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Global cooperation: a profile of alliances Cooperate to succeed ? Prof. Dr. R. Veugelers
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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 ….
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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
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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 ?
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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
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What is collaboration ?
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Questions to be examined
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Different forms of collaboration n developmental vs distributional n strategic vs operational n informal vs formal n individual vs network
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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
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“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
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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
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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
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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...
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Different functional activities n Research (fundamental/applied) n Development n Production n Distribution n... Exclusive or in combination
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Explaining benefits and costs of collaboration from... n transaction-cost theory n resource-based theory n risk and option theory
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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
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Resource Based Theory Collaboration allows to build up competences more effectively by accessing and complementing (tacit) know-how if firms have capacity for learning
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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
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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
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Alliances vs FDI/licensing
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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
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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
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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
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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
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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
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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
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Problem areas in collaboration III n managing cultural differences: –impedence mismatch n differences in commitment n inadequate internal structures & incentives for cooperation
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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)
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Some data on alliances
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Geographical distribution
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Some data on alliances
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Functional activities in alliances % of all alliances
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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
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National - international alliances
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Size asymmetries
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Inter vs intra-industry alliances
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