Corporate Strategic Alliance Management

CORPORATE STRATEGIC ALLIANCE MANAGEMENT

Strategic allianceA Strategic Alliance is a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations.

Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and hhexpertise), economic specialization [1], shared expenses and shared risk.

Types of strategic alliances

Various terms have been used to describe forms of strategic partnering. These include ‘international coalitions’ (Porter and Fuller, 1986), ‘strategic networks’ (Jarillo, 1988) and, most commonly, ‘strategic alliances’. Definitions are equally varied. An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective’.

There are seven general areas in which profit can be made from building alliances

Stages of Alliance Formation

A typical strategic alliance formation process involves these steps:

Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.

Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner.

Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high caliber negotiating teams, defining each partner’s contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood.

Alliance Operation: Alliance operations involves addressing senior management’s commitment, finding the caliber of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance.

Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere.

The advantages of strategic alliance include:

1. Allowing each partner to concentrate on activities that best match their capabilities.2. Learning from partners & developing competences that may be more widely exploited

elsewhere3. Adequacy a suitability of the resources & competencies of an organization for it to

survive.

There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances.

Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage.

No equity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage.

Global Strategic Alliances working partnerships between companies (often more than 2) across national boundaries and increasingly across industries. Sometimes formed between company and a foreign government, or among companies and governments.

Alliance Defined

A strategic alliance is when two or more businesses join together for a set period of time. The businesses, usually, are not in direct competition, but have similar products or services that are directed toward the same target audience.

Alliance means "cooperation between groups that produces better results that can be gained from a transaction. Because competitive markets keep improving what you can get from transactions, an alliance must stay ahead of the market by making continuous advances."1

Strategic alliance is a primary form of cooperative strategies. "A strategic alliance is a partnership between firms whereby resources, capabilities, and core competences are combined to pursue mutual interests."2

Alliances can be structured in various ways, depending on their purpose. Nonequity strategic alliances, equity strategic alliances, and joint ventures are the three basic types of strategic alliances.

Why Strategic Alliances?In the new economy, strategic alliances enable business to gain competitive advantage through access to a partner's resources, including markets, technologies, capital and people.

enabling participants to grow and expand more quickly and efficiently. Especially fast-growing companies rely heavily on alliances to extend their technical and operational resources. In the process, they save time and boost productivity by not having to develop their own, from scratch. They are thus freed to concentrate on innovation and their core business.

Many fast-growth technology companies use strategic alliances to benefit from more-established channels of distribution, marketing, or brand reputation of bigger, better-known players. However, more-traditional businesses tend to enter alliances for reasons such as Teaming up with others adds complementary resources and capabilities,geographic expansion, cost reduction, manufacturing, and other supply-chain synergies.

As global markets open up and competition grows, midsize companies need to be increasingly creative about how and with whom they align themselves to go to the market. 

 Case Study  Toshiba

Toshiba’s approach is to develop strategic alliances with different partners for different technologies because a single company cannot dominate any technology or business by itself... More

3 Strategies of Market Leaders

Planning for a Successful Alliance

Before entering into a strategic alliance, enough thought is to be placed behind the structure of the relationship and the details of how it will be managed. Consider the following in your planning process: define expected outcomes from the relationship for all the parties in the strategic alliance

define and document the elements provided by each party, and the benefits a successful alliance brings to each

identify the results that will cause the alliance to be most beneficial for your business and define the structure and operating issues that need to be addressed to achieve these results

protect your company's intellectual property rights through legal agreements and restrictions when transferring proprietary information.

define the basics of how you will operate

be certain that the company cultures are compatible, and the parties can operate with an acceptable level of trust... More

The Seven Dimensions of Strategic Innovation

The Strategic Innovation framework weaves together seven dimensions to produce a range of outcomes that drive growth.

