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TRANSCRIPT
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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Chapter 6:Engaging in Cross-
Border Collaboration
Managing across Corporate Boundaries
and
Reading 6-1:The Design and Management
of International Joint Ventures
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What is a Strategic Alliance?
• A formal and mutually agreed commercial collaboration between companies
• The partners pool, exchange or integrate specific business resources
• Yet they remain separate businesses, making alliances distinct from mergers and acquisitions
6-2
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Strategic Alliances
• One of innumerable forms of commercial interaction• One of four forms/modes of investment
Partially Owned
Wholly Owned
Existing Capital Participation
Acquisition
New Joint Venture
Greenfield
6-3
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6-4
Range of Strategic Alliances
Joint Venture(Equity Participation)
Co-production/Buyback
R & DConsortia
CrossLicensing
Franchising
PatentLicensing
CooperationAgreement
High
Low
Competition Cooperation
Lev
el o
f In
tera
ctio
n
Type of Arrangement
StrategicAlliances
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6-5
In the 1960s and 1970s Alliances were Primarily used in Peripheral Markets and Technologies
Peripheral
Critical
MarketsPeripheralCritical
Tec
hn
olo
gie
s
Alliance
Alliance
Alliance
Alliance Frontier
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6-6
In the 1980s the Alliance Frontier Moved toEncompass More Important Markets and Technologies
Alliance
Alliance
Alliance
Peripheral
Critical
MarketsPeripheralCritical
Tec
hn
olo
gie
s
Alliance Frontier
Examples• Ford - Mazda• Philips - Siemens• Rolls Royce + Japanese
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6-7
In the 1990s New Alliance Frontiers were Crossed
Alliance
Alliance
Alliance
Equity
NonEquity
Duration of AgreementLong or UnspecifiedShort
Ow
ner
ship
Alliance Frontier
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6-8
And Now We Are In The Age ofInternational + Alliance Capitalism…
StrategicAllianceEmphasis
Geographic Scope
Equity JV
Non-Equity
Do ItYourself
Domestic Regional International
TIME
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6-9
…Where Alliances are Occurring Between Entrepreneurial Start-ups and Large Firms,
and Speed of Establishment is Increasing
EntrepreneurialFirms
LargeFirms
Time-Frame YearsMonthsL
inka
ges
Bet
wee
n
Alliance Frontier
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Popular View Says JVs are:
• A transitional organization form.• Less profitable.• Impossible to manage.• A sure way to lose one’s technology.• Only undertaken as a last resort.
6-10
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Why Strategic Alliances
1-11
•Technology Exchange
•Global Competition
•Industry Convergence
•Economies of Scale
•Reduction of Risk
•Alliances as an Alternative to Mergers
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Objective Reality
• Average age of international JVs nearly 10 years (similar to greenfield startups; longer than acquisitions).
• Profitability identical with other organizational alternatives.
• Managing has become easier, so usage up. 40% of all investments in Asia Pacific are JVs.
6-12
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Objective Reality (cont’d)
• Some companies which possess strong technology often prefer to use JVs. (i.e., Japanese firms with a Kyousei - group coordination - philosophy)
• The days of government regulation forcing the use of JVs are behind us.
6-13
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6-14
Effect of Foreign Equity Holdingon Subsidiary Mortality Risk?
Stability Similar to Wholly-owned Subsidiaries Except with Small Equity Holdings
1:1 = equivalent to wholly owned subsidiary
Source: Dhanaraj, Charles and Paul W. Beamish, 2004. “Effect of Equity Ownership on the Survival of International Joint Ventures”, Strategic Management Journal, 25(3): 295-305.
Mo
rta
lity
Ris
k
4:1
3:1
2:1
1:1
0
Foreign equity in the subsidiary (%)
0 20 40 8060 100
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Strategic Alliance Advantages and Disadvantages
1-15
On the PLUS side….
•Reduce costs & risks•Gain access to complimentary assets and new markets•Opportunities to learn from partner•Possibilities to use alliances and networks as an operational (real) option rather than a financial option.
On the DOWN side…•Risk of choosing the wrong partner•Costs of negotiation, coordination•Partner opportunism•Learning race (tacit vs. explicit knowledge)
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Selection: Resource Based Considerations
1-16
VALUE: The creation of value means generating economies of scale for cost reduction, or complimentary skills for tapping new opportunities.
Alliances might reduce costs, risks and uncertainties.Alliances allow partners to tap into complimentary assets.Alliances facilitate opportunities to learn.
RARITY: Good alliances represent unique situations.
Capability rarity.Partner rarity & First Mover Advantage
IMITIBILITY: The alliance’s benefits to the partners should be hard for others to imitate.
At the firm level (ex. McDonalds in Moscow).At the alliance level.
ORGANIZATION: Do the alliance partners provide resources to manage the partnership?
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Joint Venture Checklist
• Test the strategic logic.• Do you really need a partner? For how long?
Does your partner?• How big is the payoff for both parties? How likely
is success?• Is a joint venture the best option?• Ensure congruent performance measures exist.
6-17
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Joint Venture Checklist (cont’d)
• Partnership and fit.• Does the partner share your objectives for the
venture?• Does the partner have the necessary skills and
resources? Will you get access to them?• Will you be compatible?• Can you arrange an “engagement period”?• Is there a comfort versus competence trade-off?
6-18
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6-19
What Do You Want From Your Partner?
Parent A
WANTS ACCESS
TO PARTNER’S KNOWLEDGE
WANTS ACQUISITION OF
PARTNER’S KNOWLEDGE
WANTS ACCESS
TO PARTNER’S KNOWLEDGE
The Classic “Joint” Venture A cooperative alliance
(very stable)
Mixed Motive A pseudo alliance
(eventually unstable)
Par
ent
B
WANTS ACQUISITION
OF PARTNER’S KNOWLEDGE
Mixed Motive A pseudo alliance
(eventually unstable)
“Race to Learn” A competitive
alliance (very unstable)
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6-20
Partner Selection:Comfort vs. Competence
Unstable Target
Non-Starter Unstable
Lower Higher
Partner Competence
Lower
Higher
PartnerComfort
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Joint Venture Checklist (cont’d)
• Shape and design.• Define the venture’s scope of activity and its
strategic freedom vis-à-vis its parents.• Lay out each parent’s duties and payoffs to
create a win-win situation. Ensure that there are comparable contributions over time.
• Establish the managerial role of each partner.
6-21
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6-22
Scope of Activity
Narrow vs. Wide
Single, Geographic Market vs. Multi-Country
Single Function vs. Complete Value Chain
Single Industry/Customer Group
vs. Multi Industry
Modest Investment vs. Large Scale
Existing Business vs. New Business
Limited Term vs. Forever
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Control in Joint Ventures
• One parent dominates the venture’s decision making (…but is this a “joint” venture?)
• Parents are both involved in decision making• shared• split
6-23
Two types:
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6-24
Shared Control
JV Boardof Directors
A B
Parent A Parent B
R&D OPS FIN MKT
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6-25
Split Control
JV Boardof Directors
A B
Parent A Parent B
R&D OPS FIN MKT
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Limiting Opportunism:Contracts Vs. Trust
1-26
•Contractual controls limit opportunism by specifying the exact role and performance criteria of the strategic partners. GOOD FOR SITUATIONS REQUIRING ECONOMIES OF SCALE.
•Trust takes longer, relationships and informal interdependence. GOOD FOR SITUATIONS REQUIRING FLEXIBILITY AND TAKING ADVANTAGE OF UNFOLDING OPPORTUNITIES.
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Joint Venture Checklist (cont’d)
• Doing the deal.• How much paperwork is enough? Trust versus
legal considerations?• Agree on an endgame.
6-27
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Joint Venture Checklist (cont’d)
• Making the venture work.• Give the venture continuing top management
attention.• Manage cultural differences.• Watch out for inequities.• Be flexible.
6-28
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6-29
In Summary, a True AllianceDiffers from a Pseudo Alliance
The True AllianceThe Pseudo
Alliance
Planned level ofparent input and
involvementContinuing One-time
Distribution ofrisks/rewards
Roughly even Uneven
Parent attitudetoward the JV
A unique organization
with unique needs
One moresubsidiary
The formal agreement
Flexibleguideline
Frequentlyreferenced rulebook
Performanceobjectives
Clearly specifiedand congruent
Partially overlapping/ambiguous