Strategic Alliances

Source : George S. Yip, Anderson Graduate School of Management, University of California, Los Angeles, 1994

The first aspect to be pondered is why alliances, vs acquisitions, contracts or own developments.

Reasons for using strategic alliances :

Reducing costs

Reducing risk

Accelerating speed to market

Building flexibility

Monitoring competitors

Guiding the migration to knowledge

Neutralizing competition

(Source . Badaracco, 1991)

Role of coalitions – they can perform potentially any activity in the value chain :

 (Source : Porter and Fuller, 1986)

 Benefits and costs of coalitions:

Strategic  benefits	Strategic costs
Economies of scale or learning	Coordination
Access to knowledge or ability to perform an activity	Erosion of competitive position
Reducing risk	Creation of adverse bargaining position
Shaping competition

 (Source : Porter and Fuller, 1986)

 Globalization encourages joint ventures when it drives firms to expand their capabilities and access to markets. 

Globalization discourages joint ventures when it drives firms to integrate their worldwide operations. 

A clear differentiation must be established between product links (= way of obtaining products), and knowledge links (= way of obtaining new skills and capabilities). 

Options in degree of vertical integration : 

 

Generic motives for strategic alliances : 

 (Source : Lorange and Roos, 1992) 

Criteria for selecting long term coalition partners :

 Has desired source of competitive competence 

Needs a complementary or balanced contribution

Has compatible view of international strategy

Poses low risk of becoming a competitor

Has preemptive value as a partner

Has organizational capability 

(Source: Porter and Fuller, 1996)

Success factors in strategic alliances:

More successful where partners are horizontally related to their ventures rather than vertically or unrelated

Last longer between partners of similar cultures, asset sizes and venturing experience levels

Industry traits are more important than partner´s traits :
            Worry less about partner

            Worry more about competitive needs to be addressed

Principles for joint venturing success

Don´t judge success by longevity

Collaboration is competition in a different form

Harmony is not the most important measure of success

Cooperation has limits – must defend against competitive compromise

Learning from partners is paramount

Key findings in strategic alliances :

 

Many companies often enter alliances to avoid investments

 

Troubled laggards often strike alliances with surging latecomers – dependency spiral

 

Alliances run most smoothly when one partner is intent on learning and the other is intent on avoidance

Conditions for mutual gain :

Partners´ strategic goals converge while their competitive goals diverge

Size and power of both partners is modest compared with industry leaders

Each partner believes it can learn from the other and at the same time limit access to proprietary skills

 

Dangers in strategic alliances :

 

Potential for transfer is greatest when the partner´s contribution is easily transported, easily interpreted and easily absorbed.

 

Ways to limit transparency :

 

Limit scope of formal agreements

 

Establish formal performance standards

 

Set up a gatekeeper

 

Beware of too much collegiality 

Interface mode : 

Single point	Multipoint
Regulates access	Helps build support
Limits transparency	Broader “window”
Key gatekeepers	Direct connections
Tradeoffs not visible to partners	Allows to discover potential value
Apparent consistency of position	Closer joint perceptions, lesser risk of disconnect

 (Source . Yves Doz)

 

Managing alliances:

Have a clear understanding of company´s current capabilities and the capabilities it will need in the future

Consider a wide range of possible alliances

Before committing company to an alliance, scrutinize the values, commitment and capabilities of prospective partners

Understand the risks of opportunism, knowledge leaks and obsolescence

Avoid undue dependence on alliances

Structure and manage alliances as separate companies

Partners must come to trust each other

Change core operations and traditional organizations so that they will be open to learning from alliances

Alliances must be led, not managed

(Source : Badaracco, 1991)