University of Cagliari, Faculty of Economics, Business Strategy and Policy A course within the II level degree in Managerial Economics year II, semester I, 9 credits Lecturer: Dr Alberto Asquer Phone:

Introduction 0. Generic and complementary strategic options 1. Strategic alliances 2. Motives for and advantages of strategic alliances 3. Requirements and limitations of strategic alliances 4. Special alliances: the industrial districts Summary

0. Generic and complementary strategic options I level - Generic strategies Cost leadership–differentiation–best-cost–focus (cost or differentiation) II level - Complementary strategies Partnerships and strategic alliances Mergers and acquisitions Internationalisation Outsourcing Vertical integration etc. Strategy implementation: Functional strategies R&D Production Human resource management Marketing etc.

1. Strategic alliances Some effects of globalisation: Customer needs and preferences are converging over the world Technology is progressing at faster pace and knowledge is diffused Some implications for the strategic management of firms: Higher fixed costs for R&D, production, marketing Higher operating costs for sustaining the technology 'race' Some possible solutions: Vertical integration (acquisition of control of suppliers or distribution channels) Joint ventures (joint ownership and control of corporations with other firms) Alliances (agreement between two or more firms to share resources, risks, and control over the management of a business)

1. Strategic alliances Strategic alliances Formally, a contractual relationship between two or more firms that provides the terms for joint control of shared resources, allocation of tasks, reciprocal obligations and sanctions Substantively, a medium-long term cooperative interaction between two or more firms where each firm benefits from the mutual coordination of strategies Some main issues related to strategic alliances: Contract (in)completeness (some future contingencies unspecified) Asymmetric information (monitoring problem) Threat of opportunistic behaviour (free riding problem) Risks associated to the return to investments in relationship-specific assets (holdup problem)

1. Strategic alliances Some examples = = =

1. Strategic alliances Some examples (multiple alliance members) plus several other members...

2. Motives for and advantages of strategic alliances Motives for strategic alliances Organizational rationales: Learning new skills and competences Economic rationales: Obtaining economies of scale Cost sharing Risk reduction Strategic rationales: Access to new markets Access to new technology Diversification into new businesses Pre-emptying competition Industry trends Political rationales: Overcoming regulatory barriers Developing technological standards

2. Motives for and advantages of strategic alliances Advantages of strategic alliances Fast entry into foreign markets Acquiring knowledge of markets and cultures Acquiring knowledge and skills Acquiring technologies and intellectual property rights Generating new strategic options through the combination of resources and skills

3. Requirements and limitations of strategic alliances Requisites for an effective strategic alliance Choose adequate partners Beware of cultural differences Look at mutual benefits Establish commitments and guarantees Agree on joint decision making rules Review and assess the performance of the alliance, and make adjustments over time, if needed

3. Requirements and limitations of strategic alliances Limitations of strategic alliances Issues of control and dependency Issues of unequal gains (how to 'split the pie') Differences in cultural values Role ambiguity Relationships between the alliance and competitors Antitrust charges

4. Special alliances: the industrial districts Industrial districts are a special kind of strategic alliances They are characterised by the presence of several firms, that are generally small or medium-small that operate along all the industry value chain that are typically specialised in one or a few segments of the chain that are geographically concentrated in a relatively small area that are often coordinated and directed by one leading firm

4. Special alliances: the industrial districts Examples of industrial districts (about 200 in Italy) Jewelry, Valenza Ceramics, Sassuolo Textiles, Prato Glasses, Belluno

4. Special alliances: the industrial districts Examples of industrial districts (4 in Sardinian legislation) Cork, Calangianus Tempio Pausania Carpets, Samugheo Granite, Gallura Marble, Orosei

4. Special alliances: the industrial districts Network structure of industrial districts Supplier Producer Exporting agency Distributor Service provider Trade association Local government(s)

4. Special alliances: the industrial districts Main features of the 'networked economy' of industrial districts Intensive division of labour Cooperation and trust between firms Continuous improvements and innovation Active forms of collective representation (business associations) Involvement of local public authorities Cultural and historical ties within the local industrial community

5. Summary Main points Strategic alliances or partnerships are medium-long term cooperative interactions between two or more firms where each firm benefits from the mutual coordination of strategies There are several motives for why firms seek strategic alliances, especially related to the perspective advantages of the alliance A successful strategic alliance requires careful attention to various factors. Alliances may not work because of various limitations. Industrial districts provide a 'special kind' of strategic alliance, that consists of several small-medium firms, in a relatively concentrated geographical area, with intense division of labour and collaborative ties based on mutual trust