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Spring 2022-2023 - PIM - Chapter 7 - Strategic Alliances and Networks

This document discusses strategic alliances and networks. It defines strategic alliances as contractual agreements between organizations to combine resources and efforts to meet common goals. It describes eight generic types of strategic alliances: licensing, supplier relations, outsourcing, joint ventures, collaborations, R&D consortia, industry clusters, and innovation networks. Strategic alliances can occur between competitors and across industries, and provide benefits like shared costs, risks, resources, and access to new technologies and markets.

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Arju Lubna
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147 views36 pages

Spring 2022-2023 - PIM - Chapter 7 - Strategic Alliances and Networks

This document discusses strategic alliances and networks. It defines strategic alliances as contractual agreements between organizations to combine resources and efforts to meet common goals. It describes eight generic types of strategic alliances: licensing, supplier relations, outsourcing, joint ventures, collaborations, R&D consortia, industry clusters, and innovation networks. Strategic alliances can occur between competitors and across industries, and provide benefits like shared costs, risks, resources, and access to new technologies and markets.

Uploaded by

Arju Lubna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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S T R AT E G I C

ALLIANCES
AND
NETWORKS
Chapter # 7
Stanley Rodrick
Senior Asst. Professor,
Department of Marketing,
Faculty of Business Administration
INTRODUCTION
In strategic alliances firms cooperate out of mutual need and share the risks to reach
a common objective.
Strategic Alliances provide access to resources that are greater than any single
firm could buy.
This can greatly improve its ability to create new products, bring in new technologies,
penetrate other markets and reach the scale necessary to survive in world markets.
Collaboration with other firms, however, can take many forms.
Virtually all firms have networks of suppliers and, in some cases, this can form part of
a firm’s competitive advantage.
DEFINING STRATEGIC ALLIANCES
Faced with new levels of competition, many companies, including
competitors, are sharing their resources and expertise to develop new
products, achieve economies of scale and gain access to new
technology and markets.
Many have argued that these strategic alliances are the competitive
weapon of the next century.
A strategic alliance is a contractual agreement amongst
organizations to combine their efforts and resources to meet a common
goal.
DEFINING STRATEGIC ALLIANCES
A strategic alliance is an agreement between two or more partners to share
knowledge or resources, which could be beneficial to all parties involved.
One of the major factors that prevents many firms from achieving their
technical objectives and, therefore, their strategic objectives, is the lack of
resources.
For technology research and development (R&D), the insufficient resources
are usually capital and technical.
DEFINING STRATEGIC ALLIANCES
For many firms, the thought of sharing ideas and technology, in
particular, with another company is precisely what they have been
trying to avoid doing since their conception.
Technology partnerships between, and in some cases amongst,
organizations are becoming more important and prevalent. As the
costs, including risk associated with R&D efforts, continue to increase,
no company can remain a ‘technology island’ and stay competitive.
FORMS OF STRATEGIC ALLIANCE
Strategic Alliances can occur intra-industry or inter-industry.
For example, the three major US automobile manufacturers have
formed an alliance (General Motors, Ford Motor Company, and Fiat
Chrysler Automobiles) to develop technology for an electric car.
This is an example of an intra-industry alliance and is in response to US
legislation requiring a certain percentage of US cars to be gasoline-free
by 2020.
FORMS OF STRATEGIC ALLIANCE
Strategic Alliances can occur intra-industry or inter-industry.
The UK pharmaceutical giant GlaxoSmithKline has established many
inter-industry alliances with a wide range of firms from a variety of
industries; it includes companies such as Matsushita, Canon, Fuji and
Apple.
FORMS OF STRATEGIC ALLIANCE
There are eight generic types of strategic alliance:
 Licensing
 Supplier Relations

 Outsourcing

 Joint Venture

 Collaboration (Non-joint Ventures)

 R&D Consortia

 Industry Clusters

 Innovation Networks
FORMS OF STRATEGIC ALLIANCE
 Licensing
Licensing is a relatively common and well-established method of
acquiring technology.
It may not involve extended relationships between firms but,
increasingly, licensing another firm’s technology often is the beginning
of a form of collaboration.
Usually, there is an element of learning required by the licensee and,
frequently, the licensor will perform the role of ‘teacher’.
FORMS OF STRATEGIC ALLIANCE
 Licensing (Contd.)
Whilst there are clearly advantages of licensing, such as speed of entry
to different technologies and reduced cost of technology development,
there are also potential problems, particularly the neglect of internal
technology development.
FORMS OF STRATEGIC ALLIANCE
 Licensing (Contd.)
In the videocassette recording (VCR) industry, JVC licensed its VHS
recording technology to many firms, including Sharp, Sanyo and
Thompson.
This clearly enabled these firms to enter the new growth industry of the
time. But these firms also continued to develop their own technologies in
other fields.
Sharp, in particular, built on JVC’s technology and developed additional
features for its range of videocassette recorders.
FORMS OF STRATEGIC ALLIANCE
 Supplier Relations
Many firms have established close working relations with their suppliers and,
without realizing it, may have formed an informal alliance.
Usually, these are based on cost-benefits to a supplier. For example:
 lower production costs that might be achieved if a supplier modifies a component so

that it ‘fits’ more easily into the company’s product;


 reduced R&D expenses, based on information from a supplier about the use of its

product in the customer’s application;


 improved material flow brought about by reduced inventories, due to changes in

delivery frequency and lot sizes;


 reduced administration costs through more integrated information systems.
FORMS OF STRATEGIC ALLIANCE
 Supplier Relations (Contd.)
For example, the French electronics firm Thompson originally supplied radio cassette
players to the car manufacturer Citroën.
This relationship developed further when Citroën asked Thompson if it could help with
the development of radio controls on the steering wheel.
This led to an alliance in the development of new products.
Many manufacturing firms are, increasingly, entering into long-term relationships with
their component suppliers.
Often, such agreements are for a fixed term, say five years, with the option of renewal
thereafter.
FORMS OF STRATEGIC ALLIANCE
 Outsourcing
Outsourcing refers to the delegation of non-core operations from
internal provision or production to an external entity specializing in the
management of that operation.
The decision to outsource often is made in the interests of lowering firm
costs, redirecting or conserving energy directed at the competencies of a
particular business, or to make more efficient use of worldwide labor,
capital, technology and resources.
FORMS OF STRATEGIC ALLIANCE
 Outsourcing (Contd.)
A good illustration of this is the outsourcing of IT services to specialist
providers and of telephone call centres by the financial services
industry.
Outsourcing involves transferring or sharing management control
and/or decision making of a business function to an outside supplier,
which involves a degree of two-way information exchange,
coordination and trust between the outsourcer and its client.
FORMS OF STRATEGIC ALLIANCE
 Joint Venture
A joint venture usually is a separate legal entity with the partners to
the alliance normally being equity shareholders.
With a joint venture, the costs and possible benefits from an R&D
research project would be shared.
Usually, they are established for a specific project and will cease on its
completion.
FORMS OF STRATEGIC ALLIANCE
 Joint Venture (Contd.)
For example, Sony- Ericsson was a joint venture between Ericsson of
Sweden and Sony of Japan.
It was established to set design manufacture and distribute mobile
phones.
Previously, both firms had been unsuccessful in the handset market.
The intention of establishing a joint venture is, generally, to enable the
organization to ‘stand alone’.
FORMS OF STRATEGIC ALLIANCE
 Collaboration (Non-joint ventures)
The absence of a legal entity means that such arrangements tend to
be more flexible.
This provides the opportunity to extend the cooperation over time, if
so desired.
Frequently, these occur in many supplier relationships, but they also
take place beyond supplier relations.
FORMS OF STRATEGIC ALLIANCE
 Collaboration (Non-joint ventures)
Many university departments work closely with local firms on a wide
variety of research projects where there is a common interest.
For example, a local firm may be using a carbon-fibre material in
manufacturing.
The local university chemistry department may have an interest in the
properties and performance of the material.
Cooperation between the parties may produce benefits for both.
FORMS OF STRATEGIC ALLIANCE
R&D Consortia
A consortium describes the situation where a number of firms come
together to undertake what often is a large-scale activity.
The rationale for joining an R&D consortium includes sharing the cost
and risk of research, pooling scarce expertise and equipment,
performing pre-competitive research and setting standards
FORMS OF STRATEGIC ALLIANCE
Industry Clusters
Michael Porter (1998) identified a number of very successful industry
clusters.
Clusters are geographic concentrations of interconnected companies,
specialized suppliers, service providers and associated institutions in a
particular field that are present in a nation or region.
It is their geographical closeness that distinguishes them from
innovation networks.
FORMS OF STRATEGIC ALLIANCE
Industry Clusters
Clusters arise because they increase the productivity with which companies
can compete.
The development and upgrading of clusters is an important agenda for
governments, companies and other institutions.
In theory, location should no longer be a source of competitive advantage.
Open global markets, rapid transportation and high-speed communications
should allow any company to source anything from any place at any time.
But, in practice, location remains central to competition.
FORMS OF STRATEGIC ALLIANCE
Industry Clusters
Today’s economic map of the world is characterized by what Porter
calls clusters: critical masses in one place of linked industries and
institutions – from suppliers to universities to government agencies –
that enjoy unusual competitive success in a particular field.
The most famous examples are found in Silicon Valley and Hollywood,
but clusters dot the world’s landscape.
FORMS OF STRATEGIC ALLIANCE
Industry Clusters

