International MarketingInternational MarketingESLSCAESLSCA

Strategic AlliancesStrategic Alliances

Prepared By:Prepared By:Sherine Samir FaragAllahSherine Samir FaragAllahMBA Student at ESLSCAMBA Student at ESLSCA

AgendaAgenda

What is meant by Strategic Alliance?What is meant by Strategic Alliance? Purposes of Strategic AlliancesPurposes of Strategic Alliances Success FactorsSuccess Factors Mistakes Leading to FailureMistakes Leading to Failure Types of AlliancesTypes of Alliances ExamplesExamples

What is meant by Strategic Alliance?What is meant by Strategic Alliance?

Definition 1:Definition 1:

An agreement between two or more individuals or entities An agreement between two or more individuals or entities stating that the involved parties will act in a certain way instating that the involved parties will act in a certain way inorder to achieve a common goal. Strategic alliance usually order to achieve a common goal. Strategic alliance usually make sense when the parties involved havemake sense when the parties involved haveComplementary strengths.Complementary strengths.

Definition 2:Definition 2:

Strategic alliances are innovative and interesting forms of Strategic alliances are innovative and interesting forms of relationships between organizations. Organizations createrelationships between organizations. Organizations createalliances in their quest to compete against fast & nimble alliances in their quest to compete against fast & nimble competitors. competitors.

What is Meant by Strategic Alliance?What is Meant by Strategic Alliance? cont’dcont’d

Definition 3:Definition 3:

Strategic alliances are agreements Strategic alliances are agreements between companies (partners) to reach between companies (partners) to reach objectives of a common interest. Alliancesobjectives of a common interest. Alliancesare among the various options which are among the various options which companies can use to achieve their goals. companies can use to achieve their goals. They are based on cooperation betweenThey are based on cooperation betweencompanies. companies.

Purposes of Strategic AlliancesPurposes of Strategic Alliances Competition is shifting from a "firm versus firm Competition is shifting from a "firm versus firm

perspective" to a "supply chain versus supply chain perspective" to a "supply chain versus supply chain perspective." Therefore, firms seeking competitive perspective." Therefore, firms seeking competitive advantage are participating in cooperative supply advantage are participating in cooperative supply chain arrangements, such as strategic alliances, chain arrangements, such as strategic alliances, which combine their individual strengths & unique which combine their individual strengths & unique resources. resources.

Enabling a firm to focus resources on its core skills Enabling a firm to focus resources on its core skills & competencies while acquiring other components & competencies while acquiring other components or capabilities it lacks from the marketplace.or capabilities it lacks from the marketplace.

Alliances can often improve market power of a firm Alliances can often improve market power of a firm because either the alliance partner is a customer for because either the alliance partner is a customer for the product or because the distribution channels & the product or because the distribution channels & buying power of the partners can be combinedbuying power of the partners can be combined

Purposes of Strategic Alliances Purposes of Strategic Alliances cont’dcont’d

Alliances enable buying & supplying firms to Alliances enable buying & supplying firms to combine their individual strengths & work together combine their individual strengths & work together to reduce non-value-adding activities & facilitate to reduce non-value-adding activities & facilitate improved performance. improved performance.

In order for both parties to remain committed to In order for both parties to remain committed to this form of relationship, mutual benefit must exist this form of relationship, mutual benefit must exist (i.e. a "win-win" relationship) (i.e. a "win-win" relationship)

Success FactorsSuccess Factors

Selection:Selection:

Strategically evaluate which upstream & downstream Strategically evaluate which upstream & downstream members should be included in the supply chain to create members should be included in the supply chain to create a highly competitive & efficient supply networka highly competitive & efficient supply network..

Selecting strategic partner should be based on company’s Selecting strategic partner should be based on company’s goals, objectives & values system.goals, objectives & values system.

Select partners who have competencies in collaboration & Select partners who have competencies in collaboration & those who already have a proven ability to work in a those who already have a proven ability to work in a collaborative environment.collaborative environment.

Intention: Intention:

Both partners should acknowledge their mutual Both partners should acknowledge their mutual dependence & their willingness to work for the survival & dependence & their willingness to work for the survival & prosperity of the relationship.prosperity of the relationship.

Success Factors Success Factors cont’dcont’d

Trust: Trust:

Existence of trust in a relationship reduces perception of Existence of trust in a relationship reduces perception of risk associated with opportunistic behavior as this risk associated with opportunistic behavior as this generates greater profits & serve customers bettergenerates greater profits & serve customers better

Communication: Communication:

Communication is critical for building successful Communication is critical for building successful relationships to achieve the benefits of collaboration as it relationships to achieve the benefits of collaboration as it allows partners to understand alliance goals, roles, allows partners to understand alliance goals, roles, responsibilities & helps with the sharing & dissemination of responsibilities & helps with the sharing & dissemination of individual experiencesindividual experiences

Conflict Resolution: Conflict Resolution:

Firms should be motivated to engage in joint problem Firms should be motivated to engage in joint problem solving as they are, by definition, linked together to manage solving as they are, by definition, linked together to manage an environment that was more uncertain & turbulent than an environment that was more uncertain & turbulent than each one could control.each one could control.

