strategic alliances issues f stability and risk f failure rate of 30 to 60 percent f even profitable...
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STRATEGIC ALLIANCES STRATEGIC ALLIANCES ISSUESISSUES
Stability and risk Stability and risk Failure rate of 30 to 60 percentFailure rate of 30 to 60 percentEven profitable alliances can be Even profitable alliances can be
torn by conflicttorn by conflict
SUCCESSFUL ALLIANCES SUCCESSFUL ALLIANCES MUST:MUST:
NOT ONLY MAKE STRATEGIC NOT ONLY MAKE STRATEGIC SENSE BUT ALSO REQUIRE SENSE BUT ALSO REQUIRE
GOOD IMPLEMENTATIONGOOD IMPLEMENTATION
(SEE EXHIBIT 10.1 FOR STEPS (SEE EXHIBIT 10.1 FOR STEPS IN IMPLEMENTATION OF IN IMPLEMENTATION OF STRATEGIC ALLIANCES)STRATEGIC ALLIANCES)
Decide Link inValue Chain
Select aPotentialPartner
Choose anAlliance Type
Negotiate anAgreement
Build theOrganization
Terminateor
ReviseImplementation
YesNoMeets
StrategicObjectives?
Build Trustand
Commitment
Acceptable?
Yes
Begin Over
Continue orIncrease
Involvement
No
AssessPerformance
WHERE TO LINK IN THE WHERE TO LINK IN THE VALUE CHAIN?VALUE CHAIN?
Depends on the objectives that Depends on the objectives that the firm seeks to achievethe firm seeks to achieve
Exhibit 10.2 gives some examples Exhibit 10.2 gives some examples of common links in the value of common links in the value chainchain
InputLogistics
Operations
Marketingand Sales
OutputLogistics
Service
InputLogistics
Operations
Marketingand Sales
OutputLogistics
Service
R&D R&DR&D
Supply/Production
Production/Marketing
Operations
CompanyB
CompanyA
Marketing
Delivery
EX 10.3 VALUE CHAIN LINKS EX 10.3 VALUE CHAIN LINKS IN U.S. ALLIANCESIN U.S. ALLIANCES
0102030405060
%
R&
D
Op
er.
Mk
t.
Pro
d./
Mk
t.
Oth
er
CanadaorMexico
W.Europeor Japan
Others
SELECTING A PARTNER: THE SELECTING A PARTNER: THE MOST IMPORTANT CHOICE? MOST IMPORTANT CHOICE?
Seek Seek
–Strategic complementarityStrategic complementarity
–Skill complementaritySkill complementarity
–Compatible management Compatible management stylesstyles
ISSUES TO CONSIDER IN ISSUES TO CONSIDER IN CHOOSING A PARTNERCHOOSING A PARTNER
The level of mutual dependency The level of mutual dependency The "anchor" partner The "anchor" partner The "elephant and the ant" complexThe "elephant and the ant" complexOperating policy differences Operating policy differences Difficulties of cross-cultural Difficulties of cross-cultural
communicationcommunication
TYPES OF STRATEGIC TYPES OF STRATEGIC ALLIANCESALLIANCES
Informal international Informal international cooperative alliancescooperative alliances
Formal international cooperative Formal international cooperative alliancesalliances
International joint venturesInternational joint ventures
INFORMAL COOPERATIVE INFORMAL COOPERATIVE ALLIANCES (ICAs)ALLIANCES (ICAs)
Nonlegally binding agreements Nonlegally binding agreements between companies from two or between companies from two or more countriesmore countries
Limited involvement between Limited involvement between companiescompanies
FORMAL COPPERATIVE FORMAL COPPERATIVE ALLIANCESALLIANCES
Higher degree of involvement Higher degree of involvement than informal ICAsthan informal ICAs
Formal contractFormal contractPopular in high tech industries Popular in high tech industries
because of high costs and risksbecause of high costs and risks
INTERNATIONAL JOINT INTERNATIONAL JOINT VENTURESVENTURES
Separate legal entity owned by Separate legal entity owned by two or more parent companies two or more parent companies from different countriesfrom different countries
No need for equal ownershipNo need for equal ownershipEquity based on cash or other Equity based on cash or other
contributionscontributions
AllianceType
Degree ofInvolvement
Ease ofDissolution
Visibility toCompetitors
Contract LegalEntity
InformalICA
Usuallylimited inscope
Easy, at theconvenienceof either side
Oftenunknown tocompetitors
No None
Formal lCA Deeperinvolvement
More difficultto dissolveprior to endof contract
Often visibleto competitors
Yes None
IJV Deepinvolvement
Most difficultto dissolve
High visibility Yes Yes,
EX 10.5 TYPES OF EX 10.5 TYPES OF ALLIANCES: SUMMARYALLIANCES: SUMMARY
NEGOTIATING THE NEGOTIATING THE AGREEMENTAGREEMENT
Joint venture contracts: legal Joint venture contracts: legal documents that bind partners documents that bind partners together together
The formal agreement is not as The formal agreement is not as important as the ability of important as the ability of managers to get along managers to get along
EXHIBIT 10.6 ISSURES IN EXHIBIT 10.6 ISSURES IN ALLIANCE AGREEMENTSALLIANCE AGREEMENTS
For both ICAs and IJVsFor both ICAs and IJVs
–Under which country’s law does Under which country’s law does the agreement operate?the agreement operate?
–How will profits be divided?How will profits be divided?
–Do you need a prenuptial Do you need a prenuptial agreement?agreement?
Primarily for IJVsPrimarily for IJVs
–What are the equity What are the equity contributions of each contributions of each partner?partner?
