Strategic Alliances: Teaming and Allying for Advantage Chapter 9 Strategic Alliances: Teaming and Allying for Advantage by Robert Pitts & David Lei Slides prepared by John P. Orr Cameron University Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

What you will learn… The characteristics of a strategic alliance Slide 1 of 2 The characteristics of a strategic alliance Why companies around the world are forming strategic alliances The different broad types of strategic alliances, including: Licensing Joint ventures Multipartner consortia Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

What you will learn… Slide 2 of 2 The benefits and costs of entering into strategic alliances How to balance the need for cooperation with competition Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

IBM’s Global Alliances Slide 1 of 2 Early Alliances: Responding to Japan IBM’s Initiatives During the 1990s: Rebuilding Competitiveness Motorola Apple Computer Perkins-Elmer, Silicon Valley Group, and Elite Systems Toshiba Siemens Phillips Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

IBM’s Global Alliances Slide 2 of 2 Current Strategic Alliance Initiatives Electronic commerce Telecommunications Smart technologies Health care Ongoing relationships Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 9-1. IBM’s Alliance Strategy (Selected Categories) Personal Computers Matsushita (low-end PCs) Ricoh (hand-held PCs) Telecommunications NTT (value-added networks) Motorola (mobile data pets) Factory Automation Texas Instruments Sumitomo Metal Nippon Kokan Nissan Motor Health Care Pfizer Microsoft Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

The Global Airline Industry Airline industry consolidation of 1990s From code sharing to combined operations Network versus network Northwest – KLM American Airlines – British Airways Lufthansa – United Airlines Delta “Sky Team” alliance “Oneworld” alliance Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 9-2: Global Airline Alliances Slide 1 of 4 Trans-Atlantic Linkages/Relationships Airlines Type of Alliance Northwest Airlines KLM Royal Dutch Full partnership (antitrust immunity) Wings alliance United Airlines Lufthansa Part of Star Alliance Delta Air Lines Swissair Sabena Austrian Airlines Relationship unwound in 1998-1999 Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 9-2: Global Airline Alliances Slide 2 of 4 Trans-Atlantic Linkages/Relationships Airlines Type of Alliance Continental Airlines Alitalia Code sharing, joint marketing (antitrust issues pending) American Airlines British Airways Code sharing, joint marketing (antitrust request withdrawn) Delta Airlines Air France CSA Czech Airlines Aero Mexico Full partnership (antitrust immunity) Sky Team alliance Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 9-2: Global Airline Alliances Slide 3 of 4 Globe-Spanning Linkages/Relationships Airlines Type of Alliance United Airlines Lufthansa Scandinavian Airline System (SAS) Thai International Varig Brazilian Star Alliance: Code sharing, joint marketing; includes up to 17 partners in 2002 Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 9-2: Global Airline Alliances Slide 4 of 4 Globe-Spanning Linkages/Relationships Airlines Type of Alliance American Airlines British Airways Cathay Pacific Qantas Airways Aer Lingus Lan Chile Finn Air Iberia Code sharing, joint marketing, arrangement for global flights. New alliance known as ONEworld. Northwest Airlines Continental Airlines Japan Air System Code sharing for Trans-Pacific flights Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Factors Promoting Alliances New market entry Shaping of industry evolution Learning and applying new technologies Rounding out a product line Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Types of Strategic Alliances Licensing Arrangements The least sophisticated and easiest-to-manage type of alliance Joint Ventures The creation of a third entity representing the interests and capital of the partners Consortia and Networks Highly complex linkages among groups of companies Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Licensing Arrangements Primary reasons for entry A need for help in commercializing a new technology Global expansion of a brand franchise or marketing image Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 9-6. Sun Microsystems’ Licensing Strategy in the Early 1990s Slide 1 of 2 Bipolar Integrated Technology Fujitsu Texas Instruments Philips N.V. LSI Logic Cypress Semi- conductor Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 9-6. Sun Microsystems’ Licensing Strategy in the Early 1990s Slide 2 of 2 Company Benefit of Linkage Philips N.V. Gives Sun access to European market. Phillips will specialize in RISC chips for consumer and telecommunications products. Texas Instruments Gives domestic credibility to new product design Fujitsu Gives access to low-cost production LSI Logic, other small firms Provides for cross-licensing and exchange of ideas Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Joint Ventures Primary reasons for entry Vertical integration Learning a partner’s skills Upgrading and improving skills Shaping industry evolution Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Consortia and Networks Multipartner Consortia Multipartner alliances designed to share an underlying technology Cross-Holding Consortia Formal groups of companies that own large cross-holdings and equity stakes in each other Industry-Spanning Alliance Networks Firms sharing knowledge, costs, and risks Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Risks and Costs of Alliances Rising incompatibility Risk of knowledge or skill leakage Risk of dependence Strategic control costs Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Automotive Joint Venture Fades Ford Volkswagen Autolatina Impasse on strategy to face General Motors Reluctance to share design, marketing ideas Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Ex. 9-7. Deepening Dependence on Alliance Partner Sourcing for components Low price deters future investment Sourcing extends to joint venture Venture includes shared technology development around core Sustained losses induce resignation, exit Domestic firm feels price pressure in every market based on core technology Alliance partner becoming stronger, attacks firm’s other markets Domestic firm loses its core competence base Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Balancing Cooperation and Competition Understand the firm’s knowledge and skill base Choose complementary partners Keep alliance personnel long-term Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.

Alliances and Ethics Two Critical Issues Balancing collaboration and competition within the alliance The issue of loyalty among personnel assigned to the alliance Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved.