Transparency 9-1 Building Alliances Key Functional Areas R&D Marketing Production Logistics Service Cooperative Modes Joint Coordinated Complementary Independent Structure and Control Org. Structure Centralization Formalization Firm AFirm B

Transparency 9-2 Types of Strategic Alliances Business- Level Complementary Alliances Competition Reduction Alliances Competition Response Alliances Uncertainty Reduction Alliances

Transparency 9-3 Business- Level Complementary Alliances Competition Reduction Alliances Competition Response Alliances Uncertainty Reduction Alliances Corporate- Level Diversification Alliances Synergistic Alliances FranchisingFranchising Types of Strategic Alliances Business- Level Complementary Alliances Competition Reduction Alliances Competition Response Alliances Uncertainty Reduction Alliances

Transparency 9-4 Partnerships that build on the complementarities among firms that make each more competitive Complementary Strategic Alliances Supplier Value Chain Buyer Value Chain Vertical Alliance Business-Level Strategic Alliances

Transparency 9-5 Complementary Strategic Alliances Firm A’s Value Chain Firm B’s Value Chain Complementary Alliance FedEx and Laura Ashley: “outsourcing” outbound logistics FedEx and Laura Ashley: “outsourcing” outbound logistics Business-Level Strategic Alliances

Transparency 9-6 Horizontal Alliance Used to increase the strategic competitiveness of the partners Other Firm’s Value Chain Your Firm’s Value Chain Complementary Strategic Alliances Business-Level Strategic Alliances

Transparency 9-7 Used to increase the strategic competitiveness of the partners Marketing agreements between Delta and SwissAir Pooling Strategic Alliances Business-Level Strategic Alliances Horizontal Alliance Other Firm’s Value Chain Your Firm’s Value Chain

Transparency 9-8 Avoiding competition by using tacit collusion such as price fixing Competition Reduction Strategies OPEC Business-Level Strategic Alliances

Transparency 9-9 Avoiding competition by using tacit collusion such as price fixing Competition Reduction Strategies OPEC petroleum cartel Firms join forces to respond to a strategic action of another competitor Competition Response Strategies DirecTV & Time Warner for exclusive programming PowerPC: IBM, Apple, & Motorola Business-Level Strategic Alliances

Transparency 9-10 Avoiding competition by using tacit collusion such as price fixing Competition Reduction Strategies OPEC petroleum cartel Firms join forces to respond to a strategic action of another competitor Competition Response Strategies DirecTV has agreement with Time Warner for exclusive programming Alliances can be used to hedge against risk and uncertainty Uncertainty Reduction Strategies Biotechnology--pharmaceutical partnerships Business-Level Strategic Alliances

Transparency 9-11 Equity and Non-equity Alliance Options From Options Theory In high-tech industries, innovation is uncertain. Alliance partners want a “way out” if alliance is not profitable After a specified time period, equity or contractual alliance is formed (or, partners walk away).

Transparency 9-12 Corporate-Level Strategic Alliances Allows a firm to expand into a new product or market area without an acquisition Diversifying Alliances Samsung Group joins with Nissan to build new autos

Transparency 9-13 Allows a firm to expand into a new product or market area with an acquisition Diversifying Alliances Samsung Group joins with Nissan to build new autos Create economies of scope between two or more firms, creating synergy across multiple businesses between firms Synergistic Strategic Alliances Sony shares development with many small firms Corporate-Level Strategic Alliances

Transparency 9-14 Allows a firm to expand into a new product or market area with an acquisition Diversifying Alliances Samsung Group joins with Nissan to build new autos Create economies of scope between two or more firms, creating synergy across multiple businesses between firms Synergistic Strategic Alliances Allows firms to grow and relatively strong centralized control without significant capital investments FranchisingFranchising McDonald’s or Century 21 Sony shares development with many small firms Corporate-Level Strategic Alliances

Transparency 9-15 Types of Strategic Alliances NUMMI Joint Venture Independent firm is created by the joining assets from two other firms where each firm contributes at least %

Transparency 9-16 Types of Strategic Alliances Independent firm is created by the joining assets from two other firms where each firm contributes at least % Joint Venture Partnership where one partner owns less than 15-20% Ford and Mazda Automotive Equity Strategic Alliance

Transparency 9-17 Independent firm is created by the joining assets from two other firms where each contributes 50% of the total Dow Corning from Dow Chemical and Corning Inc. Joint Venture Partnership where the two partners do not own equal shares Chrysler and Mitsubishi Automotive Equity Strategic Alliance Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing) Chrysler’s supplier network Non-Equity Strategic Alliance Types of Strategic Alliances

Transparency 9-18 Developing Alliances Purpose –Motivations –Goals –Value Chain activities involved Contributions of Partners –Cash –Technology –Brand name –Other Assets

Transparency 9-19 Developing Alliances Structure –Contributions % –Organizational structure –Leadership –Strategic direction Partner Roles and Responsibilities –Value chain activities –Integration of activities Termination –Dissolution vs. Acquisition vs. Spin-off?

Transparency 9-20 Managing the Boundary Managing Knowledge Flows Strategic Direction Managing Cooperative Ventures Independent Legal Org. Co- Managed by Parents Firm AFirm B Alliance Firm AFirm B Alliance