SM 22 S17 Strategic Alliances

Strategic Management
Session 17
Corporate Strategy
Entering New Businesses across
Industries & Countries
Modes
Strategic options
Internal
Organic
Development
New Ventures
1.Vertical Integration
2.Diversification
3.Internationalisation Strategic
Alliances
Mergers
& Acquisitions
Internal New Venturing
 Organic development - ‘do it yourself’ method - is pursued by
building on and developing an organisation’s own capabilities.
 Corporate Managers are ‘Intrapreneurs’.

 Parent firm already has most of needed resources to build a new
business.
 Firms use their technology/competencies to innovate new kinds of
products and enter related markets/industries
 When ample time exists to launch a new business
 New start-up does not have to go head-to-head against powerful
rivals
 Incumbents are slow in responding to new entry
Internal New Venturing
Benefits
Knowledge and learning can be enhanced.
Spreading investment over time – easier to finance.
No availability constraints – no need to search for suitable

partners or acquisition targets.
Strategic independence – less need to make compromises or
accept strategic constraints.
Culture management – new activities with less risk of a
culture clash.
Internal entry has lower costs than entry via acquisition.
Key Issue
 Scale of Entry
Modes
Strategic options
Internal
Organic
Development
New Ventures
2.Diversification
Strategic Alliances
Strategic
3.Internationalisation
Alliances
Strategic Alliances
Partnership of two or more companies

to achieve strategically significant objectives
that are mutually beneficial
“If you think you can go it alone in today’s global

economy, You are highly mistaken.”
- Jack Welch
Strategic Alliances
Partnerships between firms Firm A & Firm B
where their Resources
Capabilities
Core competencies
are combined to pursue mutual interests to
1 Develop Goods
2 Manufacture &
Services
3 Distribute
Two kinds of Strategic Alliances
1. Equity alliances - creation of a new entity - owned by the partners
involved.
 Joint Ventures - where two organisations remain independent but
set up a new unit jointly owned (50% equity) by the parents.
(NTPC & Reliance to form Utility Powertech Ltd)
 Partnership where the 2 partners do not own equal shares
(Maruti-Suzuki)
 A consortium alliance involves several partners setting up a unit
together. IBM, HP, Toshiba & Samsung to form Sematech research
Consortium on latest semiconductor technologies
2. Non-equity alliances - No separate entity is established.
Three common forms:
 Franchising (common in services, Subway, McDonald).
 Licensing (common in manufacturing, beer brewing).
 Long-term subcontracting (in supplying parts for autos).
External drivers for Alliances
The rise in strategic alliances is a reaction to
technological change and globalization.
1. Strategic alliances facilitate access to global markets.

2. Organic growth alone is often slow for a firm’s required rate of
growth – a strategic alliance can help a firm to grow a business
faster.
3. As complexity increases and no one organization has all of the
required total expertise to, strategic alliances help firms to
acquire all of the necessary resources.
4. Strategic alliances can defray R&D costs, as well as production
and distribution costs.
5. Strategic alliances greatly reduce time to market - innovation
and new product development.
Internal drivers for Alliances
1. Resource need: seeking a resource needed to respond to

external threats or opportunities
2. Learning: seeking not simply to gain a resource but to
become part of a partnership to create new knowledge
3. Risk limitation: seeking to spread financial risk
4. Speed to market: seeking to achieve market presence at a
faster speed than going it alone
5. Cost minimization: seeking to reduce costs
6. Current poor performance: seeking an alliance to improve
the current poor performance
Starbucks – Alliance Strategy
Joint Ventures / Strategic Partnerships
 JVs - Good way to diversify when
 Uneconomical or risky to go it alone. Allows risk sharing.
 Partner’s complementary skills & assets increase the probability
of success
 One way to gain entry into a desirable foreign market
 JVs - Good way to internationalise as foreign partners are

needed to
 Surmount tariff barriers and import quotas
 Offer local knowledge about
• Market conditions
• Customs and cultural factors
• Customer buying habits
• Access to distribution outlets
Risks with JVs / Strategic Alliances
 Risk of giving critical know-how away to JV partner
 Poor contract development
 Misrepresentation of partners’ competencies
 Failure of partners to make complementary resources available
 Misunderstanding a partner’s strategic intent/priorities
 Inability of partners to work well together
 Potential conflicts
 Conflicting objectives
 Culture clashes
Making Strategic Alliances Work
 Good Partner selection The most successful strategic
• alliances are those that achieve
Helps achieve strategic goals
both high strategic fit and high
• Shares vision of alliance cultural fit.
• Unlikely to exploit alliance to own ends
Strategic fit – does the
 Manage relational & performance risks
partner firm strengthen or
• Risk of giving too much away complement the firm’s
• Guard against opportunism by partner strategy? (It is easy to over-
estimate this potential
• Trust between partners is the key
synergy).
 Manner in which alliance is managed
Organisational fit – is there a
• Sensitivity to cultural differences match between the
• Build relationship with interpersonal management practices,
relationships cultural practices and staff
characteristics of the two
firms?
Modes
Strategic options
Internal
Organic
Development
New Ventures
2.Diversification
Strategic Alliances
Strategic
3.Internationalisation
Alliances
Mergers
& Acquisitions
Mergers
Co. A & Co.B cease to exist

Co. A merges Co. B
with
Merger: a strategy through

which two firms agree to
integrate their operations on a
Co. AB relatively co-equal basis

- with newly created firm
often taking on a new name
- original two firms cease to
exist
A new company is created

Acquisition
Co.
Co. A
A Co. B
Acquires
Co. B ceases to exist

Acquisition: a strategy through which one firm buys a controlling interest in
another firm with the intent of making the acquired firm a subsidiary
business within its own portfolio or absorbing operations of the acquired
firm. (‘Friendly’ acquisition)
Takeover: a special type of an acquisition strategy wherein the target firm
did not solicit the acquiring firm’s bid. (‘Hostile’
( acquisition)

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Strategic Management

 Corporate Managers are ‘Intrapreneurs’.

Spreading investment over time – easier to finance.

No availability constraints – no need to search for suitable

Partnership of two or more companies

“If you think you can go it alone in today’s global

1. Strategic alliances facilitate access to global markets.

1. Resource need: seeking a resource needed to respond to

 JVs - Good way to internationalise as foreign partners are

Co. A & Co.B cease to exist

Merger: a strategy through

Co. AB relatively co-equal basis

A new company is created

Co. B ceases to exist

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