IB 4120: Managing International Strategic Alliances

What are the five types of strategic alliances?

Equity based alliances, Non-Equity based alliances, Joint Venture (JV), Network of Alliances, International Alliances

Equity based alliances

These are collaborative relations between different companies where there is an equity investment in the relationship. An example would be alliances that lead to each firm investing in the other.

Non-equity based alliances

collaborative relations that do not require any investment. An example would be co-marketing of both firm’s products.

Joint Venture

a collaborative relationship that leads to the creation of a new company/venture that is co-owned by both firms.

Network of alliances

a collaborative relationship that involves multiple firms. An example would be the One world alliance or sky team alliance.

international alliances

collaborative relationships that happen between firms from different countries. they can be equity, non-equity, network, or JVs.

Why do firms collaborate?

Two types of collaboration between firms. (1) Business-level, within one industry, and (2) Corporate-level, across multiple industries.

Business-level collaboration includes…

(1) Complementary Resources

(2) Competition Response Alliances

(3) Competition Reduction Alliances

(4) Uncertainty Reducing Alliances

Complementary Resources

Vertical or Horizontal to combine resources or assets to achieve a mutual benefit.

Competition Response Alliances

Competitive actions and responses require a huge commitment to resources. Sometimes firms combine resources to respond to a bigger competitor.

Competition Reduction Alliance

In order to avoid destructive competitive actions, firms collaborate so that they signal to each other that they don’t want to get into price cutting wars that can be destructive to both firms.

Uncertainty Reducing Alliances

Firms collaborate with one another for the mutual benefits that can be achieved as in the case of high tech products where the product life cycle is very short. Another example would be to reduce the cost of R&D, firms collaborate on a new technology that both firms can incorporate into their final product.

Corporate level collaboration includes…

(1) Diversification Alliances

(2) Synergistic Alliances

(3) Franchising

Diversification Alliances

Firms collaborate across various industries to enter new industries without going through a full merger or acquisition. These alliances are less risky and more feasible.

Synergistic Alliances

Firms combine their resources towards achieving economies of scope. Firms can combine several activities in their value chains to reduce the overall production costs for both firms.

Franchising

Another alternative to mergers and acquisitions is to go to international markets by forming contractual relationships through franchising.

What are the six reasons why alliances fail?

(1) Clash of organizational cultures

(2) lack of trust between firms

(3) opportunistic behavior of one firm

(4) Lack of achievement towards the common goal

(5) Lack of alignment towards the common goal

(6) alliance ends via term end date

How to manage these collaborative strategies?

Strategic alliance management entails a rigorous analysis and justifications and is divided into two parts:

(1) Per alliance

(2) Post alliance

Per-alliance management

The management process of forming relationships before the firms agreeing to these collaborative agreements. The key aspect here is the proper selection of the alliance partner. Hence firms spend a lot of time analyzing and evaluating potential candidates with which they collaborate.

Post-Alliance Management

Collaborative alliances are not mergers or acquisitions. Hence, the culture and identity and objectives of each firm remain separate from each other. They are collaborating but they can still compete in different instances. So, it is crucial for firms that are involved in strategic alliances to manage these relationships while simultaneously doing: (a) cost minimization, and (b) opportunity maximization