by the other party.
Adverse Impact on the Flexibility of the Participants
Alliances can limit the flexibility of the participants to engage in other
alliances, acquisitions, or other transactions. The drafting of the alliance
agreements is absolutely key in this area. The alliance agreements may also
prevent the parties from competing with the alliance or the other partner to
the alliance.
Overdependence on the Partner
Alliances can sometimes make one partner particularly dependent on another
partner. This can be damaging in the event the other partners performance
on behalf of the alliance deteriorates or in the event the other partners
business suffers adverse developments.
Commitment of Time and Resources
Successful alliances require a great deal of commitment by personnel and
management and potentially significant amounts of capital and other
resources. Such resources may be difficult to continually contribute and mayadversely divert managements attention from their primary responsibilities.
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EXAMPLES
IN AIRLINES INDUSTRY
Star Alliance
Star AllianceOfficial Launch Date May 14, 1997
Members
Full 18
Non-Voting 3
Pending 2
Destinations ServedAirports 842
Countries 152
Annual Passengers (M) 425
Fleet Size 2800
Management Jaan Albrecht (CEO)
Website staralliance.com
The Star Alliance, launched on May 14, 1997, is the largest and most
awarded airline alliance in the world, with the following points of
cooperation among its partnerairlines:
Frequent flyer program integration allows airline miles to be earned
and redeemed on all members of the Alliance at the same level
Premium customers of the alliance have access to all members' airport
lounges.
Flight schedules are coordinated to permit almost seamless travelwhich may include several different carriers within the alliance, on a
single ticket
Special fares for round-the-world and similar travel on alliance
members offer discounts over booking individual itineraries
Customer service processes are harmonized in an effort to promote a
consistent experience
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Cooperation in development of a common information technology
platform
This tight cooperation led to suspicions of anti-competitive behavior, and the
alliance was investigated by theEuropean Union as a virtual merger of its
members. Indeed, some speculated that if government regulations were
relaxed, the members would merge into a single corporation, although no
evidence has yet materialized. Previous to Star Alliance,Northwest Airlines
and KLM were operating together as the forerunners of the modern airline
alliance system since 1993 - although there had been even earlier pairings
and groupings of airlines for decades on a less formal level. The creation of
the Star Alliance was a milestone in airline history due to its size and
sparked the formation of rivals, notably SkyTeam and Oneworld.
Star Alliance livery seen in 2006
Star Alliance now runs 16930 daily flights to 842 airports in 152 countries
with South African Airways and Swiss International Air Lines having joined
at the beginning of April 2006. The figure also includes the new USAirways, which reached a merger deal with America West in May 2005. Its
market share is 28%, including US Airways-America West Airlines, based
on the RPK (revenue passenger kilometers).
The alliance developed the "regional" concept in 2004, which helps the
alliance to penetrate individual markets through regional carriers, which
requires sponsorship from existing members.
Star Alliance was voted best airline alliance in the 2005 World Airline
Awards for the second time in three years
Full members
Air Canada+
Air New Zealand
All Nippon Airways (ANA)
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Asiana Airlines
Austrian Airlines
bmi
LOT Polish Airlines
Lufthansa+
Scandinavian Airlines System (SAS) +
Singapore Airlines
South African Airways
Spanair
Swiss International Air Lines
TAP Portugal
Thai Airways International+
United Airlines+
US Airways
Varig
Note+: Indicates founding members of the Star Alliance.
Regional members
Adria Airways (sponsored by Lufthansa)
Blue1 (sponsored by SAS)
Croatia Airlines (sponsored by Lufthansa)
Former members
Ansett Australia collapsed in 2001
Mexicana left alliance in 2004 after deciding not to renew a
codeshare alliance with United Airlines and opted to codeshare with
Oneworld's American Airlines.
Future members
Air China, currently partnered with ANA, Asiana Airlines,
Austrian Airlines, Lufthansa, SAS, United Airlines, and Varig.Despite Oneworld's Cathay Pacific being its shareholder, the airline
was officially invited to join the alliance on May 22, 2006, after an
agreement with Lufthansa[22].
Shanghai Airlines was invited to join Star Alliance on May 10th,
2006 [23].
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Potential members
Turkish Airlines has chosen to apply for membership to the
alliance. However, there is no official announcement from neither the
airline nor the alliance.
Egypt Air - according to the homepage of the Arab Air
Carriers Organization AACO the airline is in early talks
with Lufthansa in order to promote their application.
