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STRATEGIC ALLIANCES AND PARTNERSHIPS

Bicol University

College of Business, Econoics !n" #!n!geent

D!t!g!, Al$!y

A %ritten re&ort in Business Policy !n" Str!tegy

Su$itte" $y'

Desuyo, (!yver B)

Asis, Se!l! #!rie *)

A+ul, In"ir! (e!n G)

#!nsos, Is!$el A)

Su$itte" to'

Dr) R

A %ritten re&ort in Business Policy !n" Str!tegy

Su$itte" $y'

Desuyo, (!yver B)

Asis, Se!l! #!rie *)

A+ul, In"ir! (e!n G)

#!nsos, Is!$el A)

Su$itte" to'

Dr) R!on De Leon

SUPPLE#ENTING THECH*SEN

C*#PETITIE STRATEG-

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Companies in all types of industries and in all parts of the world have elected to

form strategic alliances and partnerships to complement their own strategic

initiatives and strengthen their competitiveness in domestic and international

markets.

Many companies now nd themselves thrust into very demanding competitive

races:

1. the global race to build a market presence in many diferent national

markets and join the ranks of companies recognized as gloal market leaders

2. the race to seize opportunities on the rontiers o advancing technology

and uild the resource strengths and usiness capailities to compete successfully

in the industries and product markets of the future

STRATEGIC ALLIANCE is a formal agreement etween two or more separate

companies in which there is strategically relevant collaoration of some sort! joint

contriution of resources! shared risk! shared control! and mutual dependence.

Conse"uently! these companies form strategic alliances or partnerships in which

two or more companies jointly work to achieve mutually enecial strategic

outcomes.

#ften! alliances involve:1. joint marketing

2. joint sales or distriutions

$. joint production

%. design collaoration

&. joint research or projects

Str!tegic !lli!nces !re coll!$or!tive !rr!ngeents %.ere t%o or ore

co&!nies /oin forces to !c.ieve utu!lly $ene0ci!l str!tegic outcoes)

T.e co&etitive !ttr!ction of !lli!nces is in !llo%ing co&!nies to $un"le

co&etencies !n" resources t.!t !re ore v!lu!$le in ! /oint e1ort t.!n

%.en 2e&t se&!r!te)

'ive factors that make an alliance (strategic) as opposed to just a convenient

usiness arrangement:

1. *t is critical to the company+s achievement of an important ojective.

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2. *t helps uild! sustain or enhance a core competence or competitive advantage.

$. *t helps lock a competitive threat.

%. *t helps open up important new market opportunities.

&. *t mitigates a signicant risk to a company+s usiness.

C!&turing t.e Bene0ts of Str!tegic Alli!nces

1. Picking a good partner , a good partner not only has the desired e-pertise and

capailities ut also shares the company+s vision aout the purpose of the alliance

2. Being sensitive to cultural diferences , nless the outsider e-hiits respect

the local culture and local usiness practices! productive working relationships are

unlikely to emerge

$. Recognizing that the alliance must benet both sides , information must

e shared as well as gained! and the relationship must remain forthright and trustful

%. Ensuring that both parties live up to their commitments , oth parties

have to deliver on their commitments for the alliance to produce the intended

enets

&. Structuring the decision making process so that actions can be taken

s!itly !hen needed , the fast pace of technological and competitive changes

dictates an e"ually fast decision/making process.

0. "anaging the learning process and then ad#usting the alliance

agreement over time to t ne! circumstances , one of the keys to long lasting

success is adapting the nature and structure of the alliance to e responsive to

shifting market conditions! emerging technologies! and changing customer

responsive

Go!ls of Str!tegic Alli!nces

• ll/in/one solution

• 'le-iility

• "cuisition of new customers

• dd strengths! reduce weaknesses

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• ccess to new marketstechnologies

• Common sources

• 3hared risk

'or companies there are many reasons to enter a 3trategic lliance:

• S.!re" ris2 : 4he partnerships allow the involved companies to o5set their

market e-posure. 3trategic lliances proaly work est if the companies6

portfolio complement each other! ut do not directly compete.

