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Companies sometimes use
strategic alliances or
collaborative partnerships to
complement their own strategicinitiatives and strengthen their
competitiveness. Such
cooperative strategies go beyond
normal company-to-company
dealings but fall short of merger
or full joint venture partnership.
Collaborative Strategies:Alliances and Partnerships
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Characteristics of a Strategic Alliance
Strategic alliance – A formal agreement between two ormore separate companies where there is Strategically relevant collaboration of some sort
Joint contribution of resources
Shared risk
Shared control
Mutual dependence
Alliances often involve Joint marketing
Joint sales or distribution Joint production
Design collaboration
Joint research
Projects to jointly develop new technologies or products
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To collaborate on technology development or newproduct development
To fill gaps in technical or manufacturing expertise
To create new skill sets and capabilities
To improve supply chain efficiency
To gain economies of scale inproduction and/or marketing
To acquire or improve market access
via joint marketing agreements
Why Are Strategic Alliances Formed?
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Capturing the Benefitsof Strategic Alliances
Benefits from forming partnerships are a function of Picking a good partner
Being sensitive to cultural differences
Recognizing an alliancemust benefit both parties
Ensuring both parties liveup to their commitments
Structuring the decision-making processso actions can be taken swiftly when needed
Managing the learning process and then adjusting thealliance agreement over time to fit new circumstances
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Why Alliances Fail
Ability of an alliance to endure depends on How well partners work together
Success of partners in respondingand adapting to changing conditions
Willingness of partners torenegotiate the bargain
Reasons for alliance failure
Diverging objectives and priorities of partners
Inability of partners to work well together
Changing conditions rendering purpose of alliance obsolete
Emergence of more attractive technological paths
Marketplace rivalry between one or more allies
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Merger – Combination and pooling of equals, withnewly created firm often taking on a new name
Acquisition – One firm, the acquirer, purchases
and absorbs operations of another, the acquiredMerger-acquisition strategy
Much-used strategic option
Especially suited for situations wherealliances do not provide a firm with neededcapabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations,
creating more control and autonomy than alliances
Merger and Acquisition Strategies
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Combining operations may result in
Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and
corporate cultures
Tough problems of integration
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities
Pitfalls of Mergers and Acquisitions
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Vertical Integration Strategies
Extend a firm’s competitive scope withinsame industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
InternallyPerformedActivities,Costs, &Margins
Activities,Costs, &
Margins ofSuppliers
Buyer/UserValue
Chains
Activities, Costs,& Margins of
Forward ChannelAllies &
Strategic Partners
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Strategic Advantagesof Backward Integration
Generates cost savings only if volume needed isbig enough to capture efficiencies of suppliers
Potential to reduce costs exists when
Suppliers have sizable profit margins
Item supplied is a major cost component
Resource requirements are easily met
Can produce a differentiation-based competitiveadvantage when it results in a better quality part
Reduces risk of depending on suppliers of crucial
raw materials / parts / components
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Strategic Advantagesof Forward Integration
To gain better access to end usersand better market visibility
To compensate for undependable distributionchannels which undermine steady operations
To offset the lack of a broad product line, a firmmay sell directly to end users
To bypass regular distribution channels in favor of
direct sales and Internet retailing which may
Lower distribution costs
Produce a relative cost advantage over rivals
Enable lower selling prices to end users
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Strategic Disadvantagesof Vertical Integration
Boosts resource requirements
Locks firm deeper into same industry
Results in fixed sources of supply and
less flexibility in accommodating buyerdemands for product variety
Poses all types of capacity-matching problems
May require radically different skills / capabilities
Reduces flexibility to make changes in componentparts which may lengthen design time and ability tointroduce new products
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Outsourcing Strategies
Outsourcing involves withdrawing fromcertain value chain activities and relying
on outsiders to supply needed products,support services, or functional activities
Concept
InternallyPerformedActivities
Suppliers
SupportServices
Functional
Activities
Distributorsor Retailers
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Activity can be performed better ormore cheaply by outside specialists
Activity is not crucial to achieve asustainable competitive advantage
Risk exposure to changing technology and/orchanging buyer preferences is reduced
It improves firm’s ability to innovate
Operations are streamlined to Improve flexibility
Cut time to get new products into the market It increases firm’s ability to assemble diverse kinds of
expertise speedily and efficiently
Firm can concentrate on “core” value chain activities that
best suit its resource strengths
When Does OutsourcingMake Strategic Sense?
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Farming out too many or the wrong activities, thus
Hollowing out capabilities
Losing touch with activities and expertise thatdetermine overall long-term success
Risk of an Outsourcing Strategy
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Offensive and Defensive Strategies
Used to build new or stronger market
position and/or create competitive advantage
Used to protect competitive advantage
(rarely lead to creatingadvantage)
Offensive Strategies Defensive Strategies
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What Is a Blue Ocean Strategy?
Seeks to gain a dramatic, durablecompetitive advantage by
Abandoning efforts to beat out competitors in existing markets and
Inventing a new industry or distinctive market segment to render existingcompetitors largely irrelevant and
Allowing a company to create andcapture altogether new demand
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Type of Markets: Blue Ocean Strategy
Typical Market Space
Industry boundaries aredefined and accepted
Competitive rules are wellunderstood by all rivals
Companies try to outperformrivals by capturing a biggershare of existing demand
Blue Ocean Market Space
Industry does not exist yet
Industry is untainted bycompetition
Industry offers wide-openopportunities if a firm has aproduct and strategy allowingit to
Create new demand and
Avoid fighting over existingdemand
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Choosing Rivals to Attack
Four types of firms can be the target of a freshoffensive
Vulnerable market leaders
Runner-up firms with weaknesseswhere challenger is strong
Struggling rivals onverge of going under
Small local or regionalfirms with limited capabilities
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Publicly announce management’s strong
commitment to maintain present market share
Publicly commit firm to policy ofmatching rivals’ terms or prices
Maintain war chest of cash reserves
Make occasional counter-responseto moves of weaker rivals
Signal Challengers Retaliation Is Likely
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Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
Functional strategies include
Research and development
Production
Human resources
Sales and marketing Finance
Tailoring functional-area strategies to
support key business-level strategies is critical!
Choosing AppropriateFunctional-Area Strategies
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When to make a strategic move is often as crucialas what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies,new-style components, and distribution
channels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
First-Mover Advantages
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First-Mover Disadvantages
Moving early can be a disadvantage (or fail toproduce an advantage) when
When costs of pioneering are more than being animitative follower and only negligible learning/experiencecurve benefits accrue to the leader
Innovator’s products are primitive, not living up to buyer
expectations
Demand side of the market is skeptical about thebenefits of new technology/product of a first-mover
Rapid technological change allows followers to leapfrogpioneers
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Strategic Issues:To Be a First-Mover or Not
Key issue – Is the race to market leadership in anindustry a marathon or a sprint?
Seeking a competitive advantage by being a first-mover involves addressing several questions
Does market takeoff depend on development ofcomplementary products or services not currently available?
Is new infrastructure required before buyer demand cansurge?
Will buyers need to learn new skills or adopt new behaviors?
Will buyers encounter high switching costs?
Are there influential competitors in a positionto delay or derail the efforts of a first-mover?
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