mngt2001 - week 9 - chapter 9
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Dr. Huong [email protected]
University of Newcastle, Singapore
Trimester 3, 2011
@2011, Ha
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F I S H
F - Fun
I - Innovative
S - Sharing
H - Helping
Work together as a group
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Knowledge objectives
Strategic alliances as a primary type ofcooperative strategy
Business-level cooperative strategyCorporate-level cooperative strategy
International cooperative strategy
Network cooperative strategy
Competitive risks with cooperative strategies
Managing cooperative strategies
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Studying this chapter should provide youwith the strategic management knowledgeneeded to:1. define cooperative strategies and explain why
firms use them
2. define and discuss three types of strategic
alliances3. name the business-level cooperative strategies
and describe their use
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4. discuss the use of corporate-level cooperativestrategies in diversified firms
5. understand the importance of cross-border
strategic alliances as an internationalcooperative strategy
6. explain the cooperative strategies risks
7. describe two approaches used to managecooperative strategies.
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Three types of strategic alliances
Joint venture
Two or more firms create a legallyindependent company to share some of their
resources and capabilities to develop acompetitive advantage.
Joint venture is effective in establishing long-term relationships and in transferring tacit
knowledge.
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Equity strategic alliance
Two or more firms own different percentages of
equity in a new venture.
Non-equity strategic alliance
Two or more firms form alliances through
contractual agreements given to a company tosupply, produce or distribute a firms goods or
services without equity sharing.
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Three types of strategic alliances(cont.)
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Reasons firms develop strategicalliances
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A business-level cooperative strategyimproves a firms performance in individual
product markets.
The combination of resources and thecapabilities of partnering firms createcompetitive advantages that a firm cannotcreate by itself.
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Business-level cooperative strategy
(cont.)
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Business-level cooperative strategy(cont.)
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Combine partner firms assets incomplementary ways to create newvalue
Two types: Vertical(firms share resources and
capabilities from different stages ofthe value chain to create acompetitive advantage)
Horizontal (firms share some of theresources & capabilities from thesame stage of the value chain tocreate a competitive advantage)
Complementarystrategic
alliances
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Business-level cooperative strategy(cont.)
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Complementarystrategic alliances
Firms join forces to respondto a strategic action of a
competitor.
Often difficult to reverse andexpensive to operate, sostrategic alliances are
primarily formed to respond tostrategic rather than tacticalactions.
Competitionresponse strategy
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Business-level cooperative strategy(cont.)
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Complementaryalliances
Competitionresponsestrategy
Uncertainty-reducing strategy
These strategic alliances areused to hedge/evade against risk
and uncertainty.They are particularly used infast-cycle markets.
An alliance may be formed toreduce the uncertaintyassociated with developing newproduct or technology standards.
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Business-level cooperative strategy
(cont.)
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Complementary
alliances
Competitionresponse strategy
Uncertainty-reducing strategy
Competition-reducing strategy
Created to avoid destructive orexcessive competition
Explicit collusion:when firmsdirectly negotiate production output
and pricing agreements in order toreduce competition (illegal)
Tacit collusion:when firms in anindustry indirectly coordinate their
production and pricing decisions byobserving other firms actions andresponses. Tends to be used inhighly concentrated industries.
Legal aspect
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Business-level cooperative strategy(cont.)
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Assessment of business-level
cooperative strategies Complementary business-level strategic
alliances have the greatest probability ofcreating a sustainable competitive advantage.
Alliances used to reduce competition are morelikely to achieve competitive parity/similaritythan competitive advantage.
Horizontal complementary alliances aresometimes difficult to sustain because they areoften partnerships between rival competitors.
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This strategy consists of alliances designed tofacilitate product and/or market diversification.
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A diversifying strategic alliance allowsa firm to expand into new product ormarket areas without completing amerger or an acquisition.
This has the synergistic benefits of amerger or acquisition, but also has:
less risk
greater flexibility.
It enables the firm to assess thebenefits of a future merger between
partners.
Diversifying
strategicalliance
Corporate-level cooperativestrategy (cont.)
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Creates joint economies of scopebetween two or more firms
Creates synergy across multiplefunctions or multiple businessesbetween partner firms
Diversifyingstrategic
alliance
Synergisticstrategic
alliance
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Corporate-level cooperativestrategy (cont.)
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Spreads risk and uses resources,capabilities, and competencieswithout merger or acquisition
A contractual relationship (thefranchise) is developed between thefranchisee and the franchisor.
Alternative to growth through mergers
and acquisitions
It is an increasingly popular strategicoption on a global basis.
Diversifyingstrategicalliance
Synergisticstrategicalliance
Franchising
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Corporate-level cooperativestrategy (cont.)
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Assessment of corporate-levelcooperative strategies
Compared to business-level strategies,corporate-level cooperative strategies:
are broader in scope, more complex and more costly;
can be influenced by opportunistic managerialmotives, such as growth of the firm to increasemanagers compensation;
require time and effort to monitor and maintaintrusting relationships;
can lead to competitive advantage and value whensuccessful alliance experiences are internalised.
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Cross-border strategic alliance a strategy in which firms with headquarters in different
nations combine their resources and capabilities tocreate a competitive advantage
reasons for forming cross-border alliances:
multinational corporations outperform domestic firms
limited growth opportunities in the home nation
foreign government policy requires an alliance witha local company
to facilitate organisational transformation in corebusinesses
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International cooperative strategy
(cont.) Synergistic strategic alliance
allows risk sharing by reducing financial investment;
host partner knows local market and customs;
international alliances can be difficult to manage dueto differences in management styles, cultures orregulatory constraints;
must assess partners strategic intent such that thepartner does not gain access to importanttechnology and become a competitor.
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Definition
A cooperative strategy wherein several firms formmultiple partnerships to achieve shared objectives.
An alliance network helps to form geographicallyclustered firms.
It creates effective social relationships and interactionsamong partners increasing mutual commitment
The mutual dependence induces partners to worktogether to serve the common interests of all parties.
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Long term relationships Typical of mature industries
where demand is relativelyconstant and predictable
Stable networks are built toexploit economies (scale andscope) available between firms.
Stable alliancenetworks
Network cooperative strategy(cont.)
Alliance network types
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Evolve in industries with rapidtechnological change leading toshort product life cycles of goodsand services
Stimulate rapid, value-creating
product innovation and subsequentsuccessful market entries
Often exploration of new ideas is akey purpose
Stable alliancenetworks
Dynamicalliance
networks
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Network cooperative strategy(cont.)
Alliance network types (cont.)
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Partners may act opportunistically.
Partners may misrepresent competencies brought tothe partnership.
Partners may fail to make committed resources andcapabilities available to other partners.
One partner may make investments that are specificto the alliance while its partner does not.
Failure to make complementary resources availableto a partner most commonly occurs betweenpartners located in different nations.
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Managing competitive risks incooperation strategies
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Cost minimisation management approach
formal contracts with partners that specify:
how the cooperative strategy is to be monitored
how the partner behaviour is to be controlled
The goal is to minimise costs and prevent
opportunistic behaviour by a partner.
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Managing cooperative strategies(cont.)
Opportunity-maximisation managementapproach:
maximises partnerships value-creation opportunities;
takes advantage of unexpected opportunities to learnfrom each other;
allows exploration of additional marketplace
possibilities;
fewer formal contracts & constraints make it possible toexplore multiple alternatives for sharing resources andcapabilities, leading to value-creation.
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