Strategy Implementation: Partnerships Day 4, Global Strategy II

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Strategy Implementation Partnerships Day 4,
Global Strategy II

• Scott Marshall
• SBA Corporate Partners Professor
• Master of International Management
• School of Business
• Portland State University

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Partnerships in Dynamic Markets and under
Strategic Uncertainty

• An abbreviated (and incomplete) story of the
  smartphone industry focusing on alliances,
  acquisitions and assorted partnershipsoh, the
  drama!!

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Partnerships in Dynamic Markets and under
Strategic Uncertainty

• 1991
• Linux kernel first released to the public.
• 1992
• First smartphone called Simon designed by IBM.
• 1997
• 3Com purchases U.S. Robotics, and gets Palm
  Computing.
• 1998
• Apple offers to buy Palm from 3Comm.
• Symbian Ltd. forms as partnership between
  Ericsson, Nokia, Motorola and Psion explore
  convergence between PDA's and mobile phones.
• 1999
• RIM introduces the Blackberry.

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Partnerships in Dynamic Markets and under
Strategic Uncertainty

• 2000
• Palm, Inc. spun out from 3Com by way of IPO.
• Palm and IBM form alliance to deliver mobile
  e-Business solutions.
• Sony licenses Palm OS for its Clie product line.
• 2001
• Microsoft tries to buy Palm, Inc. but rejected.
• Apple rumored to be buying Palm, Inc.
• Palm Inc and Texas Instruments form alliance to
  carry out technology and product collaboration
  and joint marketing initiatives.
• 2002
• Palm and IBM enter reseller agreement.
• PalmSource receives 20 million minority
  investment from Sony.
• Legend and PalmSource sign license agreement for
  Palm OS software.

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Partnerships in Dynamic Markets and under
Strategic Uncertainty

• 2003
• Palm acquires Handspring spins out PalmSource
  (OS provider) and creates new company, palmOne
  (hardware developer).
• NTT Docomo announces it will use Linux for new
  line of smartphones.
• 2004
• ACCESS purchases PalmOne uses Linux Open Source
  for OS.
• RIM Blackberry subscribers reach 2 million.
• Motorola launches A-76X series in China using
  Linux.

Rank Vendor 1Q 2004 Shipments (000s) 1Q 2004 Market Share
1 Nokia 1,400 41.7
2 RIM 426 12.7
3 Motorola 411 12.2
4 Fujitsu 350 10.4
5 Sony Ericsson 197 5.9
Other 575 17.1
Total 3,358 100.0
Top 5 Vendors, Worldwide Converged Mobile Device
Shipments and Market Share, 1Q 2004
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Partnerships in Dynamic Markets and under
Strategic Uncertainty

• 2005
• Microsoft and Palm announce alliance to use
  Windows Mobile on Treo product line.
• RIM and 3Com form technology and marketing
  alliance focused on enterprise users.
• RIM Blackberry subscribers reach 4.3 million.
• 2007
• RIM Blackberry subscribers reach 8 million.
• Docomo announces it will work with Blackberry to
  make available to customers.
• Apple launches iPhone.
• Rumors about Palm, Inc. being acquiredby
  Motorola, by Apple, by someone, somewhere

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Partnerships in Dynamic Markets and under
Strategic Uncertainty

• What were your key observations regarding
  corporate partnerships from this abbreviated (and
  incomplete) story of the smartphone industry?

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Partnerships in Dynamic Markets and under
Strategic Uncertainty
Market Cycles and Partnerships
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Partnerships in Dynamic Markets and under
Strategic Uncertainty
Market Cycles and Partnerships
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Partnerships in Dynamic Markets and under
Strategic Uncertainty
Market Maturity, Culture and Partnerships
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Partnerships in Dynamic Markets and under
Strategic Uncertainty
Market Maturity, Culture and Partnerships
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Partnerships in Dynamic Markets and under
Strategic Uncertainty
Surveys of Alliance Failure Rates
Alliance Researchers Year Failure Rate
McKinsey Company 1993 33
The Darden School (Prof. Robert Spekman) 1996 60
KPMG 1996 70
PricewaterhouseCoopers 1998 50
Anderson Consulting 1999 61
The Lared Company 2000 60
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Partnerships in Dynamic Markets and under
Strategic Uncertainty
Methods to Minimize Alliance Failure

• Make Alliance Management a Core Capability
• Build and Manage Trust
• Audit the Relationship
• Develop a Protocol for Joint Decision-Making

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Trust in Partnerships

• Game Theory and Trust in Alliances
• Tit for Tat Strategy
• Friendliness Successful strategies never
  defected first.
• Non-Permissiveness Successful strategies
  retaliated quickly against defection.
• Forgivingness If a cheating partner shifts to
  cooperation, the you will cooperate.
• Lets play the Blue-Yellow Chip Game

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Trust in Partnerships

• Individualism/Collectivism and Trust in Alliances

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Trust in Partnerships
Elements of Relational Quality in Alliances

• Initial Conditions
• Nissan and Renault in 1999
• Presidents of Both Companies
• Louis Schweitzer, President of Renault and
  Yoshikazu Hanawa, President of Nissan, form
  friendship and initiate discussions.
• Nissan
• Ended its fiscal year with another loss, its
  sixth in seven years.
• Strong in manufacturing and engineering but weak
  on the business side.
• 20 platforms supporting 50 cars.
• Renault
• Carved new segments in Europe, bringing respect,
  brand identity, and profits.
• Almost all plants operating at close to full
  capacity with some running at three shifts per
  day
• The Alliance Charter, signed in July 1999, set
  out the principles of a shared ambition and
  mutual trust between the two partners of the
  Renault-Nissan Alliance, together with operating
  and confidentiality rules.

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Trust in Partnerships
Elements of Relational Quality in Alliances

• Negotiation Process
• Nissan and Renault Strike a Deal
• 8-month negotiation process lead by Ghosn.
• Cross-shareholding explicitly part of the plan
  a merger of equals
• New board consisted of five members from each
  firm with Nissan's former president. Yoshikazu
  Hanawa, being given a seat on the main Renault
  Board
• "While preserving respective brands and
  identities and ensuring profitable growth for
  each partner, Renault and Nissan seek to build a
  new culture founded on trust, aiming at building
  a bi-national group. (Excerpts from the Alliance
  Charter).

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Trust in Partnerships
Elements of Relational Quality in Alliances

• Partner Interactions
• Nissan and Renault Establish Alliance Structure
• The Alliance Board (AB) steers the Alliance's
  medium- and long-term strategy and coordinates
  joint activities on a worldwide scale. Renault
  and Nissan remain individually responsible for
  their day-to-day management. The AB is solely
  responsible for medium- and long-term planning
  (three-, five- and 10-year plans), joint projects
  in vehicles and powertrains, and for defining the
  principles of the two partners' economic and
  financial policies. It meets eight times per
  year.

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Trust in Partnerships
Elements of Relational Quality in Alliances

• Partner Interactions
• Chair of each committee/teams from Renault and
  the vice chair from Nissan or vice versa
• Cross-Company TeamsCooperation structures are
  primarily based on the work of the 19
  Cross-Company Teams (CCTs), made up of employees
  from both companies. CCTs explore opportunities
  for synergies between Renault and Nissan, draw up
  joint projects and monitor their implementation.
• Functional Task TeamsFunctional Task Teams
  (FTTs) assist the work of the CCTs and contribute
  to synergies between Renault and Nissan in
  support functions (processes, standards,
  management and information tools, etc.) in legal
  and tax, cost management and control, quality and
  research and development.

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Trust in Partnerships
Elements of Relational Quality in Alliances

• External Events
• Continued overcapacity and pricing pressures in
  auto industry.
• Toyota and Honda grow DaimlerChrysler, Ford and
  GM suffer setbacks.
• Renault and Nissan management remain committed in
  word and action to alliance.

