C M Clarke-Hill

Alliances and Networks

Alliances and why they form Markets or Hierarchies Embedded Organisations 1

Trends in European Business

 Concentration and Consolidation of Industry  Easier Circulation of Goods  Better Access to Markets  More International Outlook and Strategies  Brands Becoming ‘Multi-Local’  More Competitive Sources of Supply  Consumer Convergence (?) C M Clarke-Hill 2

Forces Shaping Alliances

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Globalisation of Markets and the Need for Scale

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Blurring of Industry Boundaries

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Scarce Resources

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Intensifying Competition

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Barriers to Entry

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Doz and Hamel (1998)

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Two competitive races are being run: one for the world and one for the future”

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Alliances Cover a Wide Field

 Collaborative Advertising  R&D Partnerships  Technology Transferring  Shared Distribution  Co-operative Bidding  Lease Service Agreements C M Clarke-Hill  Cross Manufacturing  Resource Venturing  Shared Staff & Facilities  Internal Spin-offs  Cross Licensing  Government and Industry Partnering 5

Outsourcing Partnership Alliance Ownership

C M Clarke-Hill Types of Collaborative Relationships

Outsourcing Short-term Partnership Long-term Partnership Permanent Partnership Closeness of Relationship LOW Nature of Relationship

Contractual purchase of goods and services Short-term focus with co-ordinated activities and planning between partners Long-term focus with integration of activities between partners Permanent arrangements with partners with highly integrated systems

Joint Venture Vertical Integration HIGH

Shared ownership in an operation with a collaborator or partner(s) Full ownership of the operation corporate parent 6

Strategic Alliances

Understand Objectives, Drivers and Value Creation

Strategic Alliances • Acquisition not possible • Cross-border • Financial limitations • Evolutionary approach • Opportunity for learning • Skills transfer • Co-operation C M Clarke-Hill 7

Primary Alliance Drivers

Globalisation Pressures High Individual Firm Capabilities Low High

Channel Access Global Industry Market Penetration Leadership

Low Increasing Complexity

Pooled Resources Search for Critical Mass

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Primary Alliance Drivers

Individual Firm Capabilities Low High Globalisation Pressures High

Channel Access Global Industry Market Penetration Leadership

•Automotive •Chemicals & Energy •Consumer Products •Telecoms •Computers •Electronics Low

Pooled Resources Search for Critical Mass

•Steel •Paper •Utilities •Healthcare •Environmental •Areospace/Defence C M Clarke-Hill 9

Strategic Alliances

A Universal Definition : Strategic Alliances refer to co-operative agreements between companies, which may be competitors, to share or transfer skills and resources to meet mutually agreed goals. Such alliances may or may not involve shared equity stakes.

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Alliances can have varying forms

 Loose collaborative ventures  Licensing  Technology sharing  Equity participating  Joint ventures C M Clarke-Hill Different forms have differing risk/reward factors Alliances and Networks can be created in different parts of the value chain Horizontal and Vertical Alliance.

See fig 7.1 in Chp 7 of de Wit and Meyer.

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C M Clarke-Hill The firm and its relationships 12

Alliances

 The inter-relationships between partners can be tight or loose depending upon the nature and type of alliance  Alliances can be formed in any part of the value chain - Vertical Alliances and Horizontal Alliances  Alliances can be formed for tactical as well as strategic reasons C M Clarke-Hill 13

Typology of Business Alliances

Parties Competitors Non-competitors Strategic Orientation Competitive Alliances Collaborative Ventures Operational Cartels Co-operatives C M Clarke-Hill 14

Alliance Motivations - complex and interrelated

Reasons for Alliance formation is complex we can look at this in a variety of ways:  Survival and Competitive Advantage  Trigger mechanisms - organisationally generated or environmentally derived  Key Variables - internal and external motives C M Clarke-Hill 15

Alliance Orientations

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Operational orientation

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Strategic orientation

Develop with examples.. Retailing, Sony-Phillips, Airbus, One World etc.

