Chapter 9

Strategic Alliances: Teaming and Allying for Advantage

by Robert Pitts & David Lei
Slides prepared by John P. Orr Cameron University
Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-1

What you will learn

Slide 1 of 2

The characteristics of a strategic alliance Why companies around the world are forming strategic alliances The different broad types of strategic alliances, including:
Licensing Joint ventures Multipartner consortia
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Slide 9-2

What you will learn

Slide 2 of 2

The benefits and costs of entering into strategic alliances How to balance the need for cooperation with competition

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Slide 9-3

IBMs Global Alliances

Slide 1 of 2

Early Alliances: Responding to Japan IBMs Initiatives During the 1990s: Rebuilding Competitiveness
Motorola Apple Computer Perkins-Elmer, Silicon Valley Group, and Elite Systems Toshiba Siemens Phillips
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Slide 9-4

IBMs Global Alliances

Slide 2 of 2

Current Strategic Alliance Initiatives

Electronic commerce Telecommunications Smart technologies Health care Ongoing relationships

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-5

Ex. 9-1. IBMs Alliance Strategy

(Selected Categories) Personal Computers
Matsushita (low-end PCs) Ricoh (hand-held PCs)

Factory Automation
Texas Instruments Sumitomo Metal Nippon Kokan Nissan Motor

Telecommunications
NTT (value-added networks) Motorola (mobile data pets)

Health Care
Pfizer Microsoft

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-6

The Global Airline Industry

Airline industry consolidation of 1990s From code sharing to combined operations Network versus network
Northwest KLM American Airlines British Airways Lufthansa United Airlines Delta Sky Team alliance Oneworld alliance
Slide 9-7

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Ex. 9-2: Global Airline Alliances

Slide 1 of 4

Trans-Atlantic Linkages/Relationships
Airlines Northwest Airlines
KLM Royal Dutch
United Airlines Lufthansa Delta Air Lines Swissair Sabena Austrian Airlines

Type of Alliance
Full partnership (antitrust immunity) Wings alliance Full partnership (antitrust immunity) Part of Star Alliance Full partnership (antitrust immunity) Relationship unwound in 1998-1999

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-8

Ex. 9-2: Global Airline Alliances

Slide 2 of 4

Trans-Atlantic Linkages/Relationships
Airlines
Continental Airlines Alitalia American Airlines British Airways Delta Airlines Air France CSA Czech Airlines Alitalia Aero Mexico

Type of Alliance
Code sharing, joint marketing (antitrust issues pending) Code sharing, joint marketing (antitrust request withdrawn) Full partnership (antitrust immunity) Sky Team alliance

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-9

Ex. 9-2: Global Airline Alliances

Slide 3 of 4

Globe-Spanning Linkages/Relationships
Airlines Type of Alliance
United Airlines Star Alliance: Code sharing, joint marketing; includes up to 17 partners in Lufthansa Scandinavian Airline 2002 System (SAS) Thai International Varig Brazilian

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-10

Ex. 9-2: Global Airline Alliances

Slide 4 of 4

Globe-Spanning Linkages/Relationships
Airlines
American Airlines British Airways Cathay Pacific Qantas Airways Aer Lingus Lan Chile Finn Air Iberia Northwest Airlines Continental Airlines Japan Air System

Type of Alliance
Code sharing, joint marketing, arrangement for global flights. New alliance known as ONEworld.

Code sharing for Trans-Pacific flights

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-11

Factors Promoting Alliances

New market entry

Shaping of industry evolution

Learning and applying new technologies Rounding out a product line
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Slide 9-12

Types of Strategic Alliances

Licensing Arrangements
The least sophisticated and easiest-tomanage type of alliance

Joint Ventures
The creation of a third entity representing the interests and capital of the partners

Consortia and Networks

Highly complex linkages among groups of companies
Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-13

Licensing Arrangements
Primary reasons for entry
A need for help in commercializing a new technology Global expansion of a brand franchise or marketing image

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Slide 9-14

Ex. 9-6. Sun Microsystems Licensing Strategy in the Early 1990s

Slide 1 of 2

Bipolar Integrated Technology

Sun Microsystems

Fujitsu

Texas Instruments

Philips N.V.

LSI
Logic

Cypress Semiconductor

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Slide 9-15

Ex. 9-6. Sun Microsystems Licensing Strategy in the Early 1990s

Slide 2 of 2

Company
Philips N.V.

Benefit of Linkage
Gives Sun access to European market.
Phillips will specialize in RISC chips for consumer and telecommunications products.

Texas Instruments Fujitsu

Gives domestic credibility to new product design Gives access to low-cost production

LSI Logic, other Provides for cross-licensing and small firms exchange of ideas
Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-16

Joint Ventures
Primary reasons for entry
Vertical integration Learning a partners skills Upgrading and improving skills Shaping industry evolution

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-17

Consortia and Networks

Multipartner Consortia
Multipartner alliances designed to share an underlying technology

Cross-Holding Consortia
Formal groups of companies that own large cross-holdings and equity stakes in each other

Industry-Spanning Alliance Networks

Firms sharing knowledge, costs, and risks
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Slide 9-18

Risks and Costs of Alliances

Rising incompatibility

Risk of knowledge or skill leakage Risk of dependence

Strategic control costs
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Slide 9-19

Automotive Joint Venture Fades

Ford Volkswagen

Autolatina

Impasse on strategy to face General Motors

Reluctance to share design, marketing ideas
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Slide 9-20

Ex. 9-7. Deepening Dependence on Alliance Partner

Sourcing for components Low price deters future investment Sourcing extends to joint venture Venture includes shared technology development around core

Sustained losses induce resignation, exit

Domestic firm feels price pressure in every market based on core technology

Alliance partner becoming stronger, attacks firms other markets

Domestic firm loses its core competence base

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-21

Balancing Cooperation and Competition

Understand the firms knowledge and skill base Choose complementary partners Keep alliance personnel long-term

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Slide 9-22

Alliances and Ethics

Two Critical Issues
Balancing collaboration and competition within the alliance The issue of loyalty among personnel assigned to the alliance

Copyright 2003 by South-Western, a division of Thomson Learning. All rights reserved.

Slide 9-23