strategic alliances 9-1 copyright © 2008 pearson prentice hall. all rights reserved. chapter 9
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![Page 1: Strategic Alliances 9-1 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Chapter 9](https://reader035.vdocuments.site/reader035/viewer/2022062407/56649d4b5503460f94a2890f/html5/thumbnails/1.jpg)
Strategic Strategic AlliancesAlliances
9-9-11Copyright © 2008 Pearson Prentice Hall. All rights reserved. Copyright © 2008 Pearson Prentice Hall. All rights reserved.
Chapter 9Chapter 9
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Strategic Management & Competitive Advantage – Barney & Hesterly 2
Strategic AlliancesStrategic Alliances
9-9-22Copyright © 2008 Pearson Prentice Hall. All rights reserved. Copyright © 2008 Pearson Prentice Hall. All rights reserved.
Mission Objectives
ExternalAnalysis
InternalAnalysis
StrategicChoice
StrategyImplementation
CompetitiveAdvantage
The Strategic Management Process
Corporate LevelStrategy
Which Businessesto Enter?
• Vertical Integration
• Diversification
• Strategic Alliances
• mode of entry
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Strategic AlliancesStrategic Alliances
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Strategic Alliances Defined
Strategic Alliance:
Any cooperative effort between two or moreindependent organizations to develop, manufacture, or sell products or services
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Strategic AlliancesStrategic Alliances
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Motivation for Alliances
Create economic value by:
• accessing complementary resources and capabilities
• leveraging existing resources and capabilities
An alliance is an organizational form of exchangethat:
• should produce a gain from trade due tosome comparative or absolute advantage
Implication: Choose partners that are better atsomething than you are (complementary resources)
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Canada MexicoWheat
bushels/hr.
Bananaslbs./hr.
6
4
1
5
ExchangeRate:
1 bu. = 1 lb.
Canada: 2 hrs. = 6 bu. Wheat and 4 lbs. Banana, or2 hrs. = 12 bu. Wheat
By trading, Canada can get: 6 bu. Wheat and 6 lbs. Bananas
Gains from Trade
Motivation for Alliances
A ½ hour gainfrom trade!
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Strategic AlliancesStrategic Alliances
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Canada MexicoWheat
bushels/hr.
Bananaslbs./hr.
6
4
1
5
ExchangeRate:
1 bu. = 1 lb.
Mexico: 2 hrs. = 1 bu. Wheat and 5 lbs. Bananas, or2 hrs. = 10 lbs. Bananas
By trading, Mexico can get: 5 bu. Wheat and 5 lbs. Bananas
Gains from Trade
Motivation for Alliances
A 4 hour gainfrom trade!
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Strategic AlliancesStrategic Alliances
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Three TypesOf
Alliances
NonequityAlliance
Contracts
• licensing• supply &
distributionagreements
JointVenture
EquityAlliance
Cross EquityHoldings• partners own
stakes ineachother
Joint EquityHoldings• independent
firm iscreated
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How Strategic Alliances Create Value
Improve Current Operations
Shaping the Competitive Environment
Facilitating Entry and Exit
ValueCreation
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How Strategic Alliances Create Value
Improving Current Operations
Exploiting economies of scale
• a partner brings increased market shareand/or manufacturing capacity
Learning from partners
• a partner brings technology and/ormarket knowledge
Risk and cost sharing
• a partner bears a portion of the risk and/orcost of the alliance
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How Strategic Alliances Create Value
Shaping the Competitive Environment
Facilitating technology standards
Facilitating tacit collusion
• partners may agree on a standard and avoida market battle for the standard
• partners may communicate within an alliancein subtle, legal ways whereas the samecommunication between competitors outsidean alliance would be illegal
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How Strategic Alliances Create Value
Facilitating Entry and Exit
Low-cost entry into new industries
Low-cost exit from industries
Managing uncertainty
Low-cost entry into new geographic markets
• a partner provides instant access and legitimacy
• a partner is an informed buyer
• alliances may serve as ‘real options’
• partners provide local market knowledge, access,and legitimacy with governments and customers
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Challenges to Value Creation and Allocation
Incentives to Misappropriate Value (Cheat)
An alliance is an exchange context in which:
• partner inputs may be difficult to monitor
• actual value creation may be difficult to monitor
• value appropriation (allocating the value) may be:
• difficult to monitor
• subject to power dynamics
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Challenges to Value Creation and Allocation
Three Forms of
MisappropriatingValue
AdverseSelection
MoralHazard
Holdup
misrepresentingthe value of inputs
providing inputsof lesser valuethan promised
exploiting the transaction-specific investment of partners
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Sustained Competitive Advantage
Are strategic alliances rare?
