Competing through Strategic Alliances

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Competing through Strategic Alliances Networks
class
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Corporate and Division Strategic Planning

• Planning New Business

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Alternative Corporate Growth Strategies
Current products
New products

• Market penetration strategies
• Increase market share
• Increase product usage
• Increase frequency of use
• Increase quantity used
• New applications

• Product development strategies
• Product improvements
• Product-line extensions
• New products for same
• market

Current markets

• Diversification strategies
• Vertical integration
• Forward/backward integration
• Diversification into related bus (concentric
  diversification)
• Diversification into unrelated businesses
  (conglomerate diversification)

• Market development strategies
• Expand markets for existing products
• Geographic expansion
• Target new segments

New markets
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Intensive Strategies
Intensive Efforts --

• Improve competitive position with existing
  products

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Market Penetration Strategies
Increased Market Share --

• Present products/services
• Present markets
• Greater marketing efforts

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Market Penetration Strategies
Guidelines --

• Current markets not saturated
• Usage rate of present customers can be increased
  significantly
• Shares of competitors declining industry sales
  increasing
• Increased economies of scale provide major
  competitive advantage

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Market Development Strategies
New Markets --

• Present products/services to new geographic areas

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Market Development Strategies
Guidelines --

• New channels of distribution reliable,
  inexpensive, good quality
• Firm is successful at what it does
• Untapped/unsaturated markets
• Excess production capacity
• Basic industry rapidly becoming global

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Product Development Strategies
Increased Sales --

• Improving present products/services
• Developing new products/services

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Product Development Strategies
Guidelines --

• Products in maturity stage of life cycle
• Industry characterized by rapid technological
  development
• Competitors offer better-quality products _at_
  comparable prices
• Compete in high-growth industry
• Strong RD capabilities

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Growth Strategies
Forward Integration
Vertical IntegrationStrategies
BackwardIntegration
HorizontalIntegration
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Integration and Diversification
Integration
Raw Materials
Distribution
Focal Firm
Customer
Supplier
Forward
Backward
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Vertical Integration
Major Benefits and Costs of Vertical Integration
Benefits Costs
Reduced flexibility as organization is locked
into product(s) and technology
Reduced purchasing and selling costs
Difficulties in integrating various
operations Financial costs of acquiring or
starting up
Improved coordination among functions and
capabilities Protected proprietary technology
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Vertical Integration Strategies
Gain Control Over --

• Distributors
• Suppliers
• Competitors
• Distributors
• Retailers

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Forward Integration Strategies
Guidelines --

• Current distributors expensive or unreliable
• Availability of quality distributors limited
• Firm competing in industry expected to grow
  markedly
• Firm has both capital HR to manage new business
  of distribution
• Current distributors have high profit margins

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Horizontal Integration Strategies
Ownership or Control --

• Firms competitors

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Horizontal Integration Strategies
Guidelines --

• Gain monopolistic characteristics w/o federal
  government challenge
• Competes in growing industry
• Increased economies of scale major competitive
  advantages
• Faltering due to lack of managerial expertise or
  need for particular resource

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Horizontal Integration Strategy

• Combining operations with competitors
• Horizontal integration is appropriate when it
• Enables the company to meet its growth objectives
• Can be strategically managed
• Satisfies legal and regulatory guidelines

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Backward Integration Strategies
Guidelines --

• Current suppliers expensive or unreliable
• of suppliers is small of competitors is
  large
• High growth in industry sector
• Firm has both capital HR to manage new business
• Stable prices are important
• Current suppliers have high profit margins

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Backward Integration Strategies
Ownership or Control --

• Firms suppliers

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Diversification
Diversification
Current Businesses
Other Businesses
Other Businesses
No Links
Many Links
Unrelated
Related
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Types of Strategies
Related Diversification
DiversificationStrategies
UnrelatedDiversification
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Diversification

• Organization expands its operations by moving
  into a different industry
• Related (concentric) diversification
• Unrelated (conglomerate) diversification

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Diversification

• Related When their value chains posses
  competitively valuable cross-business strategic
  fits
• Unrelated When their value chains are so
  dissimilar that no competitively valuable
  cross-business relationships exist

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Examples of inter-organisational relationships
Strategic alliance
Manufacturer
Manufacturer
Manufacturer
Supplier/ manufacturer collaboration
Manufacturer
Joint Venture
Wholesaler
Joint Venture
Distribution channel relationships
Retailer/Distributor
End-user customer
Source Adapted from Cravens (1997)
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Types of network organisation
Environmental volatility
Low High
Collaborative
Type of network relationships
Transactional
Source Adapted from Cravens et al (1996)
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Types of network organisation

• A transaction-based organizational form,
  associated with highly volatile environment

• The hollow network

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Types of network organisation

• Associated with conditions of high
• environmental volatility characterized by
  inter-organizational links which tend to be
  collaborative and long term in duration

• The flexible network

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Types of network organisation