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Joint Ventures and Alliances

• Joint Venture A separate entity formed from
  capital contributions from 2 independent
  companies.
• Majority/minority equity stakes
• Equal equity stakes

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Joint Ventures and Alliances

• JV Example Rolls-Royce and BMW
• In 1990, Rolls-Royce and BMW formed a 51/49 joint
  venture BMW Rolls-Royce.
• Purpose Develop BR700 series of engines for the
  corporate and regional airline sector.
• In 1999, Rolls-Royce PLC took over full control
  of BMW Rolls-Royce GmbH (which it now operates as
  a wholly-owned, German-based subsidiary).
• In its Oct. 26, 1999 press release, Rolls-Royce
  said
• Sole ownership will enable Rolls-Royce to align
  better BMW Rolls-Royces product strategy ,
  marketing and research and development with the
  wider Rolls-Royce Group these measures are
  expected to generate costs savings of around 33
  million per year by 2001.

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Joint Ventures and Alliances

• Another JV Example Astra and Merck
• A 1982 joint venture designed to provide Astra AB
  (Swiss-based) access to US markets (and
  regulatory processes).
• Turned out to be boon to Merck Prilosec
  best-selling prescription drug in US.
• Original agreement between Astra and Merck
  stipulated that if annual sales of Astra drugs
  exceeded 500 m/year, then Merck was required to
  set up a separate entity. This happened during
  1993. On Nov. 1, 1994, Astra-Merck Inc was
  formed with HQ in Wayne, PA.
• In 1998 this JV was restructured Merck given
  royalty payments, and ceding control and voting
  rights.

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Joint Ventures and Alliances

• Alliance Any non-equity based cooperative
  effort between two or more independent
  organizations to achieve a specific goal (or set
  of goals)
• Generally Two Types
• Technological alliance
• Features cooperation in research and development,
  engineering, and manufacturing.
• Distribution and Marketing alliance
• Typically match a company with a distribution
  system with a company that has a product to sell

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Partnerships in Dynamic Markets and under
Strategic Uncertainty

• Technology Alliances
• DaimlerChrysler and Fiat Powertrains
• MindTree and Borland
• Distribution and Marketing Alliances
• Apple iPod and Nike
• Microsoft Xbox and adidas

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Joint Ventures and Alliances

• Advantages of Alliances
• Gain Access to a Particular Resource
• Firms form alliances to gain access to a
  particular resource, such as capital, employees
  with specialized skills, intimate knowledge of a
  market, or a modern production facility.
• Economies of Scale
• In many industries, high fixed costs allow two or
  more firms to share the risk and cost of a
  particular business endeavor.
• Risk and Cost Sharing
• Alliances allow two or more firms to share the
  risk and cost of a particular business endeavor.

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Joint Ventures and Alliances

• Product and/or Service Development
• Alliances provide firms the opportunity to pool
  their skills to develop new products and/or
  services.
• Learning
• Alliances often provide firms the opportunity to
  learn from their partners.
• Speed to Market
• Firms with complementary skills, such as one firm
  that is technologically strong and another has
  strong market access, partner to increase speed
  to market in hopes of capturing first-mover
  advantages.

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Joint Ventures and Alliances

• Flexibility
• Alliances provide a valuable alternative to
  markets and hierarchies, and are subject to fewer
  regulatory concerns than acquisitions.
• Collective Lobbying
• Through alliances, firms can gain the
  competencies and market power that is needed to
  neutralize or block the moves of a competitor.

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Joint Ventures and Alliances

• Youre in Charge The Boashan Case
• Split up into teams of 3 one person each
  representing Boasteel, POSCO and NSC.
• Based on the case study, each person needs to
  clearly understand the resources and capabilities
  of their own company as well as that of the
  partners. In addition, everyone needs to
  understand the current context in the global
  steel industry.
• Now, the three people need to work for 30 minutes
  on the possible structure of a three-way
  alliance. At the least, you need to address
• Cross-shareholdings/equity stakes
• Governance and decision-making
• Technology cooperation
• Sourcing cooperation.
• Marketing cooperation.
• Four 3-person teams will be asked to present the
  results of their alliance discussions and explain
  why they feel the specific outcomes best serve
  each partner.