Silicon Valley
FORMS OF STRATEGIC ALLIANCE
Innovation Networks
The use of the term network has become increasingly popular. To
many, it is the new form of organization offering a sort of ‘virtual
organization’.
Terms such as web or cluster are also used to describe this or a similar
phenomenon.
Others believe them to be nothing more than a new label for a firm’s
range of supplier and market relationships.
FORMS OF STRATEGIC ALLIANCE
Innovation Networks
For example, brand management firms like Nike are frequently
regarded as network firms.
This is because Nike essentially owns and manages the brand and
relies on an established network of relationships to produce and
distribute its products.
It does not own all the manufacturing plant used to manufacture its
shoes or all the retail outlets in which its products are sold.
FORMS OF STRATEGIC ALLIANCE
Innovation Networks
It undertakes research, design and development, but has a network of
manufacturers in Asia, India and South America.
Similarly, it has a network of distributors in all the countries in which it
operates.
FORMS OF STRATEGIC ALLIANCE
Innovation Networks Assembling the component parts to make an iPhone
M O T I V E S F O R E S TA B L I S H I N G A N A L L I A N C E
Frequently, alliances will have multiple objectives.
For example, an alliance may seek to access technology, gain
greater technical critical mass and share the risk of future
technology development.
The European Airbus is a good example of an alliance that has
multiple objectives.
M O T I V E S F O R E S TA B L I S H I N G A N A L L I A N C E
M O T I V E S F O R E S TA B L I S H I N G A N A L L I A N C E

Reasons For Entering


A Strategic Alliance
R E A S O N S O F FA I L U R E I N A L L I A N C E S
Research in the area of failure of alliances identifies seven different
reasons:
 Failure to understand and adapt to new style of management required
for the alliance
 Failure to learn and understand the cultural differences between the
organisations
 Lack of Commitment to Succeed
 Strategic Goal Divergence
 Insufficient Trust
 Operational and or Geographical Overlaps
 Unrealistic Expectations
T H E R O L E O F T R U S T I N S T R AT E G I C
ALLIANCES
Trust is not the same as confidence.
For example, supporters of football teams are confident that
their team will work hard and win some games over the course
of the season, but they trust their players, manager and club
that, collectively, the organisation will try to win and that results
are not ‘fixed’ through corruption.
Both confidence and trust are based on expectations about the
future, but trust entails the exposure to the risk of opportunistic
behaviour by others.
T H E R O L E O F T R U S T I N S T R AT E G I C
ALLIANCES
It is important to keep in mind that trust is practised and
exercised between individuals, even if they represent an
organisation.
Trust is a personal judgement and carries an emotional as well
as a cognitive dimension.
T H E R O L E O F T R U S T I N S T R AT E G I C
ALLIANCES
Types of Trust
END OF THE CHAPTER

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