1. Global cooperation: a profile of alliances Cooperate to succeed ? Prof. Dr. R. Veugelers

2. Where to get more information ? n Contractor & Lorange, Cooperative strategies in international business, Lexington Books, 1988 n Oxley, 1997, Appropriability hazards in Strategic Alliances, Journal of Law, Economics Organisation n Mody, Learning through alliances, Journal of Economic Behavior and Organisations, 1993. n ….

3. Why collaboration? n Many critical technologies are interdependent n Many critical technologies are firm and context-specific, based on systemic skills and tacit know-how To access this tacit and complex know-how requires collaboration with source To access this tacit and complex know-how requires collaboration with source

4. Why collaboration? With uncertainty and tacit know-how : appropriability hazard n holder of know-how may not deliver n receiver of know-how may misuse Can collaboration better deal with appropriability hazard ?

5. What is collaboration? Two or more firms pooling resources to research, develop, produce, market products and markets to achieve common goals Collaboration is a hybrid form between arm’s length contracts and hierarchies

6. What is collaboration ?

7. Questions to be examined

8. Different forms of collaboration n developmental vs distributional n strategic vs operational n informal vs formal n individual vs network

9. Developmental vs distributional n CREATION : competence leverage –jointly create new values, possibly in co- development –utilize existing competences in unique combinations n ACCESS: competence acquisition –transfer values between partners to create new values inside each partner (learning) –market-to-market alliances

10. “Strategic alliances” is a misnomer... n Objective can be strategic: –new market entry, significant growth or improvement... n Objective can be operational : –filling out gaps, reducing costs... Strategic versus operational

11. Varying levels of commitment through specific investments n joint venture: separate entity that will perform R,D,P,D in which parents take participation and provide inputs) n coordination and exchange Formal versus informal

12. Single versus multitude n Individual alliance versus n evolution of a dynamic network of alliances over time : n scope of diversity in network n compatibility of partners n management by nodal partner

13. Different types of partners : mix or match n direct competitors in same industry vs firms in related industries (suppliers, customers) vs unrelated firms n small vs large firms n national vs international n commercial vs non-commercial: research institutes, universities, government agencies...

14. Different functional activities n Research (fundamental/applied) n Development n Production n Distribution n... Exclusive or in combination

15. Explaining benefits and costs of collaboration from... n transaction-cost theory n resource-based theory n risk and option theory

16. Transaction cost theory Cooperation allows to minimize transaction costs /appropriation hazards through n quid-pro-quo reciprocity in ongoing returns n mutual hostage exchange through equity share as bond n better control/monitoring than arm’s length contracts without too heavy bureaucracy within hierarchies Shared ownership allows control and provides incentives

17. Resource Based Theory Collaboration allows to build up competences more effectively by accessing and complementing (tacit) know-how if firms have capacity for learning

18. Risk and Option Theory n Collaboration allows to share costs and risks n Collaboration allows to commit incrementally, to continuously reassess contribution to the venture: collaboration as option, learning experience collaboration as pre-runner for acquisition

19. In summary: Benefits vs Costs of Collaboration n sharing of costs/risks n efficiency –economies of scale –synergies n access to –markets –know-how –products n impact on competition n government n set-up costs –search & negotiations –start-up investments & contributions –foregone opportunities n cost of management of collaboration n assessment of partner’s added value: ex ante n monitoring of partners & ventures contribution n control know-how flows

20. Alliances vs FDI/licensing

21. Benefits and costs of collaboration will depend on n type of agreement n type of partner n type of functional area n technology/sector n stage in technology-life cycle

22. Partners in alliances: mix or match? n national versus international alliances n large versus small firms n horizontal versus vertical n commercial firms versus research institutes Differences between partners lead to Higher coordination costs BUT ALSO Higher complementarity leading to synergies stability

23. Evidence on success... n Problems of empirically assessing success: –subjective evaluation through questionnaires –objective evaluation: »contribution of collaboration to overall performance –event studies on stock market reactions to announcements of cooperation –longitudional evaluation of survival of cooperation

24. Limited evidence on success suggests... High incidence of failure, especially in early years: E.g. Kogut (1989) manufacturing jvs in US after 4 years: 33% terminations after 6 years: 50% terminations

25. Problem areas in collaboration n unclear strategic objectives n unclear organisational structure n fluctuating commitment n properly evaluating partner n coordinating cross-functional team efforts n overcoming “not invented here” syndrom n integrating newly sourced technology in mainstream

26. Problem areas in collaboration II n misjudging synergies n changing strategic objectives and needs; –if only because of learning from collaboration n changes in complementarities –redundancy of partners n loss of autonomy, strategic freedom n loss of control, on transfer of know-how

27. Problem areas in collaboration III n managing cultural differences: –impedence mismatch n differences in commitment n inadequate internal structures & incentives for cooperation

28. Some evidence on problem areas n Development of dependency on partner54% n Costs of negotiations and transactions44% n Assigning contributions/results to partners26% n Secrecy problems22% n Problems of technology transfers20% n Loss of own technological competence11% n Inhibition of own development11% Survey results from Germany (Brockhoff, 1992)

29. Some data on alliances

30. Geographical distribution

31. Some data on alliances

32. Functional activities in alliances % of all alliances

33. Sectoral distribution of alliances All these aliance intensive sectors can be characterized according to elements proxying benefits of alliances: more scope for spreading of high investment costs, efficiency enhancement, competitive considerations, government intervention Others: mainly services: bank&insurance, business services and airlines

34. National - international alliances

35. Size asymmetries

36. Inter vs intra-industry alliances