INTERNATIONAL BUSINESS STRATEGIES Andrey G. Medvedev, Professor September 29, 2009 CEMS MIM Programme

© Andrey Medvedev 6. INTERNATIONAL STRATEGIC ALLIANCES 1. STRATEGIC ALLIANCES 2. TYPOLOGY OF INTERNATIONAL STRATEGIC ALLIANCES 3. STRUCTURE OF STRATEGIC ALLIANCES 4. ALLIANCE FORMATION AND IMPLEMENTATION FRAMEWORK 5. EFFECTIVENESS OF STRATEGIC ALLIANCES

© Andrey Medvedev INTERNATIONAL STRATEGIC ALLIANCES Responsibilities of International Manager Responsibilities of International Manager: strategic context n Understand the strategic context of an alliances partner analysis n Undertake partner analysis structure n Design the alliance legal and organisational structure implementation mechanism n Develop implementation mechanism

© Andrey Medvedev INTERNATIONAL STRATEGIC ALLIANCE n STRATEGIC ALLIANCE COMBINING VALUE CHAIN ACTIVITIES COMPETITIVE ADVANTAGE n STRATEGIC ALLIANCE IS AT LEAST TWO COMPANIES COMBINING VALUE CHAIN ACTIVITIES FOR THE PURPOSE OF ENHANCING THEIR COMPETITIVE ADVANTAGE AND/OR CREATING NEW BUSINESSES WITHOUT LOOSING THEIR RESPECTIVE STRATEGIC AUTONOMY AllianceMarket contract Merger of capabilities

© Andrey Medvedev OBJECTIVES OF INTERNATIONAL STRATEGIC ALLIANCES n LOCAL STRATEGIC ALLIANCE n LOCAL (COUNTRY) STRATEGIC ALLIANCE –MARKET ENTRY ALLIANCE –RESOURCE ACCESS ALLIANCE COUNTRY-BASED JOINT VENTURE –OFTEN ORGANISED AS A COUNTRY-BASED JOINT VENTURE n GLOBAL STRATEGIC ALLIANCE –GLOBAL REACH –GLOBAL REACH SEEKERS (DEVELOPING GLOBAL MARKET PRESENCE) –GLOBAL LEVERAGE –GLOBAL LEVERAGE SEEKERS (ENHANCING THE WORLD-WIDE COMPETITIVE CAPABILITIES)

© Andrey Medvedev ADVANTAGES OF LOCAL STRATEGIC ALLIANCES n FOREIGN PARTNER MARKET PENETRATION n INCREASE IN MARKET PENETRATION n PROFITS n PROFITS FROM DIVIDENDS, TRANSFER PRICES, AND MANAGEMENT FEES NATURAL RESOURCES SKILLS n ACCESS TO LOCAL NATURAL RESOURCES AND SKILLS n LOCAL PARTNER TECHNOLOGYKNOW-HOW MANAGERIAL EXPERTISE n ACCESS TO FOREIGN PRODUCT AND PROCESS TECHNOLOGY, KNOW-HOW, AND MANAGERIAL EXPERTISE

© Andrey Medvedev GLOBAL STRATEGIC ALLIANCES n COALITIONS –ALLIANCES IN THE SAME INDUSTRY –SEARCH FOR GLOBAL REACH; ‘SIZE’ IS ESSENTIAL –CO-ORDINATING GEOGRAPHIC ASSETS, POOLING CAPABILITIES –COST REDUCTION OR COMPETITIVENESS GROWTH n CO-SPECIALISATIONS –COMPLEMENTARY CAPABILITIES (ASSETS, RESOURCES) –EACH PARTY CONCENTRATES ON WHAT IT IS GOOD –CREATION OF NEW BUSINESS OR NEW PRODUCTS/PROCESSES n LEARNING ALLIANCES –EXCHANGE OF TECHNOLOGY, KNOW-HOW, INFORMATION, SKILLS

© Andrey Medvedev LEGAL STRUCTURE OF STRATEGIC ALLIANCES n NO OWNERSHIP –LONG-TERM CONTRACT AGREEMENTS –JOINT PROJECTS n SOME OWNERSHIP –MINORITY EQUITY PARTICIPATION –JOINT EQUITY PARTICIPATION (CROSS-OWNERSHIP) –JOINT VENTURE –JOINT VENTURE (A NEW SEPARATE LEGAL ENTITY)

© Andrey Medvedev DYADIC AND MULTILATERAL STRATEGIC ALLIANCES n DYADIC STRATEGIC ALLIANCES –INVOLVE ONLY TWO PARTNERS n MULTILATERAL STRATEGIC ALLIANCES –NETWORKS –NETWORKS ONE ALLIANCE – SEVERAL PARTNERS –PORTFOLIOS –PORTFOLIOS ONE PARTNER – SEVERAL ALLIANCES –WEBS –WEBS SEVERAL PARTNERS – SEVERAL ALLIANCES

© Andrey Medvedev INTERNATIONAL NETWORKS PARTNERS’ INTERACTIONS n NETWORKS TAKE ACCOUNT OF PARTNERS’ INTERACTIONS n CO-ORDINATION OF FIRMS’ ACTIVITIES n CO-ORDINATION OF FIRMS’ ACTIVITIES IS ACHIEVED THROUGH THESE INTERACTIONS n ROLE OF EACH FIRM n ROLE OF EACH FIRM IN THE NETWORK HAS TO BE DEFINED CLEARLY

© Andrey Medvedev STRATEGIC ALLIANCE: SKYTEAM n SkyTeam n SkyTeam is a strategic alliance of airlines. n With its 11 member airlines SkyTeam provides 16,409 daily flights to 841 destinations in 162 countries. n The alliance members are Aeroflot, Aeromexico, Air France – KLM Group, Alitalia, China Southern, Continental Airlines, CSA, Delta Air Lines Inc., Korean Air, Northwest Airlines.

© Andrey Medvedev STRATEGIC ALLIANCE FORMATION AND IMPLEMENTATION FRAMEWORK n FORMULATION STRATEGY n FORMULATION AN INTERNATIONAL ALLIANCE STRATEGY n PARTNERS’ ANALYSIS n NEGOTIATION AND DESIGN n NEGOTIATION AND DESIGN OF THE ALLIANCE LEGAL AND ORGANISATIONAL STRUCTURE n IMPLEMENTATION n IMPLEMENTATION OF THE ALLIANCE

© Andrey Medvedev STRATEGIC CONTEXT, OBJECTIVES, AND VALUE CREATION IN ALLIANCES n COMPREHENSIVE ALLIANCES ALL FACETS OF CONDUCTING BUSINESS –PARTNERS PARTICIPATE IN ALL FACETS OF CONDUCTING BUSINESS – FROM PRODUCT DESIGN TO MANUFACTURING AND MARKETING JOINT VENTURES –MOST COMPREHENSIVE ALLIANCES ARE ORGANISED AS JOINT VENTURES n FUNCTIONAL ALLIANCES –PRODUCTION ALLIANCES –R & D ALLIANCES –MARKETING ALLIANCES –COMMERCIAL ALLIANCES –FINANCIAL ALLIANCES

© Andrey Medvedev PARTNERS’ ANALYSIS n STUDYINGFOREIGN PARTNER n STUDYING A POTENTIAL FOREIGN PARTNER n FACTORS n FACTORS TO TAKE INTO ACCOUNT –STRATEGIC FIT –STRATEGIC FIT RELATIVE COMPETITIVE POSITIONS OF PARTNERS, COMPATIBILITY, THE RELATIVE SAFENESS OF THE ALLIANCE, THE LEARNING POTENTIAL OF THE ALLIANCE –CAPABILITIES FIT VALUE CHAIN –CAPABILITIES FIT REQUIRED CAPABILITIES AND CONTRIBUTION OF THE PARTNERS (RESOURCES, ASSETS, COMPETENCIES – VALUE CHAIN STUDY) –ORGANISATIONAL FIT –ORGANISATIONAL FIT THE DEGREE OF DECISION-MAKING DECENTRALISATION –CULTURAL FIT –CULTURAL FIT CORPORATE AND NATIONAL CULTURES

© Andrey Medvedev NEGOTIATION AND DESIGN n LEGAL STRUCTURE n ORGANISATIONAL DESIGN EXECUTIVES n THE APPOINTMENTS OF EXECUTIVES n MANAGEMENT CONTROL n THE DISTRIBUTION OF VALUE n THE REPORTING AND COMMUNICATION PROCESS n THE CONFLICT RESOLUTION MECHANISMS

© Andrey Medvedev MANAGEMENT CONTROL IN STRATEGIC ALLIANCES n SHARED MANAGEMENT n DOMINANT PARENT n MIXED DECISION-MAKING –SHARED STRATEGIC DECISION-MAKING AND SEPARATED FUNCTIONAL-LEVEL DECISION-MAKING n INDEPENDENT MANAGEMENT n ROTATING MANAGEMENT

© Andrey Medvedev MIXED DECISION-MAKING: RENAULT – NISSAN Renault Nissan total partnership n In 1999, CEOs of Renault and Nissan signed an agreement for a total partnership. Renault-Nissan BV n The two companies are operating independently, but their strategic orientation and the organisation of synergies are supervised by a joint management company, Renault-Nissan BV.

© Andrey Medvedev DOMINANT PARENT MANAGEMENT: AVTOVAZ – GM AvtoVAZGeneral Motors European Bank for Reconstruction and Development n In 2001, AvtoVAZ, Russia's biggest car maker, General Motors, and the European Bank for Reconstruction and Development (EBRD) created a joint venture for manufacturing VAZ-2123 "Niva" cars under the Chevrolet (Chevy-Niva) brand. n A new manufacturing plant was built in Togliatti with the capacity 75 thousand cars per year. n Investment in the project totalled $332 million. AvtoVAZ and GM each holds 41.5 percent stakes in the project, EBRD has 17 percent. GM took management control n According to the agreement, GM took management control of the joint venture from Day One.

© Andrey Medvedev REACHING ADVANTAGES IN STRATEGIC ALLIANCES n EASE OF MARKET ENTRY n KNOWLEDGE AND EXPERTISE SWAP n SYNERGY AND COMPETITIVE ADVANTAGE n SHARED RISK

© Andrey Medvedev LEARNING EFFECT IN ALLIANCES n US – JAPAN EXPERIENCE

© Andrey Medvedev SYNERGIES IN ALLIANCE: RENAULT – NISSAN n Renault-Nissan Purchasing Organisation n Renault-Nissan Purchasing Organisation (RNPO) sources 75 percent of the Alliance 2006 world-wide purchases. n Common platforms are being developed. n Cross-manufacturing operations. n Common distribution in Europe. n Common information system. n Exchange of best practices.

© Andrey Medvedev ALLIANCE DISSOLUTION TEMPORARY CO-OPERATION n MOST ALLIANCES REPRESENT A TEMPORARY CO-OPERATION PURPOSE FULFILMENT FAILURE n ENDINGS OF STRATEGIC ALLIANCES ARE EITHER STRATEGIC PURPOSE FULFILMENT OR A FAILURE OF THE ALLIANCE FAILURE RATE n INTERNATIONAL STRATEGIC ALLIANCE FAILURE RATE IS AROUND 30–60 PERCENT

© Andrey Medvedev ALLIANCE DISSOLUTION: CLOETTA FAZER Cloetta Fazer AB n In June, 2008, the principal owners of Cloetta Fazer AB – Oy Karl Fazer Ab (“Fazer Group”) and AB Malfors Promotor – who together own approximately 78.5 percent of the votes in Cloetta Fazer, have struck an agreement concerning a de-merger of Cloetta Fazer. CloettaFazer Confectionery n Through the de-merger, Cloetta Fazer creates the two future companies Cloetta and Fazer Confectionery. n The new Cloetta intends to apply for a listing on the OMX Nordic Exchange Stockholm. n Fazer Confectionery will be consolidated in the privately held Fazer Group.

© Andrey Medvedev INTERNATIONAL NETWORKS: MNCs AND INDEPENDENT FIRMS MNC’S SUBSIDIАRIES n INTERNATIONAL NETWORK COULD BE ORGANISED ON THE BASE OF MNC’S SUBSIDIАRIES STRATEGIC ALLIANCE n INDUSTRIAL NETWORK COULD ALSO INCLUDE INDEPENDENT PARTNERS, WHICH CREATE A STRATEGIC ALLIANCE TOGETHER WITH MNC’S SUBSIDIARIES