Chapter 9 Strategic Alliances Teaming and Allying for

Chapter 9 Strategic Alliances: Teaming and Allying for Advantage by Robert Pitts & David Lei Slides prepared by John P. Orr Cameron University Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 1

What you will learn… Slide 1 of 2 • The characteristics of a strategic alliance • Why companies around the world are forming strategic alliances • The different broad types of strategic alliances, including: – Licensing – Joint ventures – Multipartner consortia Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 2

What you will learn… Slide 2 of 2 • The benefits and costs of entering into strategic alliances • How to balance the need for cooperation with competition Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 3

IBM’s Global Alliances Slide 1 of 2 • Early Alliances: Responding to Japan • IBM’s Initiatives During the 1990 s: Rebuilding Competitiveness – Motorola – Apple Computer – Perkins-Elmer, Silicon Valley Group, and Elite Systems – Toshiba – Siemens – Phillips Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 4

IBM’s Global Alliances Slide 2 of 2 • Current Strategic Alliance Initiatives – – – Electronic commerce Telecommunications Smart technologies Health care Ongoing relationships Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 5

Ex. 9 -1. IBM’s Alliance Strategy (Selected Categories) Personal Computers Factory Automation • Matsushita (low-end PCs) • Ricoh (hand-held PCs) • • Texas Instruments Sumitomo Metal Nippon Kokan Nissan Motor Telecommunications • NTT (value-added networks) • Motorola (mobile data pets) Health Care • Pfizer • Microsoft Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 6

The Global Airline Industry • Airline industry consolidation of 1990 s • From code sharing to combined operations • Network versus network – – – Northwest – KLM American Airlines – British Airways Lufthansa – United Airlines Delta “Sky Team” alliance “Oneworld” alliance Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 7

Ex. 9 -2: Global Airline Alliances Slide 1 of 4 Trans-Atlantic Linkages/Relationships Airlines Type of Alliance • Northwest Airlines • KLM Royal Dutch Full partnership (antitrust immunity) Wings alliance • United Airlines • Lufthansa Full partnership (antitrust immunity) Part of Star Alliance • Delta Air Lines • Swissair • Sabena • Austrian Airlines Full partnership (antitrust immunity) Relationship unwound in 1998 -1999 Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 8

Ex. 9 -2: Global Airline Alliances Slide 2 of 4 Trans-Atlantic Linkages/Relationships Airlines Type of Alliance • Continental Airlines • Alitalia Code sharing, joint marketing (antitrust issues pending) • American Airlines • British Airways Code sharing, joint marketing (antitrust request withdrawn) • Delta Airlines • Air France • CSA Czech Airlines • Alitalia • Aero Mexico Full partnership (antitrust immunity) Sky Team alliance Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 9

Ex. 9 -2: Global Airline Alliances Slide 3 of 4 Globe-Spanning Linkages/Relationships Airlines Type of Alliance • United Airlines Star Alliance: Code sharing, joint marketing; includes up to 17 partners in • Lufthansa • Scandinavian Airline 2002 System (SAS) • Thai International • Varig Brazilian Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 10

Ex. 9 -2: Global Airline Alliances Slide 4 of 4 Globe-Spanning Linkages/Relationships Airlines Type of Alliance • American Airlines • British Airways • Cathay Pacific • Qantas Airways • Aer Lingus • Lan Chile • Finn Air • Iberia Code sharing, joint marketing, arrangement for global flights. New alliance known as ONEworld. • Northwest Airlines • Continental Airlines • Japan Air System Code sharing for Trans-Pacific flights Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 11

Factors Promoting Alliances • New market entry • Shaping of industry evolution • Learning and applying new technologies • Rounding out a product line Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 12

Types of Strategic Alliances • Licensing Arrangements The least sophisticated and easiest-tomanage type of alliance • Joint Ventures The creation of a third entity representing the interests and capital of the partners • Consortia and Networks Highly complex linkages among groups of companies Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 13

Licensing Arrangements Primary reasons for entry • A need for help in commercializing a new technology • Global expansion of a brand franchise or marketing image Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 14

Ex. 9 -6. Sun Microsystems’ Licensing Strategy in the Early 1990 s Slide 1 of 2 Bipolar Integrated Technology Texas Instruments Sun Microsystems Philips N. V. LSI Logic Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. Fujitsu Cypress Semiconductor 15

Ex. 9 -6. Sun Microsystems’ Licensing Strategy in the Early 1990 s Slide 2 of 2 Company Benefit of Linkage Philips N. V. Gives Sun access to European market. Phillips will specialize in RISC chips for consumer and telecommunications products. Texas Instruments Gives domestic credibility to new product design Fujitsu Gives access to low-cost production LSI Logic, other Provides for cross-licensing and small firms exchange of ideas Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 16

Joint Ventures Primary reasons for entry • • Vertical integration Learning a partner’s skills Upgrading and improving skills Shaping industry evolution Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 17

Consortia and Networks • Multipartner Consortia Multipartner alliances designed to share an underlying technology • Cross-Holding Consortia Formal groups of companies that own large cross-holdings and equity stakes in each other • Industry-Spanning Alliance Networks Firms sharing knowledge, costs, and risks Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 18

Risks and Costs of Alliances • Rising incompatibility • Risk of knowledge or skill leakage • Risk of dependence • Strategic control costs Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 19

Automotive Joint Venture Fades Ford Volkswagen Autolatina • Impasse on strategy to face General Motors • Reluctance to share design, marketing ideas Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 20

Ex. 9 -7. Deepening Dependence on Alliance Partner Sourcing for components Sustained losses induce resignation, exit Low price deters future investment Domestic firm feels price pressure in every market based on core technology Sourcing extends to joint venture Alliance partner becoming stronger, attacks firm’s other markets Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. Venture includes shared technology development around core Domestic firm loses its core competence base 21

Balancing Cooperation and Competition • Understand the firm’s knowledge and skill base • Choose complementary partners • Keep alliance personnel long-term Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 22

Alliances and Ethics Two Critical Issues • Balancing collaboration and competition within the alliance • The issue of loyalty among personnel assigned to the alliance Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved. 23