Core Technologies and Competencies is the set of internal capabilities, organizational competencies and assets that could potentially be leveraged to deliver value to   customers , including technologies, intellectual property, brand equity and strategic relationships... More

 Case in Point  Partnership Between TraveLinx, Canada and ICit America

TraveLinx Inc. is a leader in tourism – related internet technology, marketing, e-commerce and database information management solutions. The core of TraveLinx's competence comes from developing and implementing its proprietary Destination Management System (DMS) that warehouses and serves tourism-related rich content such as accommodations, attractions, festivals and events, etc. through the Internet to a variety of different users. It currently provides the content for Tourism Ontario. TraveLinx was originally founded in 1993 by telecom giant Bell Canada.

ICitAmerica's core product is the iCit TeleCenter, a custom hardware, software and targeted services design developed exclusively for the needs of the hospitality industry. The iCit Telecenter provides broadband ISP, content applications, advertising, maintenance, service and customer support. Their technology is designed to cater to every guest in every room irrespective of their level of technical literacy.

ICit America and TraveLinx have entered into a cross - marketing and supplier agreement to deliver Travelinx travel and tourism content as well as a reservations and ticketing engine to TeleCenter installations in hospitality and retail locations. In addition, TraveLinx deploys TeleCenter solutions in retail locations where destination marketing and transactions are complimentary to the retailer's products and customers.

TAKE OVERS : TAKE OVERS The attempt (often sprung as a surprise) of one firm to acquire ownership or control over another firm against the wishes of the latter’s management ( some of its shareholders) Exg: Mahindra and Mahindra’s takeover of a 90 % stake in Schoneweiss, a family owned German co. with over 140 years of experience in forging business

Examples of mergers and acquisition in india : Examples of mergers and acquisition in india merger between IDBI (Industrial Development bank of India) and its own subsidiary IDBI Bank. The deal was worth $ 174.6 million (Rs. 7.6 billion in Indian currency). Centurion Bank and Bank of Punjab. Worth $82.1 million (Rs. 3.6 billion in Indian currency), this merger led to the creation of the Centurion Bank of Punjab with 235 branches in different regions of India. Mergers and Acquisitions in India in 2007Mahindra and Mahindra acquired 90% stake in the German company Schoneweiss. Corus was taken over by Tata RSM Ambit based at Mumbai was acquired by PricewaterhouseCoopers. Vodafone took over Hutchison-Essar in India.

CAUSES WHICH LEAD TO M&A : CAUSES WHICH LEAD TO M&A 1. SEBI introduced takeover code to ensure transparency in takeover dealings(1994) . * the takeover code is a set of regulations which determines whether or not an acquisition of shares in a company amounts to a takeover Liberalization policy of 1991 Amendment of MRTP ACT

TYPES : TYPES HORIZONTAL MERGER A combination of two or more organizations in the same business. Ex: a co. making footwear combines with another company making footwear * Vertical MERGER A combination of two or more organizations, not necessarily in the same business, which creates complementaries either in terms of supply of materials or marketing of goods and services Ex: a footwear co. combines with a leather tannery or with a chain of shoe retail stores.

Slide 5: 3. Concentric mergers A combination of two or more organizations related to each other either in terms of customer functions, customer groups, or alternative technologies used Ex: a footwear co. combines with a hosiery firm making socks 4. Conglomerate mergers A combination of two or more organizations unrelated to each other either in terms of customer

functions, customer groups, or alternative technologies used Ex: a footwear co. combines with a pharmaceutical company

DEMERGERS : DEMERGERS “Spinning off an unrelated business or division in a diversified company into a stand alone company, along with a free distribution of of its shares to the existing shareholders of the original company” Example: Reliance industries ltd. Following the death of Dhirubhai Ambani - : * Reliance Communication ventures, * Reliance Energy ventures Ltd. * Reliance Capital ventures Ltd * Reliance Natural resources Ltd

REASONS FOR MERGERS AND ACQUISITIONS : REASONS FOR MERGERS AND ACQUISITIONS To increase value of org. stock To increase growth rate To make good investment To improve stability of earnings and sales To diversify product line To reduce competition

