Transcript Chapter 7.ppt

Chapter #7
Strategic Alliances
Opening Case
• HBO
Definitions
• Strategic alliance
• Whenever two or more independent organizations cooperate
in the development, manufacture or sale of products or
services.
• Non-equity alliance
• Cooperating firms agree to work together, but do not take
equity positions in each or form an independent
organization
• Examples
• Licensing agreements
• Supply agreements
• Distribution agreements
• Equity alliance
• Cooperating firms hold equity positions in each
other
• Example
• GM 34.2% of Izuzu’s Stock
• Joint Ventures
• Cooperating firms create a legally independent firm
• Example
• SBC and Bell South co-own Cingular
How do strategic alliances create
economic value?
• Current operations
• Exploiting economies of scale
• Learning from competitors
• NUMI Different rates of learning
• More to learn
• Absorptive capacity
• Withhold Information
• Managing risk and sharing costs
How do strategic alliances create
economic value?
• Creating a favorable competitive environment
• Facilitate development of technological standards
• Network industries
• Increasing returns to scale (one fax machine)
• Beta vs VHS IBM vs Apple (Cell Phones) HDTV
• Facilitate tacit collusion
• Firms coordinate their production and pricing decision
How do strategic alliances create
economic value?
• Facilitating entry and exit
• Low-cost entry into new markets
• Local distribution networks can be costly
• Government restrictions/requirements
• Low-cost entry into new industries and new industry
segments
• Dupont and Phillips
• Welch’s and Eskimo Pie
• Low-cost exit from industries and industry segments
• Corning and Ciba-Geigy (sneak preview)
• Managing uncertainty
• Option to buy (bet)
Alliance Threats: Incentives to Cheat
on Strategic Alliances
• 1/3 of all strategic alliances do not meet the
expectations of at least one alliance partner.
• Ways to cheat
• Adverse selection
• Moral Hazard
• Holdup
• Adverse Selection: Potential partners
misrepresent the value of the skills and
abilities they bring to the alliance
• Difficult to assess the veracity of the claims of
potential partners
• Less tangible resources and capabilities are the
most difficult to assess
• Moral Hazard: Partners provide to the
alliance skills and abilities of lower quality
than promised
• Pixar versus Disney
• Pixar: Toy Story, A bug’s life, Toy Story 2,
Monster’s, Inc, Finding Nemo
• Disney: Treasure Planet, The emperor’s New
Groove, Lilo and Stich, Brother Bear
• Holdup: Partners
exploit the transaction
specific made by
others in the alliance
Strategic Alliances and Sustained
Competitive Advantage
• The Rarity of Strategic Alliance
• GM and Toyota (lean manufacturing)
• Ford and Mazda (Designing new cars and joint
manufacturing)
• Daimler-Chrysler and Mitsubishi (supplier)
• The Imitability of Strategic Alliances
• Direct duplication (socially complex)
Substitutes for Strategic Alliance
• Going it alone
• Alliances will be preferred over going it
alone when
• The level of transaction specific investment
required to complete an exchange is moderate
• When an exchange partner possess valuable, rare,
and costly to imitate resources and capabilities
• When there is great uncertainty about the future
value of an exchange
Substitutes for Strategic Alliance
• Alliances will be preferred to acquisitions
when
• There are legal constrains on acquisitions
• Acquisitions limit a firm’s flexibility under
conditions of uncertainty
• There is substantial unwanted organizational
“baggage” in an acquired firm
• The value of a firm’s resources and capabilities
depend on its independence
Organizing for Strategic Alliance:
Trying to avoid Cheating
• Non Equity investments
• Explicit Contracts and
Legal Sanctions
Organizing for Strategic Alliance:
Trying to avoid Cheating
• Equity Investments
Organizing for Strategic Alliance:
Trying to avoid Cheating
• Firm Reputation
Organizing for Strategic Alliance:
Trying to avoid Cheating
• Joint Ventures
Organizing for Strategic Alliance:
Trying to avoid Cheating
• Trust