Copyright © 2009 South-Western, a part of Cengage Learning All rights reserved. Power Point Presentation by Dr. Leslie A. Korb Georgian Court University 1 Understanding Business Strategy Concepts & Cases Part 3: Strategy Chapter 9: Creating and Maintaining Alliances

A strategic alliance is a type of cooperative strategy the purpose of which is to develop a competitive advantage Equity alliances, e.g. joint venture Nonequity alliances 2

Developing Strategic Alliances A very popular strategy Help firms grow and have a major impact on partner firms What reasons can you think of that would cause firms to form alliances? 3

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Business-Level Strategic Alliances Vertical strategic alliances Relationship between buyers and suppliers Produce products Most effective when trust exists between partners Trust sustains transfer of technological knowledge May manage supply chain rather than pricing strategy 5

Business-Level Strategic Alliances Horizontal strategic alliances Enhance the capabilities of the partners to compete in their markets A response to competitor’s actions A response to substantial uncertainty Requires a smaller investment of capital Explicit collusion v. tacit collusion Most difficult to manage and sustain because partners are also competitors 6

Corporate-Level Strategic Alliances Diversification by alliance E.g. China’s SAIC Motorcorp & Nanjing Automobile Corp. Synergy by alliance E.g. Coca-Cola and Cargill Franchising E.g. MacDonald’s 7

International Strategic Alliance Some countries require that firms form joint ventures with local firms in order to enter their markets Foreign firms need knowledge and perhaps other resources to understand and compete effectively in the newly entered markets 8

International Strategic Alliance Different cultures and a lack of trust can hinder the transfer of knowledge or sharing of other resources necessary to make an alliance successful 9

Managing Risk Development of trust Educating about cultural differences Refusing to assume about partner’s competencies Using contracts to guard against opportunistic behavior E.g. Disney and Pixar 10

Managing Strategic Alliances 11

Managing Strategic Alliances 1. Even if the firm has a unit with the overall responsibility of managing its network of alliances, a manager or sponsor should be named for each alliance (and a similar person should be named by the partner). These managers keep each other informed of major alliance activities, resource allocations, and outcomes. 2. The organization should analyze the alliance’s priority within its resource allocations and ensure the commitment needed for each alliance to succeed. 12

Managing Strategic Alliances 3. A clear plan for implementing the alliance should be created and activated after the partners have agreed to the alliance. 4. The means for analyzing the performance of the alliance and distribution of performance outcomes to the partners should be clearly established. 5. In the evaluation of an alliance’s value, the partners’ partners in other alliances should be considered. 13