IMPORTANT ISSUES IN M&A : IMPORTANT ISSUES IN M&A 1. STRATEGIC ISSUES CONSIDER The extent to which M&A will lead to synergistic effects + it should lead to generation of strengths 2. Financial issues * Valuation of business and shares – stock exchange price of shares, dividend paid, value of assets, quality and integrity of top management, industry and competitive conditions * sources of financing for mergers – company’s owned or borrowed funds, debentures, external borrowings, loans from central or state financial institutions * taxation – provision of income tax act 1961 carry forward or set off of losses and unabsorbed depreciation, capital gain tax, etc

MANAGERIAL ISSUES : MANAGERIAL ISSUES Changes in staff, chief executive and top manager. Opposition buy existing managers – status, earnings, promotion, low morale and productivity.

LEGAL ISSUE : LEGAL ISSUE Chapter 5 of the company act1956 govern M & A PROS AND CONS OF M & A ??????

JOINT VENTURES STARATEGY : JOINT VENTURES STARATEGY AN Entity resulting from a long term contractual agreement between two or more parties, to undertake mutually beneficial economic actvities,exercise joint control and contribute equity and share in the profit and losses of the entity RBI – “A Foreign

concern formed, registered ,or incorporated in accordance with the laws an dregulations of the host company in which the indian company makes the direct investment, whether such investment amounts to a majority or minority shareholding”

CONDITIONS FOR JOINT VENTURES : CONDITIONS FOR JOINT VENTURES When an activity is uneconomical fro an org. to do alone When risk of the business has to be shared Surmounting hurdles like import quotas, tariffs

BUSINESS TODAY: : BUSINESS TODAY: TECHNOLOGY: e.g. telecom, automobiles GEOGRAPHY: insurance – prudential and standard life REGULATION: HIGHLY Regulated sectors opens up like insurance, Indian players ICICI AND BAJAJ RISK SHARING AND CAPITAL: heavy engineering that also requires technical expertise INTELLECTUAL EXCHANGE: legal business

Strategic issues in joint ventures : Strategic issues in joint ventures Increase in market share Environmental threats within the country or opportunities abroad Ex: balaji telefilms(49%) Ltd+ star group(51%) India to creat a leading television network of regional language targeted at south Indian markets

PROS AND CONS : PROS AND CONS BENEFITS: Minimizing risks Access to foreign tech. Broad based equity participation Access to governmental support Entering new fields of businesses Synergistic advantages

BUSINESS TODAY:reasons for failure : BUSINESS TODAY:reasons for failure India could cease to be interest to foreigners Regulatory changes Success makes both partners greedy to increase its individual share Having partners hampers growth Lack of transparency : the break up of Hutchison – Essar joint Venture

Example of joint ventures in india : Example of joint ventures in india Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Both companies have stopped making their own mobile phones.

Example of joint ventures in india : Example of joint ventures in india Virgin Mobile India Limited is a cellular telephone service provider company which is a joint venture between Tata Tele service and Richard Branson's Service Group. Currently, the company uses Tata's CDMA network to offer its services under the brand name Virgin Mobile.

STRATEGIC ALLIANCE : STRATEGIC ALLIANCE A Strategic Alliance is a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts

Stages of Alliance Formation : Stages of Alliance Formation 1. Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. alliance objectives with the overall corporate strategy.

2.Partner Assessment: : 2.Partner Assessment: analyzing a potential partner’s strengths and weaknesses creating strategies for accommodating all partners’ management styles preparing appropriate partner selection criteria understanding a partner’s motives for joining the alliance addressing resource capability gaps that may exist for a partner.

