Chapter 9

Exit from alliances

- Exit strategies should be a part of any alliance agreement - Lacking an exit strategy is viewed as a common mistake that partners have when starting an alliance. - Exit strategies should meet the test of fairness while protecting key resources of joint-venture partners

Outcome of trust in alliances

- Limits transaction costs - Facilitates long-term relationships - Stimulates collaboration - Simplifies knowledge transfer - Long-term competitive advantage

Failure factor of alliances

- conflict interest - lack of clearly defined objectives and responsibilities - ill evaluation of the achievements - under-resourcing - cultural issues - perceived underperformance

Benefits of strategic alliances

- ease of market entry - shared risk - shared knowledge and expertise - synergy and competitive advantage

Advantages achieved through alliances

- entry into new markets - increased market power and economies of scale and scope - the acquisition and exchange of skills - risk and investment sharing - reductions in liabilities of foreignness - Strategic renewal

Three main types of alliances

- joint venture - equity strategic alliance - non-equity strategic alliance

Success factor of alliance

- specific goals, life span, tasks, responsibilities and achievement measures - use pilot ideas - ongoing management, coordination, transparency and communication - commitment - value chain alignment - active team work and staff training

The role of strategic centre in managing a web of partners

- strategic outsourcing - capability - technology - competition

Key Success Factors relevant at each stage of alliance evolution

- the phase of formation - the phase of design - the post formation phase

How to collaborate and win

1. Collaboration is competition in a different form 2. Harmony is not the most important measure of success 3. Cooperation has limits 4. Learning from partners is paramount

Strategic alliance

A long-term partnership between two or more companies established to help each company build competitive market advantages.

Cooperation has a limits

A strategic alliance is a constantly evolving bargain whose real terms go beyond the legal agreement or the aims of top management. Successful companies inform employees at all levels that skills and technologies are off-limits to the partner, and monitor what the partner request and receives

Technology

Borrow ideas that are developed and explained as a means of creating and mastering new technologies

The phase of formation

Companies select of partner/ partners

Successful alliances must accomplish two goals

Coordination of the optimal combination of productive resources across parties and Mitigation of the risk of opportunistic behaviour

Capability

Develop the core skills and competencies of partners to make them more effective and competitive. Force members of the network to share their expertise with others in the network, and with the central firm

Competition

Explain to partners that the principle dimension of competition is between value chains and networks. The network is only as strong as its weakest link. Encourage rivalry between companiesinside the network, in a positive manner.

Harmony is not the most important measure of success

Indeed, occasional conflict may be the best evidence of mutually beneficial collaboration. Few alliances remain a win-win undertaking forever. A partner may be content even as it unknowingly surrenders core skills

Strategic outsourcing

Outsource and share with more partners than the normal broker and traditional firm. Expect them to be problem solvers and initiators

Non equity alliances

Refer to agreements under which companies collaborate in order to supply, produce, market or distribute products of the joint-venture partner over an extended period of time without substantial ownership investment in the alliance

Collaboration is competition in a different form

Successful companies never forget that their new partners may be out to disarm them. They enter alliances with clear objectives, and also understand how their partners' objectives will affect their success

learning from partners is paramount

Successful companies view each alliance as a window on their partners' broad capabilities. They use the alliance to build skills in areas outside the formal agreement and systematically diffuse new knowledge throughout their organisation

The phase of design

The alliance governance mechanism is being established

The post formation phase

The company manages the alliance on an ongoing basis and creates value

Equity alliance

an alliance in which one or more partners assume a greater ownership interest in either the alliance or another partner

Joint venture

refers to a strategic alliance in which two or more cooperating companies (the 'parents') create a legally independent company in which they invest and from which they share any profits created.

Organisations enter into an alliance

to get access to complementary resources or capabilities that would enable each of the partners to increase economies of scale and gain greater market power.