PPT on a Strategic Alliance and Networks

Strategic Alliances and Networks

1. Unit 5-Strategic Alliances & Networks

2. 5.1. Strategic alliance 5.1.1 Definition and forms of Strategic alliance 5.1.2 Motives and process for forming strategic alliance 5.1.3 Risk and limitations with strategic alliance 5.1.4 Role of trust in strategic alliance – concept, risks in strategic outsourcing 5.1.5 Use of game theory to analyze strategic alliance

3. 5.1.1 Definition and forms of Strategic alliance

4. Strategic Alliances A strategic alliance is a contractual agreement among organizations to combines their efforts & resources to meet a common goal. It however possible to have a strategic alliance without a contractual agreement, hence we can define it more accurately like- “A strategic alliance is an agreement between two or more partners to share knowledge or resources which could be beneficial to all parties involved.” Facing with new levels of competition many co. including competitors are sharing their resources & expertise to develop new products, achieve economies of scale, & gain access to new technology & markets.

5. The e.g. of IBM illustrates that even firms with a long & impressive heritage to defend see technology as the main determinant of competitive success. As a result they increasingly realize they need access to new technology. Moreover, they also realize they cannot develop it all themselves. Hence, alliances allow not only for exchange of technology but also for the exchange of skills & know-how often referred to as competencies.

6. Fall of go-it-alone strategy & rise of Octopus Strategy Toshiba (LCD Technology) Infineon (Microchip technology) Real Networks (Online digital services) Cisco (Security Systems) HP (OS for workstations) Siemens (Memory Technology) Microsoft (Software) IBM

7. Forms of Strategic Alliances Strategic alliance can occur intra industry (Trade in which a country exports and imports in the same industry, this kind of trade include automobiles, foodstuffs and beverages) or inter industry (A competition which is created between companies operating in different industries. For example, an aerospace company contested for a government manufacturing contract against an automotive company). For e.g. the three US automobiles manufacturers have formed an alliance to develop technology for an electric car. Further more alliances can range from a simple handshake agreement to mergers, from licensing to equity joint ventures.

8. Licensing It is a relatively common & well established method of acquiring technology. It may not involve extended relationships between firms but increasingly licensing another firms technology is often the beginning of a form of collaboration. There is usually an element of learning required by the licensee & frequently the licensor will perform the role of teacher.

9. Supplier Relations Many firms have established close working relations with their suppliers, & without realizing it may have an informal alliance. Usually these are based on cost benefit to a supplier. For Example: Lower production costs that might be achieved if a supplier modifies a component so that it fits more easily into the company’s product. Reduced R&D expenses based on information from a supplier about the use of its product in the customer’s application. Improved material flow brought about by reduced inventories due to change in delivery frequency & lot sizes & Reduced administration costs through more integrated information systems.

10. Outsourcing It refer to the delegation of non core operations from internal provision or production to an external entity specializing in the mgmt of that operation. The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of worldwide labour, capital, technology & resources. Outsourcing involves transferring or sharing management control and/or decision making of a business function to an outside supplier, which involves a degree of two way information exchange, coordination & trust between the outsourcer & is client.

11. Joint Venture A joint venture is usually a separate legal entity with the partners to the alliance normally being equity shareholders. With a joint venture, the costs & possible benefits from an R&D research project would be shared. They are usually established for a specific project & will cease on its completion. For e.g. Sony Ericsson is a joint venture between Ericsson of Sweden & Sony of Japan.

12. Collaboration The absence of a legal entity means that such arrangements tends to be more flexible. This provides for the opportunity to extend the cooperation over time if so desired. Many university departments work closely with local firms on a wide variety of research projects where there is a common interest.

13. R&D Consortia A consortium describe the situation where a number of firms come together to undertakes what is often a large scale activity. The rationale for joining a research consortium includes sharing the cost & risk of research, pooling scarce expertise & equipment, performing pre-competitive research & setting standards.

14. Industry Clusters Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers & associated institutions in a particular field that are present in a nation or region. Cluster arise because they increase the productivity with which companies can compete. The development & upgrading of clusters is an important agenda for government, companies & other institutions. Cluster development initiatives are an important new direction in economic policy, building on earlier efforts in macroeconomic stabilization, privatization, market opening & reducing the costs of doing business.

15. 8) The ‘Virtual Company’ More recently the idea of a “virtual company” has begun to emerge. This is where every aspect of the business is outsourced and run by unknown suppliers

16. 5.1.2 Motives and process for forming strategic alliance

17. Motives for establishing an alliance Improved access to capital and new business Greater technical critical mass Shared risk and liability Better relationships with strategic partners Technology transfer benefits Reduce R&D costs Use of distribution skills Access to marketing strengths Access to technology Standardization By-product utilization Management skills

18. The process of forming a successful strategic alliance Selection of suitable partner Negotiations of each other’s needs Technical Knowledge Commercial Knowledge Management towards collaboration Continual management to ensure both parties benefit

19. 5.1.3 Risk and limitations with strategic alliance

20. Reasons for strategic alliance failure Failure to understand and adapt to new style of management required for the alliance Failure to learn and understand the cultural differences between the organizations Lack of commitment to succeed Strategic goal divergence Insufficient trust Operational and or geographical overlaps Unrealistic expectations

21. 5.1.4 Role of trust in strategic alliance – concept, risks in strategic outsourcing

22. The role of trust in strategic alliances All forms of collaboration involve an element of risk and require substantial amounts of trust and control. Type of trust Characteristics Process Where trust is tied to past or expected exchange, such as reputation or gift exchange Personal Where trust is tied to a person, depending on family background, religion or ethnicity Institutional Where trust is tied to formal structures, depending on individual or firm specific attributes Competence Confidence in the other’s ability to perform properly Contractual Honoring the accepted rules of exchange Goodwill Mutual expectations of open commitment to each other beyond contractual obligations

23. Risks identifies in strategic alliance Dependence on the supplier Hidden costs Loss of competencies Service provider’s lack of necessary capabilities Social risk Inefficient management Information leakage

24. 5.1.5 Use of game theory to analyse strategic alliance

25. 5.2 Innovation networks

26. Innovation networks It is the new form of organization offering a sort of virtual organization. Some believes that a new label for a firm’s range of supplier & market relationships. For e.g. brand management firm like Nike are frequently regarded as network firms. This is because Nike essentially owns & manages the brand & relies on an established network of relationship to produce & distribute its products. It does not own all the manufacturing plant used to manufacture its shoes or all the retail outlets in which its products are sold. Nike classify its suppliers into 3 categories – Volume producers, who produce for a variety of firms Developed partners who are exclusive Nike suppliers, producing the most advanced & newest models of footwear Developing sources, those suppliers that can produce shoes at very low cost.

27. Innovation Networks Volume Producers (S Korea) Developed Partners (Taiwan, S Korea) Components, Materials from developed partners and Nike Speciality Components ( Airsoles ) Internally developed materials & components Locally sub contracted materials & Components NIKE Developing sources (Thailand, China, Indonesia)

28. Thank You