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Global Strategy, Competence-Building and Strategic

Alliances

Reading-5SML-703

Group-5Sameer PanditaGaurav MadanAshish MalviyaAsif J siddiqui Nikhil Prasad

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Why do Companies form Strategic Alliances ?

Take advantages of another company's

innovations

Learn & acquire from each other the

technologies, products, skills

Share costs Reduce risksObtain economies of scale

Gain access to new markets

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conventional wisdom & strategic analytic tools (BCG

Matrix)

Go for allianceYou will get competitive advantage

Business shows up as “Star” or “Cash Cow” may actually be marketing products produced or outsourced abroad but sold through the company’s distribution or under its brand name..Example- GE brand microwave oven (Manufactured by Samsung )

Strategic analytical tools suggest to go for Alliances

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FirmAlliance Partner

Outsourced manufacturing to lower Production cost

Reduces short term costThus enhances profits

Enhanced profit reinforces even grater level of outsourcing

Production Skills & technologiesSelf directed manufacturing

Outsourcing may make a business appear to perform better financially because of reduced investment needed, while the actually core technology of the business withers away

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Design Manufacturing

Marketing

Are separable task ?????

One fallacy

No, with the growing use of CAD/CAM & flexible manufacturing system design/development & manufacturing occur in seamless value chain..

If you are outsourcing manufacturing , unwittingly you are giving your design also to your alliance partner

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United Technologies Corporation

Helicopters(Sikorsky)

Elevators(Otis)

Jet Engines(Pratt)

Divisional & SBUs Organisational lines

Have several technologies in common such as motion control, microelectronics, closed loop electrical design etc

Joint ventures

with foreign firms

Joint ventures

with foreign firms

Joint ventures

with foreign firms

Finance,Markets

Learning & Tech Transfer

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Outsourcing & supply arrangements

Focus on core

Reduce cost

Focus on Marketing

Higher quality

What Actually they invite

Purpose behind outsourcing the manufacturing

through alliances

New Competitors

Deterioration of firm’s production skills & technologies that are important source of organizational learning

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Technological interrelationship- Collaboration with an alliance partner on one specific

product opens up the firm’s entire array of related skills & technologies that may have direct applications to other field

Faster Learning-

Alliances- How Information Flow

Day to day interaction provides opportunities for a partner to

learn about a firm’s technology

Tacit information & knowledge that cannot be easily transmitted

in written form is passed on in day to day contact

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Stages of growing dependency – How alliances can play dangerous role for those firm that do not understand their partner’s dreams

Wiring, assembly, packaging

Key components

Manufacturing skills, designs & functional tech.

Low value components

Quality skills, precision manufacturing, testing

Core skills surrounding components, miniaturization, complex systems integration

Alliance partner learns-Entire spectrum of products& SkillsRelated to underlying core competence

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Begins to apply acquired core-competencies to other industries & arenas

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GE Microwave In 1983 GE started outsourcing manufacturing of its Microwave oven to

Samsung Korea because of inability to build low cost, high quality components at home.

At first, Samsung’s ovens were not up to GE standards. But with the help of GE’s quality engineers, things soon got better

General Electric began shifting more of its orders to Samsung

Soon, GE’s Korean models were selling as well as those GE itself made in the United States, and at a much higher profit.

In May 1985, GE publicly announced it would stop U.S. production of microwave ovens

From now on, GE would be doing the sales and service side of the product; Samsung, the manufacturing

Samsung would have had a hard time succeeding so quickly in microwave ovens without GE

The GE helped bring Samsung world-class design, quality, scale, and legitimacy with other world customers, and GE got a good deal in return

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Creating competitive advantage through building Initiative or through Alliances ?

Building Initiative Firm’s ability to direct resources that build & refine core competencies, skills & capabilities Through Alliances

• Initiatives provides a firm wide latitude to choose its own growth path

• Continuous organizational learning that is focus on Core competencies

• Investments in key skills such as flexible manufacturing & TQM

• Redirecting the corporate focus towards manufacturing activities & skills

• Alliances can seriously undercut a firm’s initiative not only by draining its unique core competencies & skills sets

• Strategic alliances which were once considered important for building competitive advantage, could actually encumber a firm’s ability to move quickly its own

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Using Alliances to Renew Competitive Advantage

Define core business

Understand own core competencies & how a particular alliances might extend these

Careful understand the alliance partner’s motive, their technological scope and the alliances’ implications for two-way knowledge flow

A partner willing to supply high-quality components at a deep discount evinces a very strong learning propensity

The more willing a partner is to supply the components or end-products, the more intent it probably is upon eventual entry & seizure of the initiative from the original firm

Misunderstood alliance can serve to limit a company’s future technological learning & skills base

Example :-Small car & consumer electronics -alliances

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Do not minimize number & tenure of people assign to the joint venture

Short term horizons limit the firm’s ability to learn tacit knowledge that can only be transmitted through

continuous exposure & practice

The amount of “legal” control is irrelevant, knowledge flow & rate of learning is more important

Human Resource Practices

Organizational structure

Once an alliance has been formed, design organisational structure to implement the

alliance's strategy

Using Alliances to Renew Competitive Advantage

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Summary

Alliance partnership should not be pursued as quick fix to raw material or technological problems .

Successful alliances requires identifying the core competencies of both the partners and their “dreams”

These “Dreams” help each partner understand what they are supposed to contribute & learn from the alliance.

Collaboration as Competition- Both partners’ simultaneously competing to learn new skills & capabilities from working with one another.

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Thank You