ORGANIZATION DESIGN IN ORGANIZATION DESIGN IN STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
DECISION MAKING CONTROLDECISION MAKING CONTROL
Majority ownership does not Majority ownership does not necessarily = control necessarily = control
Operational decisionsOperational decisionsStrategic decisionsStrategic decisions
MANAGEMENT STRUCTURES MANAGEMENT STRUCTURES
DOMINANT PARENT DOMINANT PARENT One parent controls strategic One parent controls strategic
and operational decision making and operational decision making Dominant parent often has Dominant parent often has
majority ownershipmajority ownershipDominant parent treats the IJV Dominant parent treats the IJV
as wholly owned subsidiaryas wholly owned subsidiary
SHARED MANAGEMENT SHARED MANAGEMENT
Both parents contribute Both parents contribute approximately the same number approximately the same number of managers to the board of of managers to the board of directors, the top management directors, the top management team, and functional area team, and functional area management management
SPLIT CONTROL SPLIT CONTROL
Partners usually share strategic Partners usually share strategic decision making decision making
Partners split functional decision Partners split functional decision makingmaking
INDEPENDENT MANAGEMENTINDEPENDENT MANAGEMENT
IJV managers act like managers IJV managers act like managers from a separate company from a separate company
IJVs often recruit managers IJVs often recruit managers from outside the parent from outside the parent companiescompanies
ROTATING MANAGEMENT ROTATING MANAGEMENT
Key positions rotate among Key positions rotate among partnerspartners
Popular in developing countries Popular in developing countries Trains management talent and Trains management talent and
transfers expertisetransfers expertise
CHOOSING AN ALLIANCE CHOOSING AN ALLIANCE MANAGEMENT STRUCTUREMANAGEMENT STRUCTURE
If one parent has dominant If one parent has dominant equity positionequity position
– Dominant management Dominant management structure more likelystructure more likely
Equal ownershipEqual ownership
–Shared, split, or rotating Shared, split, or rotating management structure preferredmanagement structure preferred
Similar technologies or know-howSimilar technologies or know-how
–Shared management structure Shared management structure preferredpreferred
If different technologies or know-howIf different technologies or know-how
–Split management structure Split management structure preferredpreferred
If the venture has more strategic If the venture has more strategic importance to one partnerimportance to one partner
–Dominant management structure Dominant management structure preferredpreferred
HUMAN RESOURCE HUMAN RESOURCE MANAGEMENT IN STRATEGIC MANAGEMENT IN STRATEGIC
ALLIANCESALLIANCES
The HRM functions of an IJV The HRM functions of an IJV are more complex because are more complex because managers (and sometimes managers (and sometimes workers) come from two or more workers) come from two or more firms or from two or more firms or from two or more cultures cultures
HRM ISSUESHRM ISSUESHRM planningHRM planningParent involvementParent involvementStaffing the alliance management and Staffing the alliance management and
technical personneltechnical personnelStaffing the alliance workforceStaffing the alliance workforceAssigning managers strategic or Assigning managers strategic or
operations tasksoperations tasks
HRM ISSUES (CONTINUED)HRM ISSUES (CONTINUED)
Performance assessmentPerformance assessmentLoyaltyLoyaltyCareer developmentCareer developmentCultural differencesCultural differencesTrainingTraining
COMMITMENT AND TRUST: THE COMMITMENT AND TRUST: THE SOFT SIDE OF ALLIANCE SOFT SIDE OF ALLIANCE
MANAGEMENTMANAGEMENTWithout trust and commitment Without trust and commitment
the JV will fail entirely or never the JV will fail entirely or never reach its potential reach its potential
TRUSTTRUST
The confidence that the partner The confidence that the partner will deliver on their expected will deliver on their expected contributions to the joint venturecontributions to the joint venture
““Trust cycles”Trust cycles”
WHY IS TRUST IMPORTANT? WHY IS TRUST IMPORTANT?
Required for IJV participants to Required for IJV participants to contribute tacit knowledge and contribute tacit knowledge and quality inputsquality inputs
Weakness of formal contracts Weakness of formal contracts can never identify all the issuescan never identify all the issues
KEY FACTORS FOR KEY FACTORS FOR COMMITMENTCOMMITMENT
Pick your partner carefully Pick your partner carefully Know your strategic goals and your Know your strategic goals and your
partner's partner's Seek win-win situations Seek win-win situations Go slowlyGo slowlyInvest in cross-cultural trainingInvest in cross-cultural trainingInvest in direct communicationInvest in direct communication
ASSESSING ALLIANCE ASSESSING ALLIANCE PERFORMANCEPERFORMANCE
Match strategic objectives with Match strategic objectives with performance measuresperformance measures
EXHIBIT 10.8 SELECTED EXHIBIT 10.8 SELECTED PERFORMANCE CRITERIA PERFORMANCE CRITERIA
FOR STRATEGIC ALLIANCESFOR STRATEGIC ALLIANCESManagement ProcessesManagement ProcessesOrganizational LearningOrganizational LearningCompetitiveCompetitiveMarketingMarketingFinancialFinancial
IF THE ALLIANCE DOES NOT WORKIF THE ALLIANCE DOES NOT WORKNegotiate an end or improve Negotiate an end or improve
implementationimplementationKnow when to quit/invest moreKnow when to quit/invest moreAvoid “escalation of commitment”Avoid “escalation of commitment”Plan end - “prenuptial agreements”Plan end - “prenuptial agreements”Death not always failureDeath not always failure
CONCLUSIONSCONCLUSIONSThe importance of international The importance of international
strategic alliancesstrategic alliancesMost important decision: picking Most important decision: picking
the right partner the right partner No set structure in ownership, No set structure in ownership,
decision making control, or decision making control, or management control management control