Success FactorsSuccess Factors cont’d cont’d

Developing a focused winning strategy for the alliance:Developing a focused winning strategy for the alliance:

Based on distinctive competencies and competitive advantages of Based on distinctive competencies and competitive advantages of the partners in the selected target market (s).the partners in the selected target market (s).

To ensure there will not be a goal divergence or conflict between To ensure there will not be a goal divergence or conflict between alliance partners.alliance partners.

To be able to manage the company cultural challenges that may To be able to manage the company cultural challenges that may arise between the alliance partners.arise between the alliance partners.

Partners should be in vulnerable strategic positions:Partners should be in vulnerable strategic positions:

(i.e., in need of resources) or when they are in strong social (i.e., in need of resources) or when they are in strong social positions (i.e., possess valuable resources to share). seeking positions (i.e., possess valuable resources to share). seeking complementary or similar resources for transferring or pooling.complementary or similar resources for transferring or pooling.

Progressive learning & value capturing: Progressive learning & value capturing:

Learning involves significant transfer of tacit, specialized & complex Learning involves significant transfer of tacit, specialized & complex knowledge. Learning requires close collaboration of both firms to knowledge. Learning requires close collaboration of both firms to overcome transfer challenges as knowledge, values, culture and overcome transfer challenges as knowledge, values, culture and organizational forms.organizational forms.

Success Factors Success Factors cont’dcont’d

Respect and protect the brand of each partner.Respect and protect the brand of each partner.

Determine and align decision rights:Determine and align decision rights:

To define what decisions are important to the alliance, which To define what decisions are important to the alliance, which partner should make them and how the decisions will be made partner should make them and how the decisions will be made and monitored.and monitored.

Exit Strategy:Exit Strategy:

Agree upon an exit strategy for the alliance. It Is important to Agree upon an exit strategy for the alliance. It Is important to have agreement in advance on how the alliance will be have agreement in advance on how the alliance will be concluded if and when it may fail and/or when it has fulfilled concluded if and when it may fail and/or when it has fulfilled its mission and achieved its goals and objectivesits mission and achieved its goals and objectives

Mistakes Leading to FailureMistakes Leading to Failure

Alliance business is viewed internally Alliance business is viewed internally by one partner.by one partner.

One of the partners is too dependant One of the partners is too dependant on the other’s capabilities.on the other’s capabilities.

Problems and dilemmas of mistrust.Problems and dilemmas of mistrust. Cultural & language barriers. Cultural & language barriers. Collaboration in competitively sensitive Collaboration in competitively sensitive

areas can be difficult.areas can be difficult. A clash of egos might occur.A clash of egos might occur.

Types of Strategic AlliancesTypes of Strategic Alliances

Joint VentureJoint Venture: an agreement by two or more parties to : an agreement by two or more parties to form a single entity to undertake a certain project. Each form a single entity to undertake a certain project. Each of the businesses has an equity stake in the individual of the businesses has an equity stake in the individual business and share revenues, expenses & profits.business and share revenues, expenses & profits.

OutsourcingOutsourcing

Global Strategic AlliancesGlobal Strategic Alliances: working partnerships : working partnerships between companies (often more than 2) across national between companies (often more than 2) across national boundaries & increasingly across industries. boundaries & increasingly across industries. Sometimes formed between company & a foreign Sometimes formed between company & a foreign government, or among companies & governments government, or among companies & governments

Types of Strategic Alliances Types of Strategic Alliances cont’d cont’d

Equity strategic allianceEquity strategic alliance: : an alliance in which 2 an alliance in which 2 or more firms own different percentages of the or more firms own different percentages of the company they have formed by combining some company they have formed by combining some of their resources & capabilities to create a of their resources & capabilities to create a competitive advantage. competitive advantage.

Non- equity strategic allianceNon- equity strategic alliance: : an alliance in an alliance in which 2 or more firms develop a contractual-which 2 or more firms develop a contractual-relationship to share some of their unique relationship to share some of their unique resources & capabilities to create a competitive resources & capabilities to create a competitive advantage. advantage.

Types of Strategic Alliances Types of Strategic Alliances cont’dcont’d

Affiliate MarketingAffiliate Marketing: exploded over recent years with : exploded over recent years with the most successful online retailers using it to great the most successful online retailers using it to great effect. The nature of the internet means that referrals effect. The nature of the internet means that referrals can be accurately tracked right through the order can be accurately tracked right through the order process. process.