3.Contract Negotiation: : 3.Contract Negotiation: determining whether all parties have realistic objectives forming high calibre negotiating teams defining each partner’s contributions and rewards as well as protect any proprietary information, addressing termination clauses penalties for poor performance, highlighting the degree to which arbitration procedures are clearly stated and understood

4.Alliance Operation: : 4.Alliance Operation: addressing senior management’s commitment, finding the calibre of resources devoted to the alliance, linking of budgets and resources with strategic priorities,

measuring and rewarding alliance performance, assessing the performance and results of the alliance.

5.Alliance Termination : 5.Alliance Termination winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere.

Types of Alliance : Types of Alliance PRECOMPETITIVE Alliance( low interaction/ low conflict) Non-COMPETITIVE Alliance( high interaction/ low conflict) COMPETITIVE Alliance( high interaction/ high conflict) pre- COMPETITIVE Alliance( low interaction/ high conflict)

Disadvantages of Alliances : Disadvantages of Alliances Sharing of Future Profits Foreclosure of Other Opportunities Barriers to Future Financing Opportunities Distractions Creating a Competitor or a Potential Competitor Unexpected Disappointments and Headaches from Your Partner

Examples of strategic alliances in india : Examples of strategic alliances in india Tata Motors and Fiat are close to signing a worldwide agreement that will have the two automobile majors cooperating in a wide range of areas, including joint research and development for cars for overseas markets and the use of Fiat's retail presence abroad for marketing Tata cars. Blue star has entered into a strategic alliance with italian co., ISA, for providing a range of supermarkets and food refrigeration solutions

Caveat Pars, partners beware! 

Partnering, as with any activity, has its unexpected challenges and pitfalls. Actually, this is probably more so than in traditional adversary relationships. In adversary relationships you must always watch your back. In relationships based on trust or what is perceived as trust, one can be lulled into a false sense of security. While you need to protect yourself from these dangerous situations, you do not want to create them by exhibiting the wrong attitude.

To keep your alliances healthy, conflict should be dealt with immediately. This is your best chance for moving forward in any relationship. But, improperly challenged, conflict can be the death sentence to an alliance.

Alliance conflict emanates from five core areas:

1.      Values

2.      Goals

3.      Facts

4.      Procedures

5.      Misinformation

Conflict doesn't have to be a roadblock to a successful alliance if you and your partnering alliance members are willing to resolve the conflict at the core level, in a timely manner. In fact, the resolved conflict can lead to a stronger relationship through improved communication. Unfortunately, conflict that is left unresolved will lead to fatal flaws that will erode the relationship.

Some of the more common areas of conflict in alliance relationships are accessibility, culture clashes, hidden agendas, management tenure, poor communications and unrealistic expectations. Many advocates and consultants for alliances believe that the alliance mortality rate is around 50 percent.

If you wait to build partnering relationships until all the potential pitfalls are unearthed, your industry will pass you by. Others, who you might have considered as possible members for strategic alliances, might be aligned with your competition. Be realistic though, as with a spouse, partnering alliance members don't change with time. They do not become, who and what, you want them to be. But rather, evolve to whom and what they desire. If you suspect core problems, you probably are accurate in your assessment and the chances for a successful alliance is greatly diminished. Partnering, like marriage, will not change people. What it does do, is to remove the facades, and exposes the good and bad.

Trust in others and the belief that alliance Partnering starts at the top are crucial elements to your success. These two topics are frequent causes for failed Partnering agreements when they're not followed. Also, in alliance agreements, be cautious of things you can't see now but may experience later. Little things like the small print in a detailed alliance contract. Don't let your enthusiasm cloud your judgment.

Just because you're working with a company of integrity, it doesn't mean they will look out for you. Even in a Partnering relationship, you are still accountable for your own success and well-being. Make sure your bottom-line expectations take into account that servicing the partnering agreement is going to require extra resources. Be certain of everybody's alliance partnering goals. Here are examples of potential Partnering pitfalls. Be aware of them before you enter an agreement. Your chances for success will increase.

At Timex:

Timex, for example, forfeited $60 million in lost revenue and learned about the challenges of Partnering overseas. You could say it took a licking and kept on ticking. After 18 months of frustration, Timex wanted out of the partnership it created in India. It all started a decade ago when it was illegal to export watches into India. Timex wanted into the market and proceeded to select a local watchmaker as its partner. Unfortunately Timex should have spent more time on due diligence and asked around a bit more about the partner to be. Timex assumed it could dominate the relationship and have the Indian manufacturer carry out its manufacturing needs on cue.

Was Timex surprised? The head of Timex’s joint venture in India, Robert Werner was quoted in a Los Angeles Times article as stating, “Until its Indian joint venture, Timex had been accustomed to owning companies outright, and its problems in India were a learning experience for many at Timex.” He said It took Timex six months of negotiations and an undisclosed settlement before the company could rid itself of the partner.b

Today, Timex is happily partnered with Indian watchmaker Titan Industries, which is a subsidiary of Tata Group, one of the largest corporations in India. The Timex-Tata joint venture went to market in late 1992 and in its first year sold 400,000 watches. Two years later annual sales leaped to 1.9 million watches.

At Donnelly Corporation:

Founded in 1905, Donnelly Corporation started as a glass mirror manufacturer and supplier for the turn-of-the-century (1900) furniture industry. Today, through joint ventures and strategic alliances, they have operations in 12 countries. With net sales in 1998 of over $763 million (13.7% increase over 1997), they are successfully Partnering around the globe.

Dwane Baumgardner, chairman & CEO at Donnelly feels strongly about what it takes for Partnering to work. When we visited at their Holland, MI headquarters he said to me, "If you have management that is not operating on the basic believe, that it has to start at the top, those beliefs have to be held and permeated throughout the organization. For example, with employees (approximately 5,500 in 1999), if you have to believe your people can be trusted, that they want to work together in a supportive and cooperative fashion. The same must be true with another company; you have to believe when you form a strategic alliance that they will operate with the same motive that you operate. If you don't have those beliefs, I think you're going to run into problems."

Values Based Pitfalls

In looking at the issue of values, frequently partners of an alliance will have core values that are conflicting. This is especially a problem with issues like trust and integrity. Corporate culture clashes; employee turf protection, and resistance of certain employees to new ideas can wreak havoc on your efforts to maintain a prosperous alliance.

When one of the alliances partners does not completely embrace the principles of Partnering, big challenges occur. This can include top-level executives or even supervisory and functional employees in departments, divisions or regions within a Partnering organization. As an example, DuPont believes that if a contractor is looking just to maximize his profits, on just one job, then Partnering with that contractor is not for DuPont because they know there will be problems in the relationship.

Because the dynamics of alliance relationships are constantly changing, inflexibility of partners can kill an alliance quickly. Each member must be willing to give a little, especially in times of change for a Partnering agreement to work. Just as devastating is a partner making a Partnering commitment, and having a hidden agenda that would be destructive to the alliance. Not quite as bad is a partner deciding they don't want to follow through, or one that does not have the capability to fulfill their commitment.

Supplier relationships can become challenging, especially when business is great. Suppliers can make the relationship mistake of conveniently forgetting about the loyalty of smaller long-term customers, and snubbing them for the larger orders. This is short-term profitability and long-term disaster. When those large order companies go out of business or are consolidated, the supplier could be left without any customers.

Complacency of either partner is an insidious relationship-killer. Continuously ask your alliance partner questions in a way that encourages them to relate performance problems and shortcomings. Ask, "What haven’t we done lately?" And ask, “What is it you really need from us?”

Dependency on your alliance partner can put your business at a similar risk. If you become the weak link in the alliance and your alliance relationship no longer delivers value to your partner, more than not, they will discontinue the alliance.

If you or your alliance partner is not relationship oriented little problems can easily escalate. Then anger comes and the blaming others for your current situation. The not invented here, mentality often exhibited by senior management is a result of low relationship tolerance. Also the lack of commitment to the alliance or innovations developed by alliance partners can easily slay your relationship.

There is the situation where you might lose control of a technology or best practice to an alliance partner who later becomes a competitor. Staples and Office Depot were going to merge but it did not work out. A problem for Office Depot was that Staples learned of an Office Depot best practice during the merger talks. Office Depot was delivering COD to small businesses in the northeast and getting most of the business. After the failed merger, Stapled duplicated Office Depot’s practice and took away Office Depot’s competitive advantage in the area.

Goals Based Pitfalls

In situations where a customer is the driving force behind a Partnering arrangement, you can be left holding the bag. Be sure to examine each Partnering proposal in the context of your company's overall business strategy. This challenge was recently apparent to IBM and it discontinued its alliance with Somerset PowerPC and Motorola, in producing microprocessors for Apple.

When sitting down at the Partnering table a partner might find the relationship seat uncomfortable. It could be that your partner has a different level of emotional and physical comfort, or sometimes it is simply a change in corporate strategy or a restructuring which leads away from a partner's product and/or technology causing the partners distress. It is important that you know the short and long-term goals of your alliance partner.

When you try to partner with a potential or current customer and have them renege on the promise of purchasing from you, the disloyalty challenges that can occur can be wasteful. Be cautious, as there is also the possibility of your partner being unethical and attempting to capture your technology or trade secrets. This is a difficult area from which to protect yourself, but if you do your due diligence, your chances for success increase.

Facts Based Pitfalls

Relinquishing some control with the expectation of greater shared returns can be a difficult waiting game. Additionally, your resources can get pulled in too many directions based on collective alliance decisions. Be certain you can spare the resources you devote to your alliance. Otherwise you may put the success of your entire operation in harm’s way.

The lack of third-party cooperation can be a true relationship problem. All the primary members of a Partnering agreement will have to give a little for your agreement to work. Worse yet is your partner receiving unfavorable or harmful media coverage. This is because you are usually pulled into the picture and believed guilty by association. Real or perceived, image and reputation are critical to any company's success.

Be careful in global alliances. Contracts with an overseas market, for instance, often take a long time to finalize. By the time you get going, in the technology industries, your competition may have already gotten started. If you are already behind and you have developed an alliance with a partner organization that is weak and bleeding, they will only bring you down faster and harder.

Procedures Based Pitfalls

It is easy to underestimate how much time, energy and resources will be necessary to commit to your new alliance. Then not having access to your alliance partner’s employees is an important issue. The closer the planned relationship between the two companies, the greater the importance of the linkages between them. You might find yourself in a situation of a small company Partnering with a large company. A challenge in working together will be that of the representatives, usually top executives of the small can make decisions on the spot. Unfortunately, the employees of the giant must take a proposal up the chain of command. This sometimes slows progress to a snail’s pace.

Culture clash is a frequent Partnering challenge. The failed alliance of IBM and Apple is a typical example. The heralded fall 1991 announcement promising cooperation eventually spawned Taligent Technology and Kaleida Labs. Unfortunately the two could not coexist so the alliances eventually gave way to a quiet winter 1995-1996 breakup.

Putting all your alliance relationship eggs in the basket of only one executive or manager is not a smart idea. The management tenure of your alliance contact can signal success or failure. If you have a one-person relationship, what happens if they get promoted out of the area, fired or even die? You are out of luck. Build relationships with several key contacts in the organization of your alliance partner.

What if your partner’s internal or external rewards structure interferes with the success of the alliance? This could apply to employees, customers or suppliers. If you are a supply partner and your partner has traditional rewards for their buyers, the buyers will only be interested in concessions and cost reductions. On the flip side, sellers usually offer rewards for sales performance and this also can be challenging in making a relationship work.

There certainly is a difficulty in communicating across various time zones. Solving problems quickly when your Partnering factory is located halfway around the world is hard enough, but when also speak a different language, that just makes it more of a formidable task.

