obtaining technology - planning

7/26/2019 Obtaining Technology - Planning

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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

The University of West AlabamaThe University of West Alabama

P A R T T H R E EP A R T T H R E E

Obtaining Technology: Eternal !trategyObtaining Technology: Eternal !trategy

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ObtainingObtainingTechnology:Technology:

PlanningPlanning

Cha+ter Cha+ter ,,



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OverviewOverview

• Issues addressed in this chapter include:Issues addressed in this chapter include: Reasons to acquire technologyReasons to acquire technology

Alliances Alliances

Mergers and acquisitionsMergers and acquisitions

The importance of goals and due diligenceThe importance of goals and due diligence



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Obtaining Technology ExternallyObtai

ning Technology Externally

• Reasons for not relying on internal innovation:Reasons for not relying on internal innovation:!! The firm"s product line is quic#ly falling behind that ofThe firm"s product line is quic#ly falling behind that of

its competitors!its competitors!

$!$! A ne% competitor enters or is about to enter the A ne% competitor enters or is about to enter the

mar#et& %hich %ill change the dynamics of themar#et& %hich %ill change the dynamics of theindustry!industry!

'!'! The firm discovers its processes are not as efficientThe firm discovers its processes are not as efficient

and(or effective as those of its competitors!and(or effective as those of its competitors!

)!)! The firm believes its current products or processesThe firm believes its current products or processes

are not going to be successful in the future!are not going to be successful in the future!



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2 Ways To Acquire Technology2 Ways To Acquire Technology

Externally : Alliances, Mergers andExternally : Alliances, Mergers and

AcquisitionsAcquisitions • A A strategic alliancestrategic alliance is a partnership of t%o oris a partnership of t%o or

more corporations or business units to achievemore corporations or business units to achieve

strategically significant ob*ectives that arestrategically significant ob*ectives that are

mutually beneficial!mutually beneficial!



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AlliancesAlliances

1ocation1ocation

1evel of 2ormality1evel of 2ormality 3'ration3'ration

3imensions3imensionsof Alliancesof Alliances



Level o !or"alityLevel o !or"ality

• +ormal versus Informal , the degree of formality+ormal versus Informal , the degree of formalityoften determines the costs and ris#s involvedoften determines the costs and ris#s involved

%ith an alliance!%ith an alliance!

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#uration#uration

The more formal the relationship& the greater shouldThe more formal the relationship& the greater shouldbe the detail in the alliance agreement! Thebe the detail in the alliance agreement! The

duration of the alliance should be specified in theduration of the alliance should be specified in the

documents!documents!

The negotiations to develop these agreements oftenThe negotiations to develop these agreements often

involve long and arduous efforts-so durationinvolve long and arduous efforts-so duration

should be long enough to recover costs!should be long enough to recover costs!

The less formal the agreement& the easier it is toThe less formal the agreement& the easier it is to

abandon if the environment changes or ifabandon if the environment changes or if

transaction costs are une.pectedly high!transaction costs are une.pectedly high!




LocationLocation

/omestic versus International-the international alliance/omestic versus International-the international allianceli#e the domestic alliance must be based on mutualli#e the domestic alliance must be based on mutual

strategic fit& participant ris# and re%ard& and potentialstrategic fit& participant ris# and re%ard& and potential

synergy! Additional challenges include language andsynergy! Additional challenges include language and

culture differences! Opportunities 0 ne% productculture differences! Opportunities 0 ne% product

development and mar#ets!development and mar#ets!

1!g 1mbryonic stem,cell research in 23 , researchers1!g 1mbryonic stem,cell research in 23 , researchers

build R4/ facilities or *oint ventures %ith 5reat 6ritain&build R4/ facilities or *oint ventures %ith 5reat 6ritain&

many countries see#s access to innovation centers inmany countries see#s access to innovation centers in

3ilicon 7alley to gain cutting,edge technology&3ilicon 7alley to gain cutting,edge technology&alliances in 8apan for appliances technology& 23alliances in 8apan for appliances technology& 23

technological companies form alliances %ith India totechnological companies form alliances %ith India to

lo%er costs!lo%er costs!




Location: #o"estic versusLocation: #o"estic versus

$nternational Alliances$nternational Alliances

Regional 6arketRegional 6arket

7ational 6arket7ational 6arket

1icensing an*1icensing an*

8oint 9ent'res8oint 9ent'res

nternational 6ergers or nternational 6ergers or

Ac;'isitionsAc;'isitions



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+I52R1 9!+I52R1 9! Alliances for Technology Acquisition Alliances for Technology Acquisition



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%oint &entures %oint &entures

• $ or more firms combine equity and form '$ or more firms combine equity and form 'rdrd

entity! an be very small or large multimillionentity! an be very small or large multimilliondollar investments! /etailed agreement coveringdollar investments! /etailed agreement covering%hat each party is to provide& %hat each can%hat each party is to provide& %hat each can

e.pect& and ho% each is to operate in the *ointe.pect& and ho% each is to operate in the *ointventure!venture!

• e!g ;oda# and 3anyo 1lectric to from 3;e!g ;oda# and 3anyo 1lectric to from 3;/isplay orporation manufacturing organic light/isplay orporation manufacturing organic light

emitting diode <O=1/>! ;oda# , ?$@ million&emitting diode <O=1/>! ;oda# , ?$@ million&guarantee up to ? million on ventureBs debtguarantee up to ? million on ventureBs debtand ')C o%nership! 3anyo 0 contribute lessand ')C o%nership! 3anyo 0 contribute lessmoney but more in technical e.pertise!money but more in technical e.pertise!



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!ranchise Agree"ent!ranchise Agree"ent

• A contract bet%een a franchisor and the A contract bet%een a franchisor and thefranchisee to sell a given product or conductfranchisee to sell a given product or conductbusiness under the company"s trademar#! Timebusiness under the company"s trademar#! Timeperiod and geographical region %here businessperiod and geographical region %here business

can be done are clearly specified! +ranchisorcan be done are clearly specified! +ranchisordetails ho% business is to be operated and setdetails ho% business is to be operated and setstandards for behaviors! Initial fee and royaltystandards for behaviors! Initial fee and royaltypayment continuous! 1!g 1.petec Technologypayment continuous! 1!g 1.petec Technology3ervices 0 provides products and services3ervices 0 provides products and servicesincluding installation and net%or#ing& hard%areincluding installation and net%or#ing& hard%areand soft%are& service maintenance programs&and soft%are& service maintenance programs&telecommunication& etc! Mc/onalds!telecommunication& etc! Mc/onalds!



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'onsortia'onsortia

• onsortia are at the intermediate level ofonsortia are at the intermediate level offormality! They are characteriDed by severalformality! They are characteriDed by several

organiDations *oining together to shareorganiDations *oining together to share

e.pertise and funding for developing&e.pertise and funding for developing&

gathering& and distributing ne% #no%ledgegathering& and distributing ne% #no%ledgee!g! O#lahoma 3tate 2niversity Eeb Fandlinge!g! O#lahoma 3tate 2niversity Eeb Fandling

Research entre <Eeb 0 e.tremely thinResearch entre <Eeb 0 e.tremely thin

plastics& paper& te.tiles& metals andplastics& paper& te.tiles& metals and

composites>! ;no%ledge gained reducecomposites>! ;no%ledge gained reducedefects in %eb,manufactured materials anddefects in %eb,manufactured materials and

reduce loss!reduce loss!



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Licensing Agree"ents(Licensing Agree"ents(

• Occur %hen a firm agrees to pay for the right toOccur %hen a firm agrees to pay for the right toeither manufacture or sell a product! =icensoreither manufacture or sell a product! =icensor

cannot control pricing or mar#eting of products&cannot control pricing or mar#eting of products&

%hen produced or ho% product is mar#eted!%hen produced or ho% product is mar#eted!

• 1!g 87 licensed 7F3 tape technology to1!g 87 licensed 7F3 tape technology toMatsushita& Fitachi and Mutsibishi to promoteMatsushita& Fitachi and Mutsibishi to promote

the technology! 6etama. by 3ony %asthe technology! 6etama. by 3ony %as

introduced before therefore first mover but didintroduced before therefore first mover but did

not license its 6etama. technology but 87 didnot license its 6etama. technology but 87 did

better!better!



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)ubcontracting)ubcontracting

• Intermediate in formalityIntermediate in formality• May or may not be high value adding activitiesMay or may not be high value adding activities

to businessto business

• 1!g! American 1.press subcontracting1!g! American 1.press subcontracting

computer net%or#s and related support systemscomputer net%or#s and related support systems

to I6Mto I6M



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$nor"al Alliances * least$nor"al Alliances * least

docu"entationdocu"entation

• =inu. <operating system copying form and=inu. <operating system copying form andfunction of 2GIH system but did not get thefunction of 2GIH system but did not get the

license> by =inus Torvalds of +inland! 3ourcelicense> by =inus Torvalds of +inland! 3ource

code is free& enabling computer savvies to altercode is free& enabling computer savvies to alter

and amend the system& utilities and specialistand amend the system& utilities and specialistdrivers available on the internet! Thus& informaldrivers available on the internet! Thus& informal

alliance of individuals and firms committed to itsalliance of individuals and firms committed to its

use and improvement has been developed!use and improvement has been developed!



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+easons or $nternational Alliances+easons or $nternational Alliances

!trategic!trategic

=ehavior =ehavior

Organi>ationalOrgani>ational

1earning1earningCostCost

!avings!avings

Reasons forReasons forAlliancesAlliances




+easons !or $nternational Alliances +easons !or $nternational Alliances

<)<) Organi>ational learningOrgani>ational learning(( to gain #no%ledgeto gain #no%ledgeabout products& processes or mar#ets fromabout products& processes or mar#ets from

alliance partners!alliance partners!

• =earning depends on ' factors: a> intent to=earning depends on ' factors: a> intent to

learns& b>! Receptivity to ne% information c>learns& b>! Receptivity to ne% information c>the transparency of partnering firms!the transparency of partnering firms!

• The more comple. the technology <product orThe more comple. the technology <product or

process> the more difficult it is to learn in anprocess> the more difficult it is to learn in aninternational alliance! Therefore firms mayinternational alliance! Therefore firms may

subcontract or acquire <buy> the technology!subcontract or acquire <buy> the technology!




22( 'ost )aving( 'ost )aving

• 1ach firm have unique sets of competencies&1ach firm have unique sets of competencies&corporate cultures& and different managementcorporate cultures& and different management

styles therefore best to retain best practices thanstyles therefore best to retain best practices than

competing %ith each other depending on thecompeting %ith each other depending on the

type of learning desired! 1!g IT costs are cut uptype of learning desired! 1!g IT costs are cut upto C %hen 23 outsourced it to India!to C %hen 23 outsourced it to India!

• .) !trategic reasons.) !trategic reasons 0 ne% #no%ledge and 0 ne% #no%ledge and

technologies may be developed because firmstechnologies may be developed because firms

have more access to each other"s strengths!have more access to each other"s strengths!



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!our stage -rocess to "ove to!our stage -rocess to "ove to

international alliancesinternational alliances

– New technology with regional success New technology with regional success

– National market position National market position

– Partial international integration through licensing or joint Partial international integration through licensing or joint

venturesventures

– Global concentrationGlobal concentration



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'oncerns in Alliances'oncerns in Alliances

• +inding the proper partner +inding the proper partner • /ealing %ith the ambiguities of the relationship/ealing %ith the ambiguities of the relationship

• /iscovering that the partnering firms lac# a/iscovering that the partnering firms lac# a

shared visionshared vision

• 5etting the timing right5etting the timing right

• ommunicating effectively and efficientlyommunicating effectively and efficiently

bet%een the alliance partnersbet%een the alliance partners

• Protecting intellectual propertyProtecting intellectual property• Measuring real costs and profits from theMeasuring real costs and profits from the

alliancealliance



'oncerns in Alliances'oncerns in Alliances

Finding the proper partner Finding the proper partner Dealing with the ambiguities of theDealing with the ambiguities of the

relationshiprelationship

Discovering that the partnering rms lackDiscovering that the partnering rms lack

a shared visiona shared vision Getting the timing right Getting the timing right

Communicating eectively and ecientlyCommunicating eectively and eciently

between the alliance partnersbetween the alliance partners

Protecting intellectual property Protecting intellectual property easuring real costs and prots from theeasuring real costs and prots from the

alliancealliance

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'ritical questions in !or"ing an'ritical questions in !or"ing an

AllianceAlliance!!

/o %e have clear goals and e.pectationsJ/o %e have clear goals and e.pectationsJ

$!$! Ehat is each member of the alliance responsible for&Ehat is each member of the alliance responsible for&

and %hat does each bring to the allianceJand %hat does each bring to the allianceJ

'!'! Eill each member of the alliance promise to developEill each member of the alliance promise to develop

solutions that %ill solve the problems and needs of thesolutions that %ill solve the problems and needs of the

membersJmembersJ

)!)! Eill members promise to meet the goals of theEill members promise to meet the goals of the

allianceJallianceJ

@!@!

Eho %ill be responsible if the solutions failJ EhatEho %ill be responsible if the solutions failJ Ehat

compensation %ill be offeredJcompensation %ill be offeredJ

9!9! Ehat are the conditions for dissolution of the allianceJEhat are the conditions for dissolution of the allianceJ

!! Fo% %ill disputes be resolvedJFo% %ill disputes be resolvedJ



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Mergers And AcquisitionsMergers And Acquisitions

• Merger Merger A transaction involving t%o or more corporations A transaction involving t%o or more corporationscombining as relative equals yet only one permanentcombining as relative equals yet only one permanentcorporation survives!corporation survives!

• Acquisition Acquisition The outright purchase of a company or part of aThe outright purchase of a company or part of a

company that is completely absorbed as a subsidiarycompany that is completely absorbed as a subsidiaryor division of the acquiring firm!or division of the acquiring firm!

The purchasing firm typically remains the dominantThe purchasing firm typically remains the dominant

force in the ne%ly combined business!force in the ne%ly combined business! /ifficult to differentiate the t%o therefore mergers and/ifficult to differentiate the t%o therefore mergers and

acquisition are used together!acquisition are used together!



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)trategic +easons or Mergers or)trategic +easons or Mergers or

AcquisitionsAcquisitions

Ac;'ireAc;'ire

knowle*ge ofknowle*ge of

technologytechnology

Ac;'ireAc;'ire

knowle*ge ofknowle*ge of

technologytechnology

Enter a marketEnter a market;'ickly or;'ickly or

increase s+ee* toincrease s+ee* to

marketmarket

Enter a marketEnter a market

;'ickly or;'ickly or

increase s+ee* toincrease s+ee* to

marketmarket

Avoi* costs an*Avoi* costs an*

risks of newrisks of new

+ro*'ct+ro*'ct

*evelo+ment*evelo+ment

Avoi* costs an*Avoi* costs an*

risks of newrisks of new

+ro*'ct+ro*'ct

*evelo+ment*evelo+ment

?ain market?ain market

+ower thro'gh+ower thro'gh

a**itional marketa**itional market

shareshare

?ain market?ain market

+ower thro'gh+ower thro'gh

a**itional marketa**itional market

shareshare

!trategic!trategic

?oals?oals

!trategic!trategic

?oals?oals



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)trategic +easons or Mergers or)trategic +easons or Mergers or

AcquisitionsAcquisitions

!!

Kuic# entry into mar#etKuic# entry into mar#et

, Immediate access to, Immediate access to

technology& customer& distribution channels totechnology& customer& distribution channels to

geographical areas of acquired firms!geographical areas of acquired firms!

• +irst movers may gain customer loyalty and+irst movers may gain customer loyalty and

identification! 3econd movers can ta#e advantage ofidentification! 3econd movers can ta#e advantage of

first movers mar#et development %hile avoiding thefirst movers mar#et development %hile avoiding the

costs also avoid the mista#es first movers ma#ecosts also avoid the mista#es first movers ma#e Avoid the costs and ris#s of ne% product development Avoid the costs and ris#s of ne% product development

<R4/& mar#eting strategies& locality ><R4/& mar#eting strategies& locality >

5ain mar#et po%er5ain mar#et po%er through siDe 0 pricing by lead movers!through siDe 0 pricing by lead movers! Acquire #no%ledge about a particular technology! Acquire #no%ledge about a particular technology!



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+I52R1 9!$+I52R1 9!$ Types of Mergers and AcquisitionsTypes of Mergers and Acquisitions



.ori/ontal Mergers and Acquisition.ori/ontal Mergers and Acquisition

• Acquired and acquiring firms are in the same Acquired and acquiring firms are in the sameindustry! ompetition focus is on the actualindustry! ompetition focus is on the actual

industry the t%o companies are in!e!g! onocoindustry the t%o companies are in!e!g! onoco

and Philips Petroleum in $$ 0 t%oand Philips Petroleum in $$ 0 t%o

petrochemical firms in the same industrypetrochemical firms in the same industrycombined became one of the biggest oilcombined became one of the biggest oil

companies in the %orld and saved ?@ millioncompanies in the %orld and saved ?@ million

in cost especially in accounting!in cost especially in accounting!




&ertical Merger or Acquisition&ertical Merger or Acquisition

• Ehen one firm is the supplier or customer of theEhen one firm is the supplier or customer of theother! 1!g! 13I =ederle<sells in*ecetable drugs>other! 1!g! 13I =ederle<sells in*ecetable drugs>

%as bought by 6a.ter Fealthcorp <health,related%as bought by 6a.ter Fealthcorp <health,related

products manufacturer> for ?' million in $$!products manufacturer> for ?' million in $$!

Reliable& cost,effective quality manufacturingReliable& cost,effective quality manufacturingsource of vials and ampules not available insource of vials and ampules not available in

6a.ter!6a.ter!




+elated or 0nrelated+elated or 0nrelated

• ForiDontal and 2nrelated 0 oil company buysForiDontal and 2nrelated 0 oil company buyscoal mining company for alternative form ofcoal mining company for alternative form of

energyenergy

• 7ertical and related 0 oil company doing R4/ in7ertical and related 0 oil company doing R4/ in

coal gasification to ensure ready supply of ra%coal gasification to ensure ready supply of ra%materials!materials!

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+I52R1 9!'+I52R1 9!' Planning the Deal and Its ImplementationPlanning the Deal and Its Implementation



$"-act O 'hoice O External Acquisition On$"-act O 'hoice O External Acquisition On

1lanning(1lanning(

• 5oals5oals 0 organiDational goals %ill lead the 0 organiDational goals %ill lead thedecision to obtain technology and innovationdecision to obtain technology and innovation

e.ternally! hoice should create value for thee.ternally! hoice should create value for the

organiDation!organiDation!

• /ue /iligence/ue /iligence 0 an evaluation process! 0 an evaluation process!Investigation done on aspects of the potentiallyInvestigation done on aspects of the potentially

acquired firm to ensure that the target is as theacquired firm to ensure that the target is as the

acquiring firm initially believed and to betteracquiring firm initially believed and to better

understand ho% value %ill be created! An in,understand ho% value %ill be created! An in,depth analysis is to be integrated into thedepth analysis is to be integrated into the

planning process! /ecision tree is to be used!planning process! /ecision tree is to be used!

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+I52R1 9!)+I52R1 9!) Externally Focused Innovation/TechnologyExternally Focused Innovation/Technology

PlanningPlanning



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Maor Mista3es to Avoid in AcquisitionsMa or Mista3es to Avoid in Acquisitions

• There is not enough study of e.isting systems!There is not enough study of e.isting systems!

• There is an overemphasis on the needs of the larger&There is an overemphasis on the needs of the larger&stronger partner!stronger partner!

• The timetables for the blending of the organiDation areThe timetables for the blending of the organiDation are

unreasonable!unreasonable!

• Insufficient resources are put into the alliance planningInsufficient resources are put into the alliance planning

and implementation processes!and implementation processes!

• The decision ma#ers get enamored of ma#ing the dealThe decision ma#ers get enamored of ma#ing the deal

%or# rather than ma#ing the alliance %or# for the good of%or# rather than ma#ing the alliance %or# for the good ofall the sta#eholders!all the sta#eholders!

• There is an overemphasis on L%e must be together in allThere is an overemphasis on L%e must be together in all

things!things!



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+I52R1 9!@+I52R1 9!@ Decision Tree forDecision Tree for

Acquisition Acquisition

Technology Technology



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Managerial 4uidelinesManagerial 4uidelines

• In planning for acquisitions& managers need toremember that:ompatible goals are essential for success!

It is important to match goals to the method!

1.ternal efforts to obtain technology requirediplomacy and pragmatism during the early stages!

Planning is much easier than implementation!

1ach organiDation involved %ill bring its o%n set of

systems to the table! There is e.pertise throughout all of the organiDations

involved that must be preserved and tapped into!



Key TermsK ey Terms

• acquisitionacquisition

• agency theoryagency theory

• consortiaconsortia

• due diligencedue diligence

• first mover first mover • franchise agreementfranchise agreement

• horiDontal merger orhoriDontal merger or

acquisitionacquisition

• *oint venture *oint venture

• licensing agreementlicensing agreement

• mar#et po%er mar#et po%er

• merger merger

• second moverssecond movers

• strategic alliancestrategic alliance• transaction coststransaction costs

• vertical merger orvertical merger or

acquisitionacquisition

obtaining technology - planning

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