• S.!re" 2no%le"ge: 3haring skills 7distriution! marketing! management8!

rands! market knowledge! technical know/how and assets leads to synergistic

e5ects! which result in pool of resources which is more valuale than the

separated single resources in the particular company.

• *&&ortunities for gro%t.: sing the partner6s distriution networks incomination with taking advantage of a good rand image can help a company

to grow faster than it would on its own. 4he organic growth of a company might

often not e su9cient enough to satisfy the strategic re"uirements of a

company! that means that a rm often cannot grow and e-tend itself fast

enough without e-pertise and support from partners

• S&ee" to !r2et: 3peed to market is an essential success factor *n

nowadays competitive markets and the right partner can help to distinctly

improve this.

• Co&le3ity: s comple-ity increases! it is more and more di9cult to manage

all re"uirements and challenges a company has to face! so pooling of e-pertise

and knowledge can help to est serve customers.

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• Costs: artnerships can help to lower costs! especially in non/prot areas like

;esearch <=evelopment.

• Access to resources: artners in a 3trategic lliance can help each other y

giving access to resources! 7personnel! nances! technology8 which enale the

partner to produce its products in a higher "uality or more cost e9cient way.

• Access to t!rget !r2ets: 3ometimes! collaoration with a local partner is

the only way to enter a specic market. >specially developing countries want to

avoid that their resources are e-ploited! which makes it hard for foreign

companies to enter these markets alone.

• Econoies of Sc!le: ?hen companies pool their resources and enale each

other to access manufacturing capailities! economies of scale can e achieved.

Cooperating with appropriate strategies also allows smaller enterprises to work

together and to compete against large competitors.

Life cycle of ! Str!tegic Alli!nce

'orming a 3trategic lliance is a process which usually implies some major steps

that are mentioned elow:

• Str!tegy Develo&ent: *n this stage the possiility of a 3trategic lliance is

e-amined with respect to ojectives! major issues! resource strategies for

production! technology and people. *t is necessary that ojectives of the

company and of the alliance are compatile.

• P!rtner Assessent: *n this phase potential partners for the 3trategic

lliance are analyzed! in order to nd an appropriate company to cooperate

with. company must know the weaknesses and strengths and the motivationfor joining an alliance of another company. @esides that appropriate criteria for

the partner selection are dened and strategies are developed how to

accommodate the partner6s management style.

• Contr!ct Negoti!tions: fter having selected the right partner for a

3trategic lliance the contract negotiations start. t rst all parties involved

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discuss if their goals and ojectives are realistic and feasile. =edicated

negotiation teams are formed which determine each partner6s role in the

alliance like contriution and reward! penalties and retaining companies6

interests.

ertic!l Integr!tion Str!tegies' *&er!ting Across ore

St!ges of t.e In"ustry !lue C.!in)

ertic!l Integr!tion'

>-tends a rm+s competitive and operating scope within the same industry @ackward *ntegration/ sources of supply 'orward integration/ end users

?hen a company e-pands its usiness into areas that are at di5erent points

on the same production path! such as when a manufacturer owns its supplier

andAor distriutor.

7http:AAwww.investopedia.comAtermsAvAverticalintegration.asp8

Can aim full integration 7participating in all stages of the industry8 or partial

integration 7 uilding positions in selected stages of the industry+s total value

chain Can e pursued through starting its own operations in other satages in the

industry+s activity chain of y ac"uiring a company already performing the

activities it wants to ring in/house

A"v!nt!ges

3trengthen the rms competitive position @oosts company+s protaility

improve e9ciency y decreasing transportation e-penses and reducingturnaround time7http:AAwww.investopedia.comAtermsAvAverticalintegration.asp8

- vertical integration strategy has appeal only if it signicantly

strengthens a rm+s competitive position.

http://www.investopedia.com/terms/v/verticalintegration.asp




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E3!&les of ertic!l Integr!tion'

mortgage company that oth originates and services mortgages! meaning

that it oth lends money to homeuyers and collects their monthly payments.