Egypt Air aims to become a member within the next 24
months. Air India is set to join the Star Alliance as well. A
former announcement on joining the Star Alliance is to bemade in December 2006.
Star Alliance livery seen in 2003.
Star Alliance has two premium levels, Silver and Gold, based on a
customer's tier status in a member carrier's frequent flyer program. Each of
the member and regional airlines recognizes Star Silver/Gold status, with a
few exceptions (mainly pertaining to airport lounge access). The statuses
have no specific requirements of their own; membership is based solely on
the frequent flyer programs of individual member airlines.
Star Alliance Silver
Star Alliance Silver status is awarded to customers who havereached the premium level of a member carrier's frequent flyerprogram.
Benefits of Star Alliance Silver membership:
Priority Reservations Waitlisting
Priority Airport Standby
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Some carriers also offer the following to Silver members:
Priority Boarding
Priority Airport Check In
Priority Baggage Handling
Preferred Seating
Additional Checked Luggage Allowance
Airport Lounge Access
Star Alliance Gold
Star Alliance Gold status is awarded to customers who have reached a high level of amember airline's frequent flyer program.
Benefits of Star Alliance Gold membership:
Priority Reservations Waitlisting
Priority Airport Standby
Priority Boarding
Priority Airport Check In
Priority Baggage Handling Additional Checked Luggage Allowance
Airport Lounge Access (Gold members of United States airlines only
receive lounge access when traveling internationally)
Some airlines also offer the following to Gold members:
Preferred Seating (Exit seat or even on a special section on the plane
on some carriers which provide more leg room)
Guaranteed Seating on Fully Booked Flight (Subject to the Booking
Class Code and notice period)
Complimentary Upgrade (In the form of voucher/certificate or
automatic upgrade upon check in)
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Currently the lowest qualification criteria for a Star Alliance Gold status is
35,000 status miles earned during calendar year with Air Canada's Aeroplan
program awarding a status valid for one year from March of the next year.
Alternatively 50,000 qualification miles during a calendar year in Thai
Airways Royal Orchid Plus program awards a status with two years of
validity.
SKYTEAM ALLIANCE
SkyTeam
Official Launch Date June 22, 2000
Members
Full 10
Non-Voting 0
Pending 7
Destinations ServedAirports 728
Countries 149
Annual Passengers (M) 373
Fleet Size 2151
Website skyteam.com
SkyTeam Alliance is the second largest airline alliance in the world
behind Star Alliance partnering ten carriers from three continents.
The stated benefits and goals of the alliance are:
Easy frequent flyer mile collection and redemption across carriers
Reciprocal airport lounge access between carriers
Guaranteed reservations for Elite Plus customers More available flights and easier connections between carriers
More fare options
Unified check-in for all carriers
Consistent quality standards across carriers
One reservation network for all members
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Sky Team calls itself the "first alliance built around customer needs".
In 2005 SkyTeam was the world's best airline alliance, according to the
readers of Global Traveler Magazine 1.
Nonetheless, Skyteam service to Australia and New Zealand is quite limited,making it the only worldwide airline alliance that does not provide a
practical Round-The-World itinerary in the Southern Hemisphere. Also, it's
the only alliance with no member airlines providing a one-plane Kangaroo
route service
WOW Alliance
Successfully established in airfreight market within three years of its
founding, the WOW cargo alliance grouped around Japan Airlines Cargo,
Lufthansa Cargo, SAS Cargo and Singapore Airlines Cargo is successfully
entrenched in the market. Meantime, with a market share of about 20 per
cent, it is the world's biggest air cargo alliance. The partners in the grouping
have reached a major milestone and pressed further ahead with their
integration. the alliance was founded by Lufthansa Cargo, SAS Cargo und
Singapore Airlines Cargo in April 2000. JAL Cargo joined WOW in July
2002. The air cargo alliance commands a combined fleet of 43 freighters and
the belly hold capacity of more than 760 passenger aircraft, many of themwide body jets. Between them, JAL Cargo, Lufthansa Cargo, SAS Cargo
and Singapore Airlines Cargo offer an unparalleled route network of
destinations, linking the world's major trading centres.
Among the IATA airlines, Lufthansa Cargo is the biggest carrier in the
international airfreight business, Singapore Airlines Cargo is the second
biggest and Japan Airlines Cargo the sixth biggest. SAS Cargo operates a
dense network, notably in northern Europe.
WOW is not an abbreviation; it stands for the alliance's values:
"Dynamism", "Innovation" and "Vitality". An enthusiastic "WOW" is the
customer response that the alliance aims to elicit with its services and
quality.
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REMARKS
Strategic alliances represent an important form of cooperation between two
or more business Entities. A strategic alliance might be viewed as a lesser
form of a merger. It is not a mergerper se, since alliance partners remainseparate business entities and retain their decision-making autonomy. While
merger activities have slowed down significantly since 2000, strategic
alliances are increasingly, and widely, used by firms. They are particularly
prevalent in network-oriented industries such as airline, shipping,
telecommunications, multimodal transportation and logistics industries.
Consider the airline industry. The four largest global alliances namely,
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Star Alliance, OneWorld, Wings, and SkyTeam accounted for 57% of the
worlds revenue passenger kilometers in 2002 (Airline Business, November
2003).
Like alliances in logistics and other transportation industries, an airline
alliance is a multi-product network, with each of its products corresponding
to travel (either by people or by cargo) in a particular city-pair market. The
extent of alliance will affect not only the partners but also the nature of
interaction between competing alliances in various markets. The strategic
alliance between, for instance, United and Lufthansa the two major
partners of Star Alliance will thus have a major impact on the alliance
decision by American and British Airways in OneWorld, which is
competing with Star Alliance in the U.S., European and North Atlantic
markets.
Examples: The merger of Air France and KLM was recently approved byEU regulators. As a consequence, KLM is expected to leave Wings and join
SkyTeam, whose major partners are Air France and Delta. KLMs current
alliance partner , Northwest, is also expected to join SkyTeam, with
Continental (Northwests long-time domestic alliance partner) joining as
well (Brueckner and Pels, 2005). If the Wings and SkyTeam alliances are
consolidated into a single mega-alliance, the three largest global alliances
would each have about 20% of the worlds passenger kilometers
airline alliances enable partners to better coordinate their flightschedules to minimize travelers wait time between connecting flights.
The partners also benefit from sharing information, research and
experiences indifferent market segments and from linking their
existing networks; thereby, reducing the need for developing new
Hubs: a major cost of entry and particularly so for international aviation
due to bilateral treaties and foreign ownership restrictions (Baker and
Pratt, 1989; Pitelis and Schnell, 2002)
The three largest strategic alliances in the air cargo sector, namely,
New Global Cargo, SkyTeam Cargo, and OneWorld, accounted for
49% of international freight tonne kilometers in 2002.
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In water transportation, the five Shipping alliances namely,
Maersk/Sea-Land, Grand Alliance, New World Alliance, The K-
Line/COSCO Group, and United Alliance accounted for 61% of
international freight tonne kilometers in 2000. The same trend has
recently appeared in the U.S. domestic airline industry. Over the past
few years, virtually all of the U.S. hub-spoke carriers have entered
into broad code sharing partnerships, including the United/US
Airways alliance that began in January 2003, and the three-way
alliance between Northwest, Continental and Delta initiated in June
2003
IN ELECTRONICS
HP and Apple Partner to Deliver Digital Music Player
and iTunes to HP Customers
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LAS VEGAS, Consumer Electronics Show, January 8, 2004Working to
provide consumers with the most compelling digital content whenever and
wherever they desire, HP and Apple today announced a strategic alliance
to deliver an HP-branded digital music player based on Apples iPod, the
number one digital music player in the world, and Apples award-winning
iTunes digital music jukebox and pioneering online music store to HP's
customers.
As part of the alliance, HP consumer PCs and notebooks will come
preinstalled with Apples iTunes jukebox software and an easy-reference
desktop icon to point consumers directly to the iTunes Music Store, ensuring
a simple, seamless music experience. This offering is yet another way that
HP is helping consumers enjoy more from their personal digital
entertainment content.
HPs goal is to bring the most compelling entertainment content and
experiences to our customers, said Carly Fiorina, chairman and chief
executive officer at HP. We explored a range of alternatives to deliver a
great digital music experience and concluded Apples iPod music player and
iTunes music service were the best by far. By partnering with Apple, we
have the opportunity to add value by integrating the worlds best digital
music offering into HPs larger digital entertainment system strategy.
Apple's goal is to get iPods and iTunes into the hands of every music lover
around the world, and partnering with HP, an innovative consumercompany, is going to help us do just that, said Steve Jobs, Apples CEO.
As the industry balkanizes by offering digital music wrapped in a multitude
of incompatible proprietary technologies, consumers will be reassured in
getting the same unparalleled digital music solutions from both HP and
Apple, two leaders in the digital music era.
According to internal HP research, more than 54 percent of current HP
consumers download music to their PCs.
Over two million iPods have been sold since its introduction, solidifying its
position as the number one digital music player in the world. All iPods work
seamlessly with the award-winning iTunes digital music jukebox software
and the iTunes Music Store, which has sold more than 30 million songs,
providing music fans with the best digital music experience on either a
Mac or Windows PC.
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The iTunes Music Store offers Windows and Mac users a music catalog of
more than 500,000 songs, the same gold standard personal use rights and
the same 99 cents-per-song pricing. The iTunes Music Store features online
gift certificates for family and friends; Apples innovative and patent-
pending online Allowance feature, which allows parents to automatically
deposit funds into their kids iTunes Music Store account every month; more
than 5,000 audio books, which can be purchased with one click and listened
to on a Mac or Windows computer as well as on iPods; Celebrity Playlists;
and new exclusive tracks from more than 60 artists. The iTunes Music Store
offers music from all five major music companies and over 200 independent
music labels.
IN NETWORKS
Dell chose Enterasys to be one of their Preferred Partners
in Q1of 2002 to provide comprehensive networking solutions at aprice/performance value unmatched by any other networking vendors.
Leveraging Enterasys technology and thought leadership as well as the
strengths of the Dell strategic partnership, Enterasys and Dell strive to
develop flexible, scalable, intelligent solutions that are easy to purchase and
easy to own. Enterasys and Dell provide powerful, standards-based Secure
Networks customized for the unique needs of your organization and enable
you to easily build complete IT solutions, manage IT procurement andresolve challenges
Mission
Enable customer success by driving business and technology change through strategic
alliances with industry leaders.
Cisco Collaborates with IBM to Deliver New Fibre
Channel Embedded Switches for IBM BladeCenter
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Cisco Alone Offers Full Range Of Protocols for Embedded Switches:
Ethernet, Infiniband, and Fibre Channel
LONDON, England (Gartner Data Center Summit), November 20, 2006 -
Cisco today announced that it is expanding its portfolio of award-winning
storage networking switches and directors by developing a new embeddedFibre Channel fabric switch for IBM blade server chassis. The new Cisco
embedded switch will allow customers to deploy end-to-end Cisco
intelligent SAN services, such as VSANs, advanced security, and high
availability.
With this addition to its switch portfolio, Cisco is the only company to offer
a full range of connectivity protocols for data center blade servers, uniquely
providing customers with the choice of Ethernet, InfiniBand, and Fibre
Channel to match their business and IT requirements. Customers benefit
through common provisioning and management tools, simplified operations,
and reduced operational costs.
"Today's data center managers need access to a variety of protocols in order
to match the specific requirements of their environment with the protocol
that best supports those needs," said Bob Pass more, research vice president
at Gartner. "Blade servers that can offer multiple protocols and common
management tools provide the flexibility and agility that the enterprise
demands."
Many organizations are deploying bladed server architectures to simplifymanagement and operations through standardization on a single platform for
operation consistency, reduction in cabling and rack space, and integrated
management. Blade server solutions help customers save in power, cooling,
floor space, time, money, and resources. By offering a full range of
protocols for embedded switches, Cisco helps enable seamless integration
with the broader data center infrastructure and extends the benefits of multi-
protocol intelligent network architectures to blade servers.
Powered by the Cisco SAN OS operating system, the new Cisco embedded
Fibre Channel fabric switch is fully compatible with the Cisco MDS 9000family of Multilayer directors and fabric switches for transparent, end-to-end
service delivery in large enterprise environments, while enabling customers
to take advantage of an end-to-end Cisco management framework to
simplify data center operations.
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"IBM has been leading the blade server industry with its innovative
approach to systems design and a rich ecosystem of partners, unparalleled in
the blade server market," said Doug Balog, Vice President for IBM Blade
Center. "We are pleased to be working with Cisco to continue to expand that
ecosystem and look forward to offering our customers the new Cisco
embedded Fiber Channel switch across the entire family of Blade Center
chassis."
At Cisco, strategic alliances engage in impact partnering that is differentiated by 8
unique but integrated characteristics
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