Inertia, not having the emotional ownership in getting started is a true pitfall. Add this to chaos, seeing too many alliance choices and ways to create an alliance, some never do get started. The two sides of the sword are, if you wait for everything to be perfect, they never will. And if you do not put enough energy into an intelligent choice, your alliance could be doomed from its inception.

Misinformation Based Pitfalls

You could easily be guilty of underestimating the complexity of coordinating and integrating corporate resources, and overestimating your partner's abilities to achieve the end result. Self-doubt and not believing you have the skills and tools to create an alliance can crop up here.

Eventually, Partnering success depends on management’s abilities, skills, commitment, aspirations and passions in assembling the pieces of the puzzle. When unequal dependence in a relationship occurs, the partner with the least dependence could be less likely to compromise and put energy into the relationship.

Meanings assigned to words by different cultures can cause serious problems. In one culture quick delivery could mean one day and in another it could mean one month. This opens the can of worms

often referred to as unrealistic expectations of a partner's capabilities. The areas commonly include technology, research, production skills, marketing might, and financial backing.

We also have the unexpected inefficiencies or poor management practices of a partner that can be the demise of a well-intended alliance plan. Also at risk is the area of developing an alliance with multiple partners, who later become rivals to one another. This puts a serious strain on the integrity of the remaining alliance.

Now that you've had a view of Partnering from the downside, don't let these hurdles stop you. Be clear on what alliance partnering is not. It is not instant gratification, nor a quick fix. It is not a flavor of the month management strategy. Strategic alliances are separate entities that have come together to solve their individual problems in a way that serves the whole mutually. It is sharing core competencies that overlap and create synergies. The struggle is a necessary part of any relationship that is valuable and lasting.

To reduce the effects of Partnering pitfalls, David Elliott, senior vice president and chief administrative officer at Technicolor in Hollywood, CA shared his thoughts with me. "If a partner fails to meet their responsibilities, a clear agenda is necessary that both sides are operating from. When the agendas are different or conflicted—that’s a problem.” He went on to say, “We don't have partnering horror stories because we include an exit strategy, before going into the relationship.”

Elliott's advice for others entering into partnering relationships is to do your homework, know the agenda of all partners in the relationship and measure against it. If after doing your homework you're still not completely sold on partnering with a company, start small. Begin your alliance by partnering with another for a simple or small promotion and get your feet wet. If you do stumble, then having the ability to regenerate after a fall is crucial, especially if you or a partner simply make a mistake.

Having knowledge of the alliance unknown should keep you from becoming immobilized and waiting for opportunities that could easily pass you by. Sure, there are some risks, but to lessen the effects, do your homework, know the agenda of all partners in the relationship and measure against it. If after doing your homework you're still not completely sold on an alliance relationship with a company, start small. Begin your alliance by Partnering with another for a simple or small promotion and get your feet wet.

If you do stumble, having the ability to regenerate after a fall is crucial, especially if you or a partner simply makes a mistake. Be careful when events and circumstances are not what you hoped or planned for. You might go to a place of apathy. If you remain in a toxic mind-set, you'll wait and wait for things to get better before you move into action. The trouble is that things rarely get better until you propel yourself into a state of activity.

To be successful at partnering you must commit to functioning at a higher level. A level that will allow you to stretch your comfort zone and then commit to moving into action. Without these two issues in concert, you might not get started or restart when necessary.

Once you get back in the action, you can go after small wins to reestablish your confidence to take risks in pursuit of an even larger prize. The key is to not wait for all to be perfect before you commence. It's okay to subscribe to the idea of: ready, shoot, aim. Do though; take the time to adjust your aim after you begin. Be like a commercial airline pilot and course correct regularly. Keep your future focus on the partnering journey. Keep it improving. Be decisive, and show the qualities of a leader in your industry. You will be rewarded.  

