MSC Strategy Presentation

Chapter 8:
Global Strategic Alliances
and Country-Based Joint Ventures

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STRATEGIC ALLIANCES
COMBINATION OF CAPABILITIES BETWEEN TWO OR MORE COMPANIES
For market entry
For resource acquisition
For global competitiveness
Real-world examples of strategic alliances:
Comcast, Cox, etc. integrated Netflix programming on their platform
Ford Motor Company and Volkswagen established an international alliance to develop
commercial vans and pick-up trucks for global markets in the next few years
Uber’s recent alliance with Spotify allows Uber riders to easily stream their Spotify
Playlists during the ride

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In order to assess how realistic the potential for the value creation via the strategic alliance, firms use the following framework – or a variant of it.

STRATEGIC ALLIANCES

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Partner Fit
Strategic Fit
Capability Fit
Cultural Fit
Organizational Fit

Negotiation and Design
Operational Scope
Interface
Governance

Implementation
Integration
Co-operation
Evolution

How workable & realistic is the
relationship?
How do we organize and manage
the alliance?
How do we work together?
Framework for Strategic Alliances

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PARTNER ANALYSIS & FIT
STRATEGIC FIT

ORGANIZATIONAL FIT

CAPABILITY FIT

CULTURAL FIT
Are the respective
objectives compatible?
For how long do we
expect the alliance to
last?
Are the partners willing and
able to contribute to the
critical resources, assets and
competences needed for
competitive success?
Can we understand each other?
Can we communicate?
Do we share the same business
logic & strategy?
Are the decision-making and
control mechanisms used by
partners compatible?
Are they conducive to good
communication and effective
monitoring of the alliance?

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How important and urgent is the business of the alliance to the partners?
– Competitiveness enhancing via cost leadership vs. differentiation strategy
– Global reach
– New product development

To what extent does one need partners to achieve objectives?
– Can partners achieve their objectives alone?
– Timing pressure

CRITICALITY
A
DIFFERENCES IN EXPECTATIONS
How different are the expectations of each partner?
To what extent are these differences compatible?

DETERMINES THE DEGREE OF COMMITMENT TO THE ALLIANCE
Strategic Fit

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CAPABILITY FIT
Partner A
Partner B
Products
Resources
Process
Knowledge

What are the relative competitive strengths of partners?
Do these strengths complement or supplement our own strengths?
To what extent does the assembling of partners create a robust business model?

TECHNOLOGY
SOURCING
PRODUCTION
MARKETING
Who contributes to what ?

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CULTURAL FIT
 

What issues can we
anticipate?

How to deal with them?
VIEWS about
Objectives:
o       Growth
o       Profitability
o       Risks
o       Long- vs. short-term focus
o       Shareholder value
o       Stakeholders
VIEWS about Strategy & Competitive
Approaches:
o       Customer orientation
o       Pricing
o       Importance of quality vs. cost
o       Ethics
WAYS to manage
o       Leadership style
o       Trust & control
o       Motivating approach factors 
COMMUNICATION
o       Transparency
o       Formal/informal
o       Importance of personal
relationships
PARTNER A

PARTNER B
 

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ORGANIZATIONAL FIT
Source : based on text of Doz
and Hamel,
“Alliance Advantage”, 1998
What issues can we anticipate?

How to deal with them?
PARTNER A
PARTNER B
STRUCTURAL DIFFERENCES:
o       Centralization & decentralization
o       Form of organization
SYSTEMS and PROCESSES
o       Quality of systems such as IT
o       Sophistication of financial controls
PERFORMANCE:
 o       Performance-based rewards 
o Role of team vs. individual performance 
 

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DESIGN

INTERFACE
How is value distributed among partners? Based on profit or revenue?
People appointment: For instance, will the alliance have a CEO? If so, from which strategic alliance partner will the CEO be appointed?

GOVERNANCE
Will the alliance have a board of directors? If so, who will be the chairman of the board?
Conflict resolution

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8 criteria for successful alliances (the 8 ‘I’s)
INDIVIDUAL EXCELLENCE
IMPORTANCE
INTERDEPENDENCE
INVESTMENT
INFORMATION
INTEGRATION
INSTITUTIONALIZATION
INTEGRITY
The 8 criteria are suggested by Rosabeth Moss Kanter in “ Collaborative Advantage: The Art of Alliances”, Harvard Review,
July-August 1994
– Have something to contribute
– Positive intent
– Fits strategy of both partners
– Long-term view
– Partners need each other
– Complementing capabilities

– Partner shows commitment

– Reasonable open communication
– Sharing of operational information

– Shared operating procedures
– Numerous connections
– Clear responsibilities
– Clear decision processes

– Willingness to enhance trust

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Country-based Joint Ventures (JVs)
A key entry mode of MNCs to emerging countries

Unlike the formation of strategic alliances, the formation of a JV often involves creating a separate new legal entity

Most national legislation has changed to open the way to wholly-owned operations

Still required in some countries (India) or in some sectors (e.g., China, Indonesia, Thailand)

Real-world example:
Ford Motor Company and Mahindra & Mahindra recently created a JV in India because India requires joint ventures in most industries. Also see Starbucks-Tata JV

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WHAT MOTIVATES A COMPANY
TO GO INTO JOINT VENTURE?
Administrative/Legal

Capability Acquisition
Government’s industrial policies (e.g., investment laws)
Market complexity and cost of entry
– Resource & capability
– Culture

Speed of entry

Risks

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Value Creation in Joint Ventures
Value of
parent A

Value of
parent B

Royalties
Dividends
Management Fees

Learning from A

Cost savings due to combined operations

Increased revenue due to joint marketing and
products compatibility

Increased profitability due to joint innovation

DIRECT VALUE
Value created by the alliance
Coming separately to each parent
SYNERGY VALUE
Value coming to both parents
from their joint
operations

Learning from B

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EMPIRICAL EVIDENCE SUGGESTS THAT:
SURVIVAL RATE : THE JOINT VENTURE DECAY
– Declining mutual benefit often ends up “divorce”, rarely reactivation
A HIGH PROPORTION OF FAILURES/PROBLEMS
COME FROM BEHAVIORAL ISSUES:
– Lack of understanding
– Lack of communication
– Lack of cultural sensitivity
TOO MUCH EMPHASIS ON STRUCTURE NOT
ENOUGH ON PROCESSES
IMPLEMENTING

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THE JOINT VENTURE DECAY

MUTUAL
BENEFIT

TIME

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General Recommendations for Strategic Alliances & JVs

Select your partner carefully
Multiple sources of information to check their track record
If possible, engage in up-front business dealings before establishing these interorganizational relationships
The analysis of the previous framework is necessary

Once the partner is selected
Invest in training
Appoint personnel carefully
Consider establishing the CEO position and the board of directors
Keep in mind that formal majority ownership does not guarantee control