• Associated with less volatile environments and
  based mainly on transactional relationship
  between network members

• The value-added network

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Types of network organisation

• Associated with situations where environmental
  volatility is relatively low and the core
  organization seeks to establish collaborative
  relationships with other organization

• The virtual network

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Figure 16.3 The marketing exchange
company Source Adapted from Achrol (1991)
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The networks types

• Internal market network

• Vertical market networks

• Intermarket or Concentric network

• Opportunity networks

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Strategic Alliances Defined
Strategic Alliance
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Alliances and partnerships

• Partnership Analysis
• Staring point in understanding the dynamics
  of the network organization, and its
  attractiveness or developing a specific marketing
  strategy

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Types of collaborative relationship
Closeness of the relationship
Nature of the relationship
Low
Purchase of goods and services (possibly over
long term)
Arms length
Outsourcing
Short-term focus but co-ordinated activities and
planning between partner companies
Type I
Longer-term focus with integration of activities
between partner companies
Partnership
Type II
Permanent arrangement with partner companies
highly integrated
Type III
Shared ownership in an operation with a
collaborator company
Joint Ventures
Alliance
High
Full ownership of the activity or operation
Vertical Integration
Ownership
Source Adapted from Lambert et al (1996)
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Alliances and partnerships
Outsourcing
Buy in goods and services from outside
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Changing relationships between buyers and sellers
Old-style relationships
New-style relationships
Internal departments Supplier Sales rep
Supplier Sales rep Internal departments
Internal departments
Purchasing officer
Purchasing officer
Buyer
Buyer
Internal departments
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Alliances and partnerships
Partnerships
Closer relationship between organizations, but
short of shared in a joint venture or vertical
integration
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Alliances and partnerships
Joint venture
There are alliances where the ownership of a
project or operation is shared between the
parties concerned
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Mergers Acquisitions Defined
one firm buys another firm
two firms are combined on a relatively
co-equal basis
the words are often used interchangeably
even though they mean something very different
merger sounds more amicable, less threatening
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Mergers Acquisitions Defined
parent stocks are usually retired and new
stock issued
can be a controlling share, a majority, or
all of the target firms stock
name may be one of the parents or a
combination
can be friendly or hostile
one of the parents usually emerges as the
dominant management
usually done through a tender offer
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Do Mergers and Acquisitions Create Value?
The Logic
Unrelated MA Activity
there would be no expectation of value
creation due to the lack of synergies between
businesses
there might be value creation due to
efficiencies from an internal capital market
there might be value creation due to the
exploitation of a conglomerate discount
a corporate raider who buys and restructures
firms
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Mergers Acquisitions Defined
Types of MA Activity
Vertical
suppliers or customers
Horizontal
competitors
Related
Product Extension
complementary products
complementary markets
Market Extension
Conglomerate
everything else
Unrelated
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Do Mergers and Acquisitions Create Value?
The Logic
Related MA Activity
value creation would be expected due
to synergies between divisions
economies of scale
economies of scope
transferring competencies
sharing infrastructure, etc.
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Figure 16.5 The jigsaw of network organisations
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The jigsaw of network organisations

• Power
• Careful look at the relative dependence and power
  within network
• Commitment and interdependence
• The partnering companies going to be behind the
  alliance
• Trust
• Each partner gives up some influence or control
  over important issues
• Social norms
• Network organizations should be consider
• Solidarity
• Mutuality
• Flexibility
• Role integrity
• Conflict handling

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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
exchange that
should produce a gain from trade due to some
comparative or absolute advantage
Implication Choose partners that are better
at something than you are (complementary
resources)
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How Strategic Alliances Create Value
Improving Current Operations
Exploiting economies of scale
a partner brings increased market
share and/or manufacturing capacity
Learning from partners
a partner brings technology and/or market
knowledge
Risk and cost sharing
a partner bears a portion of the risk
and/or cost of the alliance
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How Strategic Alliances Create Value
Shaping the Competitive Environment
Facilitating technology standards
partners may agree on a standard and avoid a
market battle for the standard
Facilitating tacit collusion
partners may communicate within an alliance in
subtle, legal ways whereas the same communication
between competitors outside an alliance would
be illegal
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How Strategic Alliances Create Value
Facilitating Entry and Exit
Low-cost entry into new industries
a partner provides instant access and legitimacy
Low-cost exit from industries
a partner is an informed buyer
Managing uncertainty
alliances may serve as real options
Low-cost entry into new geographic markets
partners provide local market knowledge,
access, and legitimacy with governments and
customers
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Figure 16.1 The Calyx Corolla network
organisation Source Adapted from Piercy (2002)
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Figure 16.2 Types of network organisation Source
Adapted from Cravens et al. (1996)
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Figure 16.4 Forms of collaboration and
interorganisational commitment
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Table 16.1 Selecting the evaluation criteria for
a global airline alliance Source Adapted from
Cravens et al., 2000