GROWTH STRATEGIES - Presentation Transcript

1. RETAIL STRATEGY- GROWTH STRATEGIES Submitted by :- Ankit Jain Ashish Singh Dinesh Gupta Mukesh Sharma Priya Bajaj Sunbeam S Sandhu Submitted to :- Mr.Amit Sharma Faculty -Retail Strategy Centre For Retail Management FDDI

2. BIBLIOGRAPHY o Strategic Management and Business Policy Azhar Kazmi o Times of India and Hindustan Times o Ezines Journals: Google

3. Definitions o Strategy - means to achieve objectives. o Strategy helps in pursuing activities which move an organization to move from the current position to desired

future state. o Growth Strategy- An organization substantially broadens the scope of one or more of its business in terms of

their respective customer group, customer functions and alternative technologies to improve its overall performance.

o Types of Growth Strategies o MERGER o ACQUISITION o JOINT VENTURE o STRATEGIC ALLIANCE

4. MERGERS o In merger two firms, agree to move ahead and exist as a single new company. Merger can be o merger of equals : both companies are of equal sizes. o merger of unequal's : large company merge with smaller one o Voluntary process : consent of both companies. o Name of new merged entity is usually a combination of both parent companies o Mergers are mostly financed by a stock swap . Both companies surrender their stocks and stock of the new

company is issued as a replacement. 5. Types of merger o Horizontal merger : When two merging companies are of the same industry and produce similar products. o Example : Footwear Company Merging with Footwear company o Vertical merger : When two companies are producing the same goods, but are at different stages, it is a vertical

merger. o Example : Footwear Company Merging with Leather Tannery o Concentric merger : when two companies are related to each other in terms of customer functions or customer

groups. o Example : Footwear Company Merging with another specialty Footwear Company o Conglomerate merger : When two companies operate in different industries. o Example : Footwear Company Merging with Pharmaceutical Firms

6.  7. Are all mergers successful? Hindalco-Novelis (failure) o Hindalco ( metal maker of Birla group) acquired Novelis for a staggering $ 5.76 billion. Novelis , on a net worth

of $ 322 million, had a debt of $ 2.33 billion o Hindalco took $ 3.13 bn loan to aquire Novelis. Right after the acquisition hindalco came on a rough road. o With the debt market tightening , the metal maker is left with no choice but to dilute its equity through a 1:3

rights issue. o Further, high interest costs, which rose by over 490 % loan increased from Rs 3.13 billion in FY 07 to Rs 18.49

billion in FY 08. o Finally Hindalco’s earning per share in FY08 dropped to Rs.15.76, from Rs. 26.73 in FY07 , a fall of 41% ! 8.o Acquisition is a deal when one company takes over another company and buyer becomes sole proprietor. o At times takeover occurs when the target company does not want to be purchased. However with better

offering of prices shareholder are attracted by acquirer. o In legal terms, the target company ceases to survive. The buyer swallows the company and the buyer's

stock continues to be traded. o Unlike mergers which are friendly, acquisitions can be friendly and unfriendly.

AQUISITION

9. Why M & A OCCUR ? o To reduce competition. o To increase growth rate & capture a greater market share o To improve value of organization’s stock. o To acquire a needed resource quickly. o To take advantage of synergy. o To acquire resources to stabilize operations. o To achieve economies of scale.

10. Disadvantages of M&A o Reduced competition may even facilitate monopolistic or oligopolistic tendencies among firms. o Increase of prices. o Job losses for employees. o Difficulties in cultural integration of the merging firms. o Interest of minority shareholders is not protected.

11. Tata Steel and Corus o On January 31, 2007, Tata Steel Limited, one of the leading steel producers in India, acquired the Anglo Dutch

steel producer Corus Group for US$ 12.11 billion. o Corus was 2.5 times bigger company than TATA. o It took nine rounds for Tata to acquire Corus. In the first bid Tata had closed the deal at US $ 7.6 bn and later it

ended up by paying US $ 12.11 bn , making it an expensive turnover. o This acquisition was the biggest overseas acquisition by an Indian company. Tata Steel emