1. Making Strategic Alliances and Networks Work
Chapter 7
Making Strategic Alliances and Networks Work
Global Strategy Mike W. Peng
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2. Outline Defining strategic alliances and networks
A comprehensive model of strategic alliances and networks
Formation
Evolution
Performance
Debates and extensions
The savvy strategist
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

3. Defining Strategic Alliances and Networks
Strategic alliances are “voluntary agreements between firms”
Strategic alliances are compromises between pure market transactions and mergers and acquisitions
Alliances fall into two broad categories: contractual (non-equity) and equity-based
Strategic networks are strategic alliances formed by multiple firms to compete against other networks and singular firms
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

4. The Variety of Strategic Alliances
A compromise between short-term, pure market transactions (e.g., spot transactions) and long-term, pure organizational solutions (e.g., mergers and acquisitions)
The Variety of Strategic Alliances
Market
Transactions
Mergers
and
Acquisitions
(M&A)
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Figure 7.1

5. A Comprehensive Model of Strategic Alliances and Networks
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Figure 7.2

6. A Comprehensive Model of Strategic Alliances and Networks
Industry-based considerations
Traditional: Firms are independent players
The dynamic of five forces:
Horizontal alliances, entry barriers, upstream alliances with suppliers, downstream vertical alliances with buyers, and alliances and networks to provide substitute products/services
Resource-based considerations
The resource-based view is embodied in the VRIO framework, which are value, rarity, imitability and organizational aspect of strategic alliance and networks
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

7. Strategic Alliances and Networks: Advantages and Disadvantages
Strategic alliances and networks must create value
Advantages must outweigh disadvantages
ADVANTAGES
DISADVANTAGES
Reduce costs, risks, and uncertainties
Possibilities of choosing the wrong partners
Gain access to complementary assets and capabilities
Costs of negotiation and coordination
Opportunities to learn from partners
Possibilities of partner opportunism
Possibilities to use alliances networks as real options
Risks of helping nurture competitors (learning race)
Table 7.1
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

8. Formation Stage one: To cooperate or not to cooperate
Stage two: Contract or equity?
Stage three: Positioning the relationship
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

9. A Three-Stage Decision Model of Strategic Alliance and Network Formation
Source: Adapted from S. Tallman & O. Shenkar, 1994, A managerial decision model of international cooperative venture formation (p. 101), Journal of International Business Studies, 25 (1): 91–113.
Figure 7.3
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10. Stage Two: Contract or Equity?
DRIVING FORCES
EQUITY-BASED
ALLIANCES/NETWORKS
NON-EQUITY-BASED
ALLIANCES/NETWORKS
Nature of shared resources
High
Low
(degree of tacitness and complexity)
Importance of direct organizational
High
Low
monitoring and control
Potential as real options
High (for possible upgrading to M&As)
High (for possible upgrading to
equity-based relationships)
Influence of formal institutions
High (when required or encouraged by
regulations)
High (when required or encouraged by
regulations)
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

11. Evolution Combating opportunism Evolving from strong ties to weak ties
Need to protect against opportunism
Contractual safeguards and credible commitment
Evolving from strong ties to weak ties
Strong ties are cultivated over a long period of time
Weak ties are characterized by infrequent interaction and low intimacy
Firms have a combination of strong ties and weak ties
Benefits of the different types of ties depend on the firms’ strategies
Many interfirm relationships evolve from an emphasis on strong ties to a focus on weak ties
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

12. Evolution (cont.) Going through a divorce Initiation Going public
Uncoupling
Aftermath
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

13. Performance The performance of strategic alliances and networks
A combination of objective and subjective measures can be used to determine performance
Four factors may influence the performance of alliances and networks: equity, learning and experience, nationality, and relational capabilities
The performance of parent firms
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

14. Alliance- and Network-Related Performance Measures
ALLIANCE/NETWORK LEVEL
PARENT FIRM LEVEL
Objective
Objective
Financial performance (for example, profitability)
Financial performance (for example, profitability)
Product market performance (for example, market share)
Product market performance (for example, market share)
Stability and longevity
Stock market reaction
Subjective
Subjective
Level of top management satisfaction
Assessment of goal attainment
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Table 7.4

15. Debates and Extensions
Majority JVs as control mechanisms versus minority JVs as real options
Alliances versus acquisitions
Acquiring versus not acquiring alliance partners
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

16. Improving the Odds for Alliance Success
AREAS
DO’S AND DON’TS
Contract versus “chemistry”
No contract can cover all elements of the relationship. Relying on a detailed contract does
not guarantee a successful relationship and it may indicate a lack of trust.
Warning signs
Identify symptoms of frequent criticism, defensiveness (always blaming others for
problems), and stonewalling (withdrawal during a fight).
Investment in the relationship
Like married individuals working hard to invigorate their ties, alliances require continuous
nurturing. Once a party starts to waver, it is difficult to turn back.
Conflict resolution mechanisms
“Good” married couples also fight. Their secret weapon is to find mechanisms to avoid
unwarranted escalation of conflicts. Managers need to handle conflicts-inevitable in any
relationship-in a credible, responsible, and controlled fashion.
Source: Based on text in M. W. Peng & O. Shenkar, 2002, Joint venture dissolution as corporate divorce (pp. 101–102), Academy of Management Executive, 16 (2): 92–105.
Table 7.7
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17. The Savvy Strategist
New generation of strategists needs to be savvy at both competition and cooperation— “co-opetition”
Improving relational (collaborative) capabilities is crucial for success
Need to understand the rules of game governing networks - both formal and informal
Carefully weigh the pros and cons associated with alliances and acquisitions
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.