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List and explain at least 3 arguments for terminating an alliance (5 points)

In general, strategic alliances are established when the internal resources of either firm are either

insufficient or it is deemed too risky to invest them, to the extent necessary to establish a

competitive position in new markets, or to maintain a competitive position in existing markets.

However as alliance progresses, sometimes it might be essential to terminate the alliance if the

alliance is not bringing value to the partners. Some of the factors which might lead to thetermination of alliance are briefly explained below.

Lack of mutual goals and needs: If the two partners do not have clear mutual goals or needs,

the partners will not benefit from the alliance. Further, lack of mutual goals and needs will make

it difficult to pull a team in one direction. It might also hinder trust and communication as the

partners

Lack of trust: Trust is very essential in a strategic alliance .Because trust fosters communication

and the ability to look in the same direction. Without trust, each company might stop sharing

information and cooperating with each other, leading to potential inefficiencies in the system.

Thus alliance might not lead to fruitful results when the companies dont trust each other inachieving the common mutual goals.

Bringing zero contribution to the table: In a strategic alliance it is necessary for each partners

to bring something valuable to the table. When one partner has absolutely no value to add to the

decisions, it would result in an imbalance in power. This will only make the dependent partner

more vulnerable and further constrain the relation between the two.

2. By the end of the case (1994), the future of the Honda Rover alliance seems to be up in

the air. There seems to be several possible options for the alliance. For instance, Honda

has proposed to increase its stake in Rover to about 47.5% from 20%. BAe seems to have

different ideas on what to do with the alliance. (5 points)

- List at least three potential options for the Honda-Rover alliance.

- What is the best option for Honda? Why?

- What is the best option for Rover? Why? (Focus on what is best for Rover rather than

BAe)

The three potential options for the Honda Rover alliance are:

1. Honda-Rover-BMW alliance :a. BMW buys out Rover. But Honda honors the existing licensing agreement for

about a year.2. Honda-Rover alliance:

a. Honda increases its stake from 20% to 47.5% in Rover.(BMW is not in play here)3. Honda-Rover alliance termination:

a. BMW buys out Rover, resulting in termination of long-time Honda-Roveralliance.

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The best option for Honda would bea termination of its alliance with Rover. Honda

agreed to increase its stake by 47.5%. However, BAe played a witty game by

simultaneously holding negotiations between both Honda and BMW, though oblivious to

each other. BAe was looking for a partner who could buy Rover. However, Honda had

refused to buy Rover. Thus their mutual goals were very different. Even if Honda

increased its stake by 47.5%, the Honda-Rover relation was doomed to fail in the longrun. The alliance is doomed because of lack of trust, lack of mutual goals. BAe incurred

losses for three consecutive years in the non-operation segment, which was attributed to

Rover. Thus, BAe would have continued to play as a silent player in internal management

of Rover, thus leading to low profitability of Rover. This might as well not benefited

Honda.

The best option for Rover is a buyout by BMW. Though Honda and Rover relation

was successful, Honda was a stake holder of only 47.5% of Rover. This meant that

Honda could not take the complete management control of Rover. The other major stake

holder, BMW, was a silent player. Thus, Rover lacked a management which providedclear strategic goals, leading to low profitability. Thus a complete buyout by a big player

like BMW might help Rover to find the clear strategic goals for the forthcoming years

and help Rover have a consistent management philosophy internally.