Amazon Amazon was the pioneer of affiliate marketing, and was the pioneer of affiliate marketing, and now has tens of thousands of websites promoting its now has tens of thousands of websites promoting its products on a performance-based basis.products on a performance-based basis.

Technology LicensingTechnology Licensing: a contractual arrangement : a contractual arrangement whereby trade marks, intellectual property and trade whereby trade marks, intellectual property and trade secrets are licensed to an external firm. It’s used secrets are licensed to an external firm. It’s used mainly as a low cost way to enter foreign markets. mainly as a low cost way to enter foreign markets. The main downside of licensing is the loss of control The main downside of licensing is the loss of control over the technology – as soon as it enters other over the technology – as soon as it enters other hands the possibility of exploitation arises.hands the possibility of exploitation arises.

Types of Strategic Alliances Types of Strategic Alliances cont’dcont’d

DistributorsDistributors: Recruiingt distributors, where each one has its own : Recruiingt distributors, where each one has its own geographical area or type of product. This ensures that each geographical area or type of product. This ensures that each distributor’s success can be easily measured against other distributor’s success can be easily measured against other distributors.distributors.

Distribution RelationshipsDistribution Relationships: This is perhaps the most common form : This is perhaps the most common form of alliance. Strategic alliances are usually formed because the of alliance. Strategic alliances are usually formed because the businesses involved want more customers. The result is that cross-businesses involved want more customers. The result is that cross-promotion agreements are established. promotion agreements are established.

Product LicensingProduct Licensing: This is similar to technology licensing except : This is similar to technology licensing except that the license provided is only to manufacture and sell a certain that the license provided is only to manufacture and sell a certain product. Usually each licensee will be given an exclusive product. Usually each licensee will be given an exclusive geographic area to which they can sell to. It’s a lower-risk way of geographic area to which they can sell to. It’s a lower-risk way of expanding the reach of your product compared to building your expanding the reach of your product compared to building your manufacturing base and distribution reach.manufacturing base and distribution reach.

  

Types of Strategic AlliancesTypes of Strategic Alliances cont’dcont’d

R&D:R&D: Strategic alliances based around R&D tend to Strategic alliances based around R&D tend to fall into the joint venture category, where two or fall into the joint venture category, where two or more businesses decide to embark on a research more businesses decide to embark on a research venture through forming a new entity.venture through forming a new entity.

FranchisingFranchising: is an excellent way of quickly rolling : is an excellent way of quickly rolling out a successful concept nationwide. Franchisees out a successful concept nationwide. Franchisees pay a set-up fee & agree to ongoing payments so pay a set-up fee & agree to ongoing payments so the process is financially risk-free for the company. the process is financially risk-free for the company. However, downsides do exist, particularly with the However, downsides do exist, particularly with the loss of control over how franchisees run their loss of control over how franchisees run their franchise.franchise.

Examples of AlliancesExamples of Alliances NokiaNokia and Microsoft in and Microsoft in alliancealliance to make Zune phone to make Zune phone

Star Alliance – Airlines alliances.Star Alliance – Airlines alliances.

Philips and Sony jointly launched the mini-CD.Philips and Sony jointly launched the mini-CD.

NestléNestlé and Fonterra Sign Agreement on Dairy and Fonterra Sign Agreement on Dairy AllianceAlliance for the for the America America

McDonald’s with Disney, Coca-Cola & Walmart McDonald’s with Disney, Coca-Cola & Walmart

Online grocer Webvan GroupOnline grocer Webvan Group forms alliances with foodmakers: forms alliances with foodmakers: Kellogg, Nestle, Pillsbury, QuakerKellogg, Nestle, Pillsbury, Quaker

..

Examples of Alliances Examples of Alliances cont’d cont’d

Motorola-Toshiba: In 1987- Toshiba to produce Motorola-Toshiba: In 1987- Toshiba to produce microprocessors & contribute access to the distribution microprocessors & contribute access to the distribution network.network.

Boeing, General Dynamics & Lockeed in the early 90’s, these Boeing, General Dynamics & Lockeed in the early 90’s, these companies united to win a bid put forth by the Pentagon for companies united to win a bid put forth by the Pentagon for the construction of a tactical combat destroyer.the construction of a tactical combat destroyer.

Alcatel –Fujistsu made a joint venture to develop the Alcatel –Fujistsu made a joint venture to develop the equipment for the third generation of cellular telephoneequipment for the third generation of cellular telephone

Samsung & Sun Microsystems cooperated in solution Samsung & Sun Microsystems cooperated in solution business and next generationbusiness and next generation business computing system. business computing system.

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