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Purposes of Alliances

Growth Opportunities Strategic Resource Efficiency C M Clarke-Hill Strategic Intent Protection against External Threats Diversification Alliance Purpose Increase Asset Utilisation Enhance Core Competence Operational Close Performance Gap 17

Alliance Parties

Customers Strategic Exisiting Competitors C M Clarke-Hill Potential Customers Potential Suppliers Suppliers Alliance Purpose Potential Competitors Indirect Competitors Operational New Entrants 18

Why Alliances 1

 Sharing fixed costs and associated risks of NPD and R&D and linked with opening and creating new markets  Alliances can be seen as a method of bringing together complementary resources and skills that neither partner could easily adopt C M Clarke-Hill 19

Why Alliances 2

 Alliances can be seen as a way of creating critical mass to exploit economies of scale that individual partners do not enjoy  Alliances can be seen as creating countervailing power in a market  Alliances can be seen as an alternative method of market entry  A form of market control by creating networks C M Clarke-Hill 20

The Dual Purpose of Strategic Alliances

Co-operative

  Upstream/downstream division of labour Fill out product line  Limit investment risk of new market entry  Create critical mass  Develop new skills  Assist s/t restructuring

Competitive

 Learn new skills  Accelerate diffusion of new standards  Deny technology and learning to partner  Encircle competition  Control market access  Form clusters of learning C M Clarke-Hill 21

Webs of Alliances

 Frequently firms: – Will have more than one alliance partner – Operate within more than one alliance – Operate a mixed alliance strategy - vertically with suppliers and horizontally with competitors  Network organisations  Webs of Alliances  E-commerce hubs C M Clarke-Hill 22

Firms Alliances and Constellations Group of Firms Single Firm Pair of Firms Triad of Firms C M Clarke-Hill 23

Web of Alliances 1- AT&T

Globalisation Capabilities Partnerships Partnerships Korea, Hong Kong Novell Singapore AT &T Mexico (ALFA) NCR Sweden (Telia) McCraw C M Clarke-Hill 24

Starbucks alliances

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Toshiba’s “Circle of Friends”

United Technologies Time Warner Apple Computers Asahi Chemical Industry Ericsson Thompson Consumer Electronics Telic Alcatel Sun Microsystems Siemens TOSHIBA'S CIRCLE OF FRIENDS GEC Alstholm General Electric LSI Logic of Canada SGS-Thomson Samsung Motorola National Semiconductor Rhone Poulenc Olivetti

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Figure 3: J.SAINSBURY'S WEB OF ALLIANCE RETAIL CONSORTIUM LOOSE I.G.D

GB INMO SHAWS

Full Ownership Partial Ownership

DOCKS GIANT

Partial Ownership Co-marketing Agreements

LAURA ASHLEY JS.

ESSELUNGA SEDD ALLIANCE DOCKS SECRETARIAT DELHAIZE

C M Clarke-Hill

SUPPLIERS SUPPLIERS WITH EQUITY STAKE

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Alliance Failure Rates

 66 percent of cross-border alliances ran into serious managerial problems within the first two years  A further 19 percent reported mixed results  On average over the first 4 years approximately 50 percent were deemed failures

Source: Bleeke and Ernst (1991)

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Conclusions 1

 Alliances are generally successful on a global scale  Allying with competitors is a reality but our evidence is that a form of market control is evident  Alliances can lead to acquisition by one of the parties  The extended enterprise era has started C M Clarke-Hill 29

Conclusions 2

 The creation of e-commerce (B2B) hubs for procurement can be seen as an increasingly common phenomena in the auto industry and in other sectors.  Thus we are seeing rival e-hubs competing with each other centred around a lead company controlling a network of suppliers and co-operating with a network of competitors.

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Finally - Strategic Challenges

 Will the alliance create value and for whom?

 Will the alliance stand the test of time ?

 Will the partners reconcile conflicting priorities and concerns?

 How will each partner mange its growing web of alliances?

 How to develop capabilities in managing alliances?

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