Integr!ting B!c2%!r" to Ac.ieve Gre!ter Co&etitiveness

'or ackward integration to e viale and protale strategy a company must e

ale to:

chieve the same scale economies as outside suppliers and Match or eat suppliers production e9ciency with no drop/o5 in "uality

company can improve its cost position and competitiveness y performing a

roader range of value chain activities in/house rather than having activities

performed y outside suppliers. 4his enhances protaility.

company can produce a di5erentiation/ased competitive advantage when a

company ends up with a etter/"uality productAservice o5ering! improves the

calier of its customer service! or in other ways enhances the performance of its

nal product.

E3!&le'

anera @read has een "uite successful with ackward vertical integration strategy

that involves internally producing fresh dough for company owned and franchised

akery/cafes to use in making numerous types of readDthe company has earned

sustantial prots from producing oth these items internally rather than havingthese supplied y outsiders.

Integr!ting 4or%!r" to En.!nce Co&etitiveness

4he strategic force for forward integration is to gain:

etter access to end users and etter market visiility

?ays of integrating forward:

ypassing regular wholesaleA retail channels in favor of direct sales selling directly to customers at the company+s wesite

These can have appeal if it lowers distribution costs, produces a relative a

relative cost advantage over certain rivals, and results in lower selling prices

to end users.

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Dis!"v!nt!ges of ! ertic!l Integr!tion Str!tegy

it oosts rm+s capital investment in the industry! increasing usiness risk

often slow to emrace technological advances or more e9cient production

methods compared to nonintegrated rms. 7 This is because less integrated

rms can pressure suppliers to provide only the latest and best parts and

components whereas a vertically integrated rm have to stick with its older

technology and facilities that makes items it no longer needs. ) it posses all kinds of capacity/matching prolems (ecient scales of

operation may vary in each activity of the value chain which would result to

surplus/lacking of such parts) often calls for radical in skills and usiness capailities ackward integration can impair a company+s operations when it comes to

changing out the use of certain parts and components 7most of the worlds

automakers, despite their e!pertise in automotive technology andmanufacturing, have concluded that purchasing many of their key parts and

components from manufacturing specialists results in higher "uality, lower

costs, and greater #e!ibility than does the vertical integration option)

5EIGHING THE PR*S AND C*NS *4 ERTICAL INTEGRATI*N

'or a vertical integration strategy to e attractive! it is necessary to know what

enets may e ac"uired. 3ome of the factors to consider are:

whether vertical integration can enhance the performance of strategy/criticalactivities in ways that lower cost! uild e-pertise! protect proprietary know/

how! or increase di5erentiation

the impact of vertical integration on investment costs! Fe-iility and response

times and administrative costs of coordinating operations across more value

chain activities and

whether the integration sustantially enhances a company+s competitiveness

and protaility

#ERGER AND AC6UISITI*N STRATEGIES

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Mergers and ac"uisitions are especially well/suited for situations in which alliances

do not go far enough in providing a company with access to needed resources and

capailities.

• Merger is a pooling of e"uals! with the newly created company often taking

on a new name.• c"uisition is a comination in which one company! the ac"uirer! purchases

and asors the operations of another! the ac"uired.

4he di5erence etween a merger and ac"uisition relates more to the details of

ownership! management control and nancial arrangements than to strategy and

competitive advantage.

T.e 7 STRATEGIC *B(ECTIES of #ergers !n" Ac8uisitions

1. 4o create a more cost e9cient operation out of comined companies.

(ag kasama kita para kang McdoH *t+s so 3ulitI)

?hen a company ac"uires another company in the same industry! there+susually enough overlap in operations that certain ine9cient plants can e

closed or distriution activities partly comined and downsized or sales/

force or marketing activities comined and downsized. /a more cost e9cient operations increases reasonale chance of a

company to survive.

2. to e-pand a company+s geographic coverage

(>at them to @eat them)

• #ne of the est and "uickest ways to e-pand a company+s geographic

coverage is to ac"uire rivals with operations in the desired locations.• c"uisitions as an integral part of their strategies! to e-pand

internationally! to widen their geographic reach racing for gloal market

leadership.

$. 4o e-tend the company+s usiness into new product categories

(sst...Jalika! Kawa tayong @ago.)

Comining the two operations of companies! via

merger or ac"uisition! is an attractive strategic option

for achieving operating economies! strengthening the

resulting company+s competencies andcompetitiveness and opening up avenues of new

market opportunity.

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• c"uisition can e "uicker and more potent way to roaden a company+s

product line that introducing new set of own products.

%. 4o gain "uick access to new technologies or other resources and

competitive capailities

(kailangan mo a ako dahil mahal mo ako o MJ M# N# =J* N*OKO

M# N#P)

• Making ac"uisitions to olster a company+s technological know/how or to

ll resource holes is a favorite of companies racing to estalish a position

in an industry or product category out to e orn.• ;educes company+s time consuming and costly ;<= e5ort.

&. to try to invent to a new industry and lead the convergence of industries

whose oundaries are eing lurred y changing technologies and new

market opportunities

(=ate tayoI ero NN@ ah. @tw! what is Qours is Mine na pala ha! MwahI)

• company+s management may conclude that two or more distinct

industries are converging into one and decide to estalish a strong

position in the consolidating markets y ringing together the resources

and products of several di5erent companies.

5.y Do%nf!ll of #ergers !n" Ac8uisitions H!&&en

lthough it ecomes a great deal ut it has a drastic e5ect when it doesn+t work the

way you want it. 4here are several reasons why mergers and ac"uisitions

sometimes fail to produce the anticipated results.

• Cost savings may e smaller

• Kains take longer to realize or never materialize at all

• Corporate culture e5ects

• Managers and employees doing what they used to creating a mesh in

workplace• =i5erence in management styles

•

3truggles in solving operating procedures• oor decision making

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*UTS*URCING STRATEGIES' NARR*5ING THE

B*UNDARIES *4 THE BUSINESS

$utsourcing involves a conscious decision to abandon or orgo attempts

to perorm certain value chain activities internally and instead to arm

them out to outside specialist and strategic allies.

$n simple terms, outsourcing involves farming out certain value chain

activities to outside vendors.

% big reasons for outsourcing&

1. #utsiders can often perform certain activities etter or cheaper2. #utsourcing allows a rm to focus its entire energies on those activities

at the center of its e-pertise.

A"v!nt!ges of *utsourcing

• n activity can e performed etter or more cheaply y outside specialists.

• 4he activity is not crucial to the rm+s aility to achieve sustainale

competitive advantage and wont hollow out its core competencies!

capailities! or technical know/how.• *t reduces the company+s risk e-posure to changing technology andAor

changing uyer preferences.• *t improves a company+s aility to innovate.

• *t streamlines company operations in ways that improve organizational

Fe-iility and cuts the time it takes to get new products into the marketplace.• *t allows a company to assemle diverse kinds of e-pertise speedily and

e9ciently.• *t allows a company to concentrate on its core usiness! leverage its key

resources! and do even etter what it already does est.

Big Ris2 of *utsourcing

4he iggest danger of outsourcing is that a company will farm out too many

or the wrong types of activities and thereby hollow its own capabilities. *n such

cases! a company loses touch with the very activities and e-pertise that over the

long run determine its success. @ut most companies alert to this danger and take

actions to protect against eing held y hostage suppliers.

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BUSINESS STRATEG- CH*ICES 4*R SPECI4IC

#AR9ET SITUATI*NS

good t etween strategy and e-ternal situation of a company re"uires anassessment of the industries driving forces! competitive forces! and key success

factors. 4here are various options for matching a company+s strategy to si-

commonly encountered types of market conditions.

Market Conditions:

• 'reshly emerging markets

• ;apidly growing markets

• Mature! slow growth markets

• 3tagnant or declining markets

• 4urulent markets characterized y rapid/re change• 'ragmented markets comprised of a large numer of relatively

small sellers

Co&eting in Eerging #!r2ets

'merging arket : one in its formative stage.

Many companies striving to estalish a strong foothold in a freshly

emerging market are start/up enterprises that are usily engaged in

perfecting technology! gearing up operations! and trying to roaden

distriution and gain uyer acceptance.

ni"ue *haracteristics + trategy making challenges

• @ecause the market is in its infancy! there+s usually much

speculation aout how it will function! how fast it will grow! and

how ig it will get.• *n many cases! much of the technological know/how underlying

the products of emerging industries is proprietary and closely

guarded! having een developed in/house y pioneering rms.• 4here may e no consensus regarding which product attriutes

will prove decisive in winning uyer favor.• ll uyers are rst/time users.

• Many potential uyers e-pect rst/generation products to e

rapidly improved! so they delay purchase until technology and

product design mature and second/ or third/generation products

appear on market.• >ntry arriers tend to e relatively low! even for entrepreneurial

start/up companies.

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• 3trong learningAe-perience curve e5ects may e present!

allowing signicant price reductions as volume uilds and costs

fall.• 3ometimes rms have troule securing ample supplies of raw

materials and components.

• ndercapitalized companies! nding themselves short of fundsto support ;<= and get through several lean years until the

product catches on.

Strategy $ptions

@road or focused di5erentiation strategies keyed to technological or product

superiority typically o5er the est chance for early competitive advantage.

*n addition! strategy usually contain one or more of the following elements:

1. ush to perfect the technology! improve product "uality! and develop

additional attractive performance features. #ut innovating the competition is

often one of the est avenues to industry leadership.2. Consider merging with or ac"uiring another rm to gain added e-pertise and

pool resource strengths.

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ASSESS#ENT

%rue or &alse

1. @road or focused di5erentiation strategies keyed to technological or product

superiority typically o5er the worst chance for early competitive advantage.

;) company can improve its cost position and competitiveness y performing

a roader range of value chain activities in/house rather than having

activities performed y outside suppliers.$. 3trategic alliances are collaorative arrangements where two or more

companies join forces to achieve mutually enecial strategic outcomes.%. 3hared knowledge is when the partnerships allow the involved companies to

o5set their market e-posure.

'. #ne of the reasons for outsourcing is that outsiders can often perform certain

activities etter or cheaper

"ultiple (hoice

0. 4he following are the major steps in strategy alliance e-cept:a. 3trategy =evelopment

. artner ssessment

c. 'und >valuationd. Contract Oegotiations

B. ?hich of the following is a market in its formative stagePa. >merging Market. Krowing Marketc. Mature Marketd. 3tagnant #r =eclining Market

E. ?hich of the following is not an advantage of vertical integrationa. improve e9ciency y decreasing transportation e-penses and

reducing turnaround time. @oosts company+s protailityc. 3trengthen the rms competitive positiond. increased turnaround time

G. *t is a comination in which one company! the ac"uirer! purchases and

asors the operations of another! the ac"uired.

a. ooling. c"uisitionc. Cominerd. Merger

1L. 4his reason to entering strategic alliance focuses on using the

partner6s distriution networks in comination with taking advantage

of a good rand image can help a company to grow faster than it

would on its own.

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a. Comple-ity

. 3peed to market

c. #pportunities for growth

d. Costs

)denication

<<) *n the life cycle of strategy alliance! this is the stage where the

possiility of a 3trategic lliance is e-amined with respect to ojectives!

major issues! and resource strategies for production! technology and people.12. *t is a comination in which one company! the ac"uirer! purchases and

asors the operations of another! the ac"uired.1$. Merger is a pooling of e"uals! with the newly created company often taking

on a new name.<=) 4his is a formal agreement etween two or more separate companies

in which there is strategically relevant collaoration of some sort! joint

contriution of resources! shared risk! shared control! and mutual

dependence.<7) 4his involves farming out certain value chain activities to outside

vendors.

ANS5ERS

<) 4!lse

;) True>) True=) 4!lse7) True?) C@) A) D) B<) C<<) Str!tegy Develo&ent<;) Ac8uisition<>) #erger<=) Str!tegic Alli!nce1&. *utsourcing

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