As a form of organizing economic exchange, NO!
The sources of value creation within alliancesmay be rare.
However,
• firms may form a combination of complementaryresources within an alliance that is rare
• the stock of such complementary resources maybe limited so that first movers have a rare combination
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Sustained Competitive Advantage
Are strategic alliances costly to imitate?
As a form of organizing economic exchange, NO!
However,
The resource combinations that create value inalliances may be very costly, if not impossible,to imitate if:
• the organizational form per se is easily duplicated
• the value creating combination depends onsocial complexity (trust), causal ambiguity,and/or historical uniqueness
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Sustained Competitive Advantage
Are strategic alliances substitutable?
Substitutes for Strategic Alliances
InternalDevelopment
Mergers &Acquisitions
If:
• no partneris available
• transaction-specificinvestment is high
• low uncertainty aboutthe investment
If:
• there are noanti-trust issues
• low uncertainty aboutthe investment
• firms can beintegrated easily
• value of combined firms isnot tied to independence
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Organizing Strategic Alliances
Governance Responses to the Challenges ofValue Creation and Allocation
Explicit Contracts& Legal Sanctions
Equity InvestmentsJoint Ventures
Formal/Codified
• imposes costsfor cheating
• creates mutualunderstanding
• conflict resolution
• aligns interests ofpartners throughownership of independent firm
• aligns interests ofpartners throughownership in each other
• direct effect • indirect effect
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Trust Firm Reputations
Informal
Organizing Strategic Alliances
Governance Responses to the Challenges of Value Creation and Allocation
• the shadow of thefuture constrainscheating
• may allow partnersto exploit opportunitiesthat would be infeasiblewith other mechanisms
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Organizing Strategic Alliances
Governance Responses to the Challenges of Value Creation and Allocation
These responses are not mutually exclusive:
• contracts may be used with equity investmentsand joint ventures along with firm reputation and trust
• reputation and trust come into play in every typeof alliance
Reputation and trust may be sources of competitiveadvantage because they are costly to imitate
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International Expansion
Alliances may be attractive because:
• local market knowledge is usually critical
• governments may require a local partner
• international expansion may be:
• fraught with uncertainty
• high risk
• expensive
• alliance investment may be more easily reversedthan internal development or acquisition
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Summary
• create alliances that will produce gainsfrom trade—complementary resources
• identify the sources of value creation
• assess the likelihood of challenges to valuecreation and allocation
• adopt appropriate governance responses to the challenges to value creation and allocation
Successful alliance managers will:
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Summary
Alliances may generate competitive advantage if:
• combinations of complementary resourcesmeet the VRIO criteria
• governance responses meet the VRIO criteria
The Big Challenge of Strategic Alliances:Maximizing gains from trade whileminimizing the threat of cheating
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Prisoner’s Dilemma GameOn each round of play each team can choose either Strategy Aor Strategy B.
The objective is to maximize your payoff.
Payoff MatrixTeam I
Tea
m I
I
I. $3,000II. $3,000
I. $-0-II. $5,000
I. $5,000II. $-0-
I. $1,000II. $1,000
Strategy A Strategy B
Str
ateg
y B
Str
ateg
y A
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Payoff Schedule
Team I Team II
Round 1 _____________ _____________
Round 2 _____________ _____________
Round 3 _____________ _____________
Round 4 _____________ _____________
Round 5 _____________ _____________
Total _____________ _____________
Round 6 _____________ _____________