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.OutlineDefining strategic alliances and networksA comprehensive model of strategic alliances and networksFormationEvolutionPerformanceDebates and extensionsThe 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.*

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.Defining Strategic Alliances andNetworksStrategic alliances are voluntary agreements between firms Strategic alliances are compromises between pure market transactions and mergers and acquisitionsAlliances 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.*

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.The Variety of Strategic AlliancesStrategic 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

Mergersand Acquisitions(M&A)

MarketTransactionsFigure 7.1

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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.

A Comprehensive Model of Strategic Alliances and NetworksFigure 7.2

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.*

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.A Comprehensive Model of StrategicAlliances and NetworksIndustry-based considerations

Traditional: Firms are independent playersThe 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/servicesResource-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

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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.Strategic Alliances and Networks:Advantages and DisadvantagesStrategic alliances and networks must create valueAdvantages must outweigh disadvantages

Table 7.1

ADVANTAGESDISADVANTAGESReduce costs, risks, and uncertaintiesPossibilities of choosing the wrong partnersGain access to complementary assets and capabilitiesCosts of negotiation and coordinationOpportunities to learn from partnersPossibilities of partner opportunismPossibilities to use alliances networks as real optionsRisks of helping nurture competitors (learning race)

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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.FormationStage one: To cooperate or not to cooperateStage two: Contract or equity?Stage three: Positioning the relationship

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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.

A Three-Stage Decision Model of Strategic Alliance and Network FormationSource: 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): 91113.Figure 7.3

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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.Stage Two: Contract or Equity?

DRIVING FORCESEQUITY-BASED ALLIANCES/NETWORKSNON-EQUITY-BASED ALLIANCES/NETWORKSNature of shared resourcesHighLow(degree of tacitness and complexity)Importance of direct organizationalHighLowmonitoring and controlPotential as real optionsHigh (for possible upgrading to M&As)High (for possible upgrading to equity-based relationships)Influence of formal institutionsHigh (when required or encouraged byregulations)High (when required or encouraged byregulations)

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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.EvolutionCombating opportunism

Need to protect against opportunismContractual safeguards and credible commitmentEvolving from strong ties to weak ties

Strong ties are cultivated over a long period of timeWeak ties are characterized by infrequent interaction and low intimacyFirms have a combination of strong ties and weak tiesBenefits 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

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Evolution (cont.)Going through a divorce

InitiationGoing publicUncouplingAftermathCopyright 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.

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.

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.PerformanceThe performance of strategic alliances and networks

A combination of objective and subjective measures can be used to determine performanceFour factors may influence the performance of alliances and networks: equity, learning and experience, nationality, and relational capabilitiesThe 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.*

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.Alliance- and Network-Related Performance Measures

ALLIANCE/NETWORK LEVELPARENT FIRM LEVELObjectiveObjective 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 reactionSubjectiveSubjective Level of top management satisfaction Assessment of goal attainmentTable 7.4

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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.Debates and ExtensionsMajority JVs as control mechanisms versus minority JVs as real optionsAlliances versus acquisitionsAcquiring versus not acquiring alliance partners

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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.Improving the Odds for Alliance SuccessTable 7.7Source: Based on text in M. W. Peng & O. Shenkar, 2002, Joint venture dissolution as corporate divorce (pp. 101102), Academy of Management Executive, 16 (2): 92105.

AREASDOS AND DONTSContract versus chemistryNo contract can cover all elements of the relationship. Relying on a detailed contract doesnot guarantee a successful relationship and it may indicate a lack of trust.Warning signsIdentify symptoms of frequent criticism, defensiveness (always blaming others forproblems), and stonewalling (withdrawal during a fight).Investment in the relationshipLike married individuals working hard to invigorate their ties, alliances require continuousnurturing. Once a party starts to waver, it is difficult to turn back.Conflict resolution mechanismsGood married couples also fight. Their secret weapon is to find mechanisms to avoidunwarranted escalation of conflicts. Managers need to handle conflicts-inevitable in anyrelationship-in a credible, responsible, and controlled fashion.

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.*

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.The Savvy StrategistNew generation of strategists needs to be savvy at both competition and cooperation co-opetitionImproving relational (collaborative) capabilities is crucial for successNeed to understand the rules of game governing networks - both formal and informalCarefully weigh the pros and cons associated with alliances and acquisitions

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