Strategic Alliances

International Marketing

By: Yasser HassanTo : Dr. Amr Kheir - Eldin

STRATEGIC ALLIANCES

TABLE OF CONTENT

STRATEGIC ALLIANCES

STRATEGIC ALLIANCE PITFALLS

STRATEGIC ALLIANCE DEFINITION

STRATEGIC ALLIANCE SUCCESS FACTORS

PREAMBLE

STRATEGIC ALLIANCE MOTIVES

13 CRITICAL COMMITMENTS FOR STRATEGIC ALLIANCES

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2

3

4

5

6

7 STRATEGIC ALLIANCE FORMATION

8 STRATEGIC ALLIANCE EXAMPLES

STRATEGIC ALLIANCES

NOVARTIS EGYPT

The resource-based view of the firm that gained currency in the mid-1980s considered that the competitive advantage of an organization rests on the application of the strategic resources at its disposal.

The generic motive these days, to a greater extent than in the 1980s, is to sustain long-term competitive advantage in a fast-changing world, for example, by reducing costs through economies of scale or more knowledge, boosting research and development efforts, increasing access to new technology, entering new markets, breathing life into slowing or stagnant markets, reducing cycle times, improving quality, or inhibiting competitors.

Strategic alliances - meaning cooperative agreements between two or more organizations—are a means to enhance strategic resources: self-sufficiency is becoming increasingly difficult in a complex, uncertain, and discontinuous external environment that calls for focus and flexibility in equal measure.

Everywhere, organizations are discovering that they cannot “go” it alone and must now often turn to others to survive Strategic alliances that bring organizations together promise unique opportunities for partners.

The reality is often otherwise. Successful strategic alliances manage the partnership, not just the agreement, for collaborative advantage. Above all, they also pay attention to learning priorities in alliance evolution.

(Yves Doz and Gary Hamel grouped the primary purposes of an alliance into three: co-option, co-specialization, and learning and internalization).

PREAMBLE

1

STRATEGIC ALLIANCES

NOVARTIS EGYPT

A strategic alliance is a voluntary, formal arrangement between two or more parties to pool resources to achieve a common set of objectives that meet critical needs while remaining independent entities. Strategic alliances involve exchange, sharing, or co development of products, services, procedures, and processes.

Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk.

To these ends, strategic alliances can in fact, frequently do call on contributions of organization-specific resources and capabilities (that may involve trade-offs in capital, control, and time).

STRATEGIC ALLIANCE DEFINITION

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3

STRATEGIC ALLIANCES

STRATEGIC ALLIANCE MOTIVES

> Sharing costs and risks > Combining complementary skills

> Formulating technical standards and designs > Accessing new markets and technologies

> Preempting key competitors > Reserving learning opportunities

STRATEGIC ALLIANCES

NOVARTIS EGYPT

Essential

1. Partner selection (70%)

2. Senior management commitment (68%)

3. Clearly understood roles (49%)

4. Clearly defined objectives (47%)

5. Good communication between partners (40%)

6. Relationship building (35%)

7. Thorough planning (31%)

Important

8. Close senior management ties (30%)

9. Frequent performance feedback (20%)

10. Day-to-day attention (18%)

11. Fair sharing of risks, resources & rewards (13%)

12. Clear payback timelines (11%)

13. Alignment of culture (10%)

14. Previous alliance experience (9%)

STRATEGIC ALLIANCE SUCCESS FACTORS

4

Source: Technical & Alliance Survey of 455 CEO’s - Sue Froggatt, 2006 T: 0870 747 9185Email: [email protected] Web: www.suefroggatt.com

STRATEGIC ALLIANCES

NOVARTIS EGYPTSTRATEGIC ALLIANCE SUCCESS FACTORS

4 Worthwhile (5%)

15. Integration of information system

16. High level of trust is the most accurate predictor of success

17. Creation of best value in members eyes

18. High level of LT commitment to win-win

19. High levels of interdependence (You need each other)

20. Strategically important to both partners (Equal commitment & priority)

21. Personal chemistry

22. Integrity

23. Sharp focus & a strong vision of what can be achieved

24. Confidence in partner

25. Good strategic fit i.e. strategic synergy

26. Complementary critical driving forces

27. Compatible style of management

28. Effective mechanisms for resolving disputes

Source: Technical & Alliance Survey of 455 CEO’s - Sue Froggatt, 2006 T: 0870 747 9185Email: [email protected] Web: www.suefroggatt.com

STRATEGIC ALLIANCES

NOVARTIS EGYPT13 CRITICAL COMMITMENTS FOR STRATEGIC ALLIANCES

5If you are considering a strategic alliance, it is essential that you make at least the following thirteen critically important commitments.

1- Commit to having clear purposes, objectives and metrics for the alliance, with Key Result Areas (“KRAs”) by functional department.

2- Commit to becoming conversant with at least the basic language, history, culture, customs, and holidays in the country where the strategic alliance is located.

3- Commit to having the strategic alliance managed well using a governance structure that makes it clear how decisions will be made and by whom.

4- Commit to clearly understanding how the alliance will be financed, how losses and profits will be determined and allocated, and how future financial contributions will be addressed.

5- Commit to articulating what you will consider success or failure (so you know when to hold and when to fold) and within stated time frames.

6- Commit to managing risk by monitoring compliance with applicable regulatory, legal, and other requirements.

7- Commit to considering a code of conduct that is enforced so that everyone understands and is held accountable to the business values of the alliance.

STRATEGIC ALLIANCES

NOVARTIS EGYPT13 CRITICAL COMMITMENTS FOR STRATEGIC ALLIANCES

58 - Commit to being actively engaged in the operation of the alliance and to having regularly scheduled, face to face, on site operational reviews, and to having excellent internal controls including segregation of duties

9 - Commit to using alternative dispute resolution when the inevitable disagreements arise.

10 - Commit to building and managing the alliance’s “relationship capital through continuous communication and pro-active exchange of information before, during, and after the alliance.

11 - Commit to having a clear, written, entrance strategy and strategic plan.

12 - Commit to having a clear, written exit strategy; for everything there is a time and a season and nothing lasts forever.

13 - Commit to having business legal counsel with experience in the area of the alliance to prepare the alliance document that helps you achieve your business objectives and which reflects your business decisions.

STRATEGIC ALLIANCES

NOVARTIS EGYPTSTRATEGIC ALLIANCE PITFALLS

6 More failures than successes

In early 90’s, 61% failed (McKinsey)

By 2004, 52% failed

Highest with international alliances

50% fail due to poor planning & 50% due to

Poor management

Can be very dangerous – IBM & Microsoft

Lack of literature

Failure just being discussed

Metrics just emerging

The good news?

70% improvement if follow best practice

So proceed with caution!!

STRATEGIC ALLIANCES


61. Follow a structured process e.g. PSL2. Not enough preparation time

On average takes 8-12 months Impatience

3. Poor strategy & goals e.g. Increase revenue to fix a drop in member retention Underdeveloped membership benefit offer

4. Hidden agenda leading to distrust e.g. A ‘race to learn’ Attempt to control market

5. They are introduced as an objective6. You create a future competitor

Trojan Horse Syndrome Build in a ‘golden parachute’

7. Do not share strategy & goals8. Wrong emphasis early on e.g.

Getting 51% (control) Focus on doing the deal Focus on getting legal documents signed

9. Lack of understanding of what is involved (Unrealistic expectations)10. Fails the ‘public perception test’ & damages your reputation

STRATEGIC ALLIANCES


611. Internal deficiencies in the organization - not ready

We have met the enemy and it is us! (Pogo) Take an alliance fitness test (Doz & Hamel)

12. Complex to manage13. Reactive, not prepared & proactive14. Some uncomfortable with loss of control15. Exclusive arrangements upset people16. Overdependence17. Lack of commitment from the top

Need buy-in, not just approval Felt to be 2nd best option, reviewed after other business, best managers not working on Arrogance

18. Reduced donations19. Reduce commitment from community20. Opportunistic self interest - undermines the alliances21. Legal problems

Will you constitution allow you to? May need to change Competition law –particularly if alliance with a competitor Information exchange EU & UK merger control rules.

STRATEGIC ALLIANCES

NOVARTIS EGYPTSTRATEGIC ALLIANCE FORMATION

7A typical strategic alliance formation process involves these steps: Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives

and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.

Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s 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 partner’s 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 senior management’s commitment, finding the caliber of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance.

Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere.

PRODUCTS PORTFOLIO

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Motorola And In-Focus Join To Route The Japanese:Motorola and In-Focus Systems saw an opportunity to gain a share in the burgeoning worldwide market for high-performance video display panels. In-Focus developed a new technology that lets it make passive matrix displays that are almost as good as active matrix displays but cost much less. Motorola purchased a 20% interest in In-Focus for $20 million. They then formed an equally owned joint venture to build display panels incorporating In-Focus's technology Motorola's integrated circuits. In-Focus got the capital it needed, a key customer, and access to Motorola's international distribution manufacturing capabilities. Motorola locked in a strategic technology that it was unable to develop internally. The technology permits Motorola to leapfrog past rival Japanese competitors. It also created a captive customer for its integrated chips while getting an equity that could rocket in value.

American Institute of ArchitectsHave an aggressive program of alliancing and outsourcing. Reduced staff from 230 to 155 whilst upgrading member services. Reviewed each goal statement. Who can do things better than us i.e. (Faster - More accurately – Cheaper).

STRATEGIC ALLIANCE EXAMPLES

PRODUCTS PORTFOLIO

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Yahoo and SinaSina (the leading mainland internet portal) and Yahoo have teamed up to offer auction servicesin China. The co-branded website will provide services for small- and medium-sized businesses in China and offer auctions and fixed-price sales. The partnership will leverage the two companies' respective user bases. Sina has 83 million registered users; Yahoo’s China traffic figures are estimated to be 78 million. The alliance also combines Yahoo’s expertise and technology in the auction platform with Sina’s market reach and brand in China The venturefollows eBay's purchase of the remaining stake in Shanghai-based Eachnet.com and the recent launch of free auction services in Hong Kong. It is expected to help Yahoo improve its market position on the mainland.

Advanced Micro Devices (AMD) and Beijing University Founder Group -- in an effort to increase its market share

in China AMD recently formed an alliance with the Founder Group. The latter will make and sell computers based on AMD's 64-bit microprocessors; while AMD sees this move as a way to make a new start to its business in China. Founder Group sees the alliance as a response to increased competition from Intel, which has dominated the local market. Initially, they will target the publishing sector, of which the Group has a more than 80).


PRODUCTS PORTFOLIO

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Intel and RichtekRichtek (a Taiwan fables IC design firm, specializing in power-management ICs) is working with Intel to develop next-generation power-management chips. They have begun shipping the chips supporting Intel's Grands dale chipsets. The move prompted HP and Dell to begin placing orders with Richtek and is expected to boost the chip designer's annual revenues.

Philips and BenQBenQ Corporation, a major Taiwanese mobile phone and display maker, and Philips Electronics formed a partnership to develop and make optical storage products. With an initial investment of $20 million (Philips taking a stake of 51%) the partners expect their companies’ combined share of the optical storage market to increase to 15% from their current combined level of 8% and to become more profitable. The partnership


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YasserHassan

Strategic Alliances

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