Chapter4-Global strategic alliances 1

Report
Chapter 4
Global strategic
Alliances 1
Strategic alliances
The combination of capabilities between 2
or more companies for:
• Market entry
• Resources acquisitions
• Global competitiveness
2
Strategic alliances cont.
COSPECIALIZATION
COALITION
Partners group together to gain
global access or to establish a
common standard.
Example: Airlines
Partners combine their respective unique
capabilities that complement each other
to create a business, to develop
new products or technology
or to reinforce their competitiveness
through specialization. E.g. Renault-Nissan
LEARNING
Partners join together to
a gain a mutual learning
from each other and to co-develop
new knowledge. E.g. Nummi
3
International strategic alliances
Globally based
Coalition
Co-specialisation
Consortia
Learning
E.g. Airlines
Renault-Nissan
E.g. GSM
Scope of the
alliance
Joint venture
for market entry
Country based
Typical in emerging
countries
Market
Joint venture
for resource
exploitation
E.g. Mining,
agriculture based,
oil and gas
Purpose of the
alliance
4
Resources
Framework for strategic alliances
Strategic value
• Defining the scope
• Strategic objectives
• Value creation potential
What are the benefits of the
alliance?
What do we get from it?
Partners’ fit
• Strategic fit
• Capabilities fit
• Cultural fit
• Organizational fit
How workable is the
relationship?
Negotiation and design
• Operational scope
• Interface
• Governance
How do we organize and
manage?
Implementation
• Integration
• Co-operation
• Evolution
How do we work?
5
Defining the scope of the alliance
Coalition
Strategic scope
What is the alliance
striving at?
Economic scope
Co-specialisation
Complementing
capabilities for new
business
or competitiveness
Increasing reach
to global market
Enlarged revenues
Cost sharing
Specialisation
leads to faster and
cheaper development
cost sharing
Generally very
limited to few
elements of the value
chain
(e.g. code sharing)
The alliance provides the
interface for co-ordination
or assembly of partners’
contribution
What each partners
contribute and get
Operational scope
What the alliance is
doing
E.g. Star alliance; Visa
E.g. Fuji Xerox; Renault-Nissan
6
Learning
Learning from and in the
alliance
Acquisition and/or
transfer of know-how
The alliance is a
platform for transfer of
knowledge and learning
together
E.g. Nummi ( GM-Toyota)
Value creation in strategic alliances
Value of the
parent
A
DIRECT VALUE
Value coming from the
alliance
Value of parent B
Royalties
Dividends
Management fees
Transfer pricing
Learning from
Learning
fromB B
Learning from
Learning
fromA A
Cost saving due to combined operations
SYNERGY VALUE
Value coming from joint
operations
Increased revenues due to joint marketing and
complementary products
Increased profitability from joint innovation
7
Partner analysis
8
Strategic fit
Determines the degree of commitment to the alliance
CRITICALITY
• How important and urgent is the business of the alliance for partners?
- Restructuring
- Competitiveness enhancing (cost, differentiation)
- Global reach
- New business development
• To what extent do partners need to achieve their objectives?
(Degree of capabilities autonomy)?
- Can partners achieve objectives alone
- Timing pressure
- Resources and competencies
DIFFERENCES IN EXPECTATIONS
• How different are the expectations?
• To what extent are any differences compatible?
9
Criticality and commitment in alliances
Commitment is a function of…
B
Strategic importance
of the project
D
Low
AA = High commitment
BB = No partnership
CC = Low commitment
DD = Very low commitment
AB = Potential conflicts
AC = Potential conflicts
AD = High level of conflict
High
commitment
Power
battle
High
Low
commitment
Lack
of support
Low
High
Need of a partner
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A
C
Differences in expectations
B
• Market development
of existing products
• New
business
• Product
complements
If no territorial
Overlap
• Market development
of existing products
• New business
A
• Product complements
• Cost reduction
• Learning
Fit
Possible
fit
Problematic
fit
11
• Cost
reduction
• Learning
Capabilities fit
Who contributes to what ?
TECHNOLOGY
Partner A
SOURCING
Partner B
Gaps
PRODUCTION
How to
develop?
Products
Process
Knowledge
Resources
Assets
• What are the relative competitive strengths of partners ?
• To what extent does the assembling of partners create a robust business model?
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MARKETING
Overlaps
How to
attribute?
Views about business
objectives:
o
o
o
o
o
o
Growth
Profitability
Risks
Long/short term
Shareholder value
Stakeholders
Cultural fit
PARTNER A
PARTNER B
How to deal with it?
Views about competitive
approaches:
o
o
o
o
o
Customer orientation
Pricing
Importance of quality
Importance of technology
Ethics
Ways to manage:
o
o
o
What to anticipate?
Leadership style
Trust/control
Motivating factors
Communication:
o
Openness/secrecy
o
Formal/informal
o
Importance of personal
relationships
13
Organisational fit
PARTNER A
PARTNER B
What to anticipate?
Structural differences:
o
Centralisation/decentralization
o
Form of organisation
How to deal with it?
Systems and processes:
o
Importance of formal systems
o
Sophistication of financial controls
o
Quality of IT
o
Importance of team work/
committees
Performance:
o
o
o
Performance based rewards
Career mobility
Quality of Management
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Organisational fit cont.
BIGGER, MORE
BUREAUCRATIC PARTNER
(A)
SMALLER, MORE
ENTREPRENEURIAL
PARTNER (B)

Formal, explicit decisions


Periodic, scheduled plans





Low contextual
embeddedness
Slow, sequential inputs to
decisions
Analytical choices
Aggregation,
consolidation of data
BIGGER, MORE
BUREAUCRATIC
PARTNER AS SEEN BY
THE SMALLER
ENTREPRENEURIAL




Informal, tacit, shared
decisions

Continuous, unscheduled
planning

High contextual
embeddedness

Fast, simultaneous inputs
to decisions

Intuitive judgments

Real-time immersion in
data

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Ponderous, slow, and
stupid
Preoccupied with
reviewing everything to
death
Awash in mindless
procedures
Risk averse,
procrastinating
Characterized by
paralysis through
analysis
Divided, fragmented
SMALLER, MORE
ENTREPRENEAURIAL
PARTNER AS SEEN BY
THE LARGER FIRM

A bunch of cowboys

Shooting from the hip

Disorganized, slippery



Going off in all
directions, unfocused
Characterized by sloppy
work
Exclusive, clannish,
hostile
Overall assessment
16
17
Design
STRUCTURE
 Role of the alliance structure: broker/operator
INTERFACE
 How value is distributed among partners
 Degree of task integration
 People appointment (alliance management)
GOVERNANCE




Legal structure
Executive authority/ supervisory authority
Communication/information/reporting
Conflict resolution
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Four structural designs in alliances
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The alliance designed Project Management:
the GE/SNECMA design
20
The alliance designed as a self-contained JV:
the Fuji Xerox case
21
The alliance designed as a joint committee:
the AlZA-Cibe Geigy case
CIBA
53% shareholding
80% voting right
Right to produce
Right to market
Exclusive right to ADDS
Board
5
Audit committee
Joint research
conference
Joint research
board
ALZA
Scientific
liaison
Scientific
liaison
Information
22
The alliance designed as a transfer JV:
the case of NUMMI
GM
TOYOTA
Management
Joint
venture
GM engineers (25)
50%
50%
FREEMONT
PLANT
Lean manufacturing
Know-how
2500 GM
unionized
workers
23
How to solve valuation issues
• Clearly define alliance scope
and trade terms between partners
• Create separate economic entity
• Seek external benchmarks
• Plan for renegotiation
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Distribution of value
• Profit sharing vs revenue sharing
• Transfer pricing
•Tasks definition and costs allocation
25
Profit sharing vs revenue sharing
Revenue sharing
Cost sharing
Partner A
Alliance revenues
Alliance direct costs
Net revenues
1000
(100)
900
Partner A allocated costs
(Ca)
Partner B allocated costs
(Cb)
Net profit
Partner A
(900-Ca-Cb)/2
900-Ca-Cb
Partner B
(900-Ca-Cb)/2
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450
Partner B
450
Task integration
Limited interactions
Limited
integration
PLUG-IN
E.g. GE/SNECMA
High
integration
Requires a lot of
operational
interactions
E.g.Fuji and Xerox
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The 8 criteria for successful alliances (the 8 I’s)
•
INDIVIDUAL EXCELLENCE
•
IMPORTANCE
•
INTERDEPENDENCE
•
INVESTMENT
•
INFORMATION
- Both partners are strong
- Have something to contribute
- Positive intent
- Fits strategy of both partners
- Long term view
- Partners need each other
- Complementing capabilities
- Nobody can do it alone
- Partner shows commitment
- Investment/re-investment
- Reasonable open communication
- Sharing of operational information
•
INTEGRATION
- Shared operating procedures
- Numerous connections
- Teachers/learners
•
INSTITUTIONALIZATION
- Clear responsibilities
- Clear decision processes
INTEGRITY
- No abuse
- Willingness to enhance trust
•
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GE/SNECMA: the ingredients of success
• Strong mutual trust at the top
• Near perfect complementarity - little overlap (the possibility to
isolate each partner’s contribution from other partner’s
interference)
• Revenue sharing eliminates issues of transfer pricing
• Willingness of partners to learn and adapt - cooperation over
time
• A small structure is in charge of the whole project (ownership)
and manages the relationships between partners
• Mutual respect
• Successful products
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Firm orders: 100+ passenger aircraft
30
Advantages of the CFM partnership
• The two parent companies had a
common goal and no competing
products
• By limiting the agreement to two
partners, the operational structure
maintained a simplicity required for
efficient decision making
• GE and Snecma participate equally in
all operational activities
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• A clear definition of responsibilities
encompasses all management,
manufacturing, marketing and
support functions
• Environment-friendly technology
• Manufacturer position in the
industry
• Committed, worldwide product
support

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