Professor Jeff Dyer BYU, Marriott School Alliances- How far have we come? “Alliances are mere transitional devices and because of this they are destined to fail” Michael Porter “Many so-called alliances between Western companies and their Asian rivals are little more than sophisticated outsourcing arrangements -- the traffic is almost entirely one way” Hamel, Doz, and Prahalad “Avoid alliances like the plague.” Reich and Mankin

Professor Jeff Dyer BYU, Marriott School Alliances Growing as a Source of Revenue Alliances as a Percentage of Revenue for Top 1,000 U.S. Public Corporations Source: Columbia University, European Trade Commission, Studies by BA&H, AC , , , 1999

Professor Jeff Dyer BYU, Marriott School Total business conducted through alliances 20% 30% 40% 0% 10% 20% 30% 40% 50% Source: EIU Global Executive Survey Andersen Consulting, Warren Company 3-5% 1990

Professor Jeff Dyer BYU, Marriott School Alliances- How far have we come? n “If you think you can go it alone in today’s global economy, you are highly mistaken” (Jack Welch, CEO of GE) n “Microsoft can’t make it alone, but together anything is possible.” (Bill Gates, Chairman of Microsoft) n “Our approach is to develop long term relationships with companies that offer a unique advantage with General Motors. The Alliance Strategy is our major thrust.” (John F. Smith, Jr., Chairman & CE of General Motors)

Professor Jeff Dyer BYU, Marriott School Corporate Evolution and Alliances n Moving from Managing a Portfolio of Products... n To Managing a Portfolio of Businesses... n To Managing a Portfolio of Relationships

Professor Jeff Dyer BYU, Marriott School Alliances- How far have we come? n “Goodbye mergers and acquisitions. In a global market tied together by the Internet, corporate partnerships and alliances are proving a more productive way to keep companies growing.” “This may be the most powerful trend that has swept American business in a century. Strategic alliances are hot.” (Mathew Schifrin, Editor, Forbes.com’s Best of the Web Magazine)

Professor Jeff Dyer BYU, Marriott School Growth in Mergers & Acquisitions vs. Alliances

Professor Jeff Dyer BYU, Marriott School Alliances vs. Acquisitions: Stock Market Response to Announcements Average Stock Market Gains (Average over 10 day window following announcement).84 percent Percent Stock Market Gains Following Announcements (in percentages) 0 percent Alliances*Acquisitions** (Acquirers) * Source: Dyer, Kale & Singh, 2001 ** Source: Bradley, Desai, & Kim, 1988

Professor Jeff Dyer BYU, Marriott School OUR STOCK ROSE FIVE POINTS ON THE ANNOUNCEMENT IN TODAY’S NEWS, OUR COMPANY HAS DECIDED TO BUY ANOTHER DYING COMPANY IN A BUSINESS WE DON’T FULLY UNDERSTAND. WHY DOES OUR STOCK GO UP EVERY TIME WE DO SOMETHING BONEHEADED? I LIKE TO THINK OF IT AS OUR COMPETITIVE ADVANTAGE.

Professor Jeff Dyer BYU, Marriott School THE STATUS OF OUR STRATEGIC ALLIANCE IS “DOOMED.” OUR PONDEROUS AND INEFFICIENT MANAGEMENT SYTLE CAUSED THEIR BEST PEOPLE TO QUIT AND CREATE A COMPETING COMPANY. WE MUST FIND A WAY TO DESTROY THAT NEW COMPANY. I’LL SEE IF THEY’RE INTERESTED IN A STRATEGIC ALLIANCE.

Professor Jeff Dyer BYU, Marriott School Strategic Alliances Based on: Yoshino and Rangan, 1995 The Scope of Inter-firm Relationships Contractual Agreements Equity Arrangements Traditional NontraditionalNo New Firm Creation of EntityDissolution Contracts Contractsof Entity Arm’s-length Joint Research Minority NonsubsidiaryJV Mergers and Buy/Sell Equity JVsSubsidiaries Acquisitions Contracts Investmentsof MNCs Franchising Joint Product Equity Fifty-fifty Development Swaps Joint Ventures Licensing Long-term Unequal Sourcing Equity Agreements Joint Ventures Cross- Joint Manufacturing licensing Joint Marketing Shared Distribution/ Service Standard Setting/ Research Consortia

Professor Jeff Dyer BYU, Marriott School Strategic Alliances n Benefits: – Speed (vs. acquisition or greenfield) – Access to key complementary assets – Removal of potential competitor – Maintain incentives for partner management n Drawbacks: – Lack of control; must share decision making – Potential spillover of knowledge and capabilities – Organizational clashes may impede ability to collaborate

Professor Jeff Dyer BYU, Marriott School Mergers & Acquisitions n Benefits: – Speed (vs. greenfield) – Full control over complementary assets – Removal of potential competitor – Upgrade corporate resources & capabilities n Drawbacks: – Cost of acquisition (premiums) – Unnecessary adjunct businesses – Organizational clashes may impede integration – Major commitment

Professor Jeff Dyer BYU, Marriott School M&A Returns-Acquiring Firms Source: Bradley, Desai, & Kim, 1988

Professor Jeff Dyer BYU, Marriott School M&A Returns-Targets Source: Bradley, Desai, & Kim, 1988