strategic alliances 2009

8/9/2019 Strategic Alliances 2009

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STRATEGIC ALLIANCESSTRATEGIC ALLIANCES

International Marketing 2nd Assignment


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An association to further the common interests of the members

Inter corporate agreements covering a wide gamut of functionsranging from component sourcing through R&D to Production &Marketing.

Strategic alliances lead organization to get an opportunity to widentheir customer base, offload or utilize their surplus capacity,integrate vertically, use each others strengths and so on.

For example :

A large company can break down the marketing barriers that face asmall company which in turn brings entrepreneurial creativity topartnership.


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CHARACTERISTICS

Two or more firms that unite to pursue a set of agreedupon goals, remain independent subsequent to theformation of an alliance.

The partner firms share that benefits of the alliance andcontrol over the performance of assigned tasks.

The partner firms contribute on a continuing basis inone or more key strategic areas, sector products, etc.


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NEED

1-Satisfy customer demands.

2-Share R&D costs.

3-Fill knowledge gaps.

4-Make scale economies.

5-Make scope economies : Alliances can enlarge dramaticallythe scope of a companys operations. Alliances focusing onscope help counter the ever-shorter product cycle ofmodern technology.


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6-Jump market barriers.

7-Speed in product introduction.

8-Pre-empt competitive threats

9-Use excess capacity.

10-Reduction in costs.


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y Advantages of Alliances

y

Alliances are the quickest way to grow a company,particularly in times of damage. Without implementingdifficult and time-consuming internal changes, they allow acompany to :

y Rapidly move to decisively seize opportunities before theydisappear.

y Respond more quickly to change.

y Adapt with greater flexibility.

y Increase a companys market share.


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y Gain access to a new market or beat others to thatmarket.

y Quickly shore up internal weaknesses.

y Gain a new skill or area of competence.

y Alliances can rapidly meet a companys need for keyresources such as more customers, additional capital,new/better products, new distribution channels,additional facilities, increased production capacity, orcompetent personnel etc.


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y Types of Strategic Alliance

y Such alliance may be in the form of :

y Management contract.

y Franchising

y Supply or purchase agreement.

y Joint Venture.

y Agreement to provide technical services.

y Licensing of know-how, technology, design or patent.


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y These arrangements differ in scope mainly by

virtue of the following :

y Capital commitment.

y Structure of organization.

y Decision making.

y Proportion between risks and reward.


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y Advantages

y

A business strategic alliance is also means to an end, notjust and end in itself. Strategic alliance often take placebetween firms of different industries and of varied sizes,for vertical or horizontal links, consolidation of positions orany of the following :

y

1-Gain a means of Distribution in International market It may

beneficial for an exporter to ally with local partner, to understandthe functioning and the local market network.

y

2-Overcome legal or Regulatory barriers In some countries it ismandatory to have local partner in order to conduct business.Thus, alliances offer suitable options.

y


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y

3-Diversification It may be advantageous to enter into analliance, as a business guide to minimize pitfalls in a newbusiness territory.

y

4-Avoiding competition An alliance may be entered intowith a market leader or a major competitor to avoidcompetition.

y

5-Focus on New Products and Restructuring An alliance inthe form of a research and development alliance may focusat the development of new products. Apart from this, analliance may also enable the firm to adapt to a moreeffective organisational structure.


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y IMPLEMENTING AND MANAGINGTHEALLIANCE

y The success or failure of an alliance is dependenton how the venture is structured, the kind ofmanagers placed in charge and how theresponsibilities and strategic missions are dividedamong the partners.

y The alliance implementation or management planmust thus be formalized jointly with the partner.The plan is generally a written document, whichshould inter alia, answer the following questions.


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y Who will do what?

y How will contributions be made?

y What communications mechanism will be in place forapprovals?

y How will the information flow?

y Who will be the liaison from each company?

y How will be partnership fit in with the existing relationshipof both companies?


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y EXAMPLES OF ALLIANCES

y Global Scenarioy There has been a growing tendency in recent

years for Japanese companies to have jointinvestments mostly with American firms in

research and products and also work outjoint distribution arrangements. Thesealliances have blurred and distinctionbetween corporate and national interests.Some such alliances are described below


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y Toshiba

y Toshiba has a long-term strategy bused on the three Gs growth, group management and globalization. Globalizationis achieved by forming new joint ventures, researchagreements and cooperative relationships in new businessareas. In 1996, Toshiba Corp. started its new US $1 billionchip-making facility at Nagoya, Japan. This was based onstrategic alliances with the companies IBM and Siemens ofG

ermany. Some of the other alliances which Toshibaentered into include:

An agreement with Apple Computers for new technology creationfor multimedia

y

A technology-sharing agreement with IBM to develop new datastorage devices using NAND-flash memory chips

y

An alliance with IBM and Siemens to develop advancedsemiconductor devices; it has developed the worlds smallest 256-Mb D-Ram.

y


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Through an alliance with IBM, Japan, it opened a secondlarge-size then-film-transistor (TFT) LCD plant.

y

Alliance with National Semiconductor and SamsungElectronics of Korea to jointly develop and market flashmemory chips.

y

An alliance with Sun Microsystems Inc. of the US in theareas of rightsizing. Internet and interactive technology to

share product development, marketing and distribution inthese fast-growth areas.

y

Alliance with MCA and time Warner in the US, ThomsonMultimedia in France, and Hitachi, Matsushita and Pioneer inJapan to develop digital video discs (DVD). These wereattempts to establish an industry-wide unified format.

y

An alliance with Time Warner, its partner in TITUScommunications, which aimed to work with cable TVoperators throughout Japan to form a nationwide multiplesystem operator network. ]


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y Hitachi

y Hitachi formed many strategic business relationships in

areas of computers, electronics and technology, which include:

y An R & D agreement with Texas Instruments to develop a next-generationcomputer memory chip.

y Providing chip manufacturing technology to Goldstar electron of Korea

y Supplying mainframe computers to Germanys Comparex and Italys Olivetti

y A joint venture with GE to sell lighting products in Japan

y Joint development of a new gas turbine with GE.

y Joint development of new RISC computer chip with Hewlett Packard.

y Joint development of medical equipment with Boehringer-Mannheim of

Germany.

y Research cooperation between Hitachi Cambridge Laboratory and CambridgeUniversity of developing a single-electron memory device.

y


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y Mitsui GE

y GEs power system unit had joined withMitsui to build Asian power projects. GE hadthe technology and Mitsui has the contactsand financial power to get power contracts in

Asia. They got an estimated US $85 millioncontract in China for two steam turbines.Mitsui played the role of the lead contractor.They also teamed up for a power project inIndonesia.


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y IBM-Apple

y In July 1991 IBM and Apple agreed towide-ranging co-operation to develop newgenerations of computer technology.According to a Financial Times article ofOctober 3, 1991, this

partnership includes a series of specific agreements:y

x Joint development of software to facilitate links between Apples Macintosh

personal computers and IBMs personal-computer networks.y

x Development of new System 7 Macintosh software that can run on a IBM-designed reduced instruction set computing (RISC) microprocessor.

y

x Joint development, in conjunction with Motorola, of a new set ofmicroprocessors based on IBMs RISC design.


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x A collaborative project to combine both partnersversions of AT&Ts Unix system. The companies plan tocreate a new Unix version that both IBM and Apple canuse with their incompatible machines and networks.

y

x Creation of a joint venture to develop a radically newapproach to software design that will create software forApple, IBM and other computers.

y

x Establishing a joint venture to formulate industrystandards for multi-media, the simultaneous processingof video, graphics, voice and text.


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y The Indian Scenario

y Upto 1990, Indian companies were recipients totechnology through licensing or joint ventures withforeign companies. Most companies had beenconcentrating on the domestic market for theirproducts and had not integrated themselves with the

global market. The economic liberalization measuresinitiated in 1991 have changed the scenario. Indiancompanies are orienting their operations towardsgreater integration with the global market.

y In addition, there has also been a change in the

strategies of Indian companies in relation to theglobal market place. In 1980s saw a significantgrowth in alliance formation with competitors inseveral industry groups.


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y Ranbaxy

y

In January 1995, Ranbaxy Laboratories and Eli Lilly of the US announced twojoint ventures with an initial investment ofUS $ 90 million. The Indian jointventure was to focus on research, development and manufacture of genericproducts with both partners having equal stakes in the US $ 60 millioninvestment. The products manufactured included off-patent drugs, lineextensions or new formulations of existing Lilly and Ranbaxy products and newproducts of both companies. The objective was to find new molecules for thecure of cancer, cardiovascular diseases and infectious diseases.

y

The US joint venture with an investment ofUS $30 million, was to market theproducts resulting from the Indian joint venture in the US market. Eli Lilly wasto assist in Ranbaxys global presence, targeting disease categories andenhancing critical capabilities


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yWipro Fluid Power (WFP)

y Wipro Fluid Power was started in 1978.Labour troubles led to the closure of itsmanufacturing unit in 1993. however, it

was able to recover owning to its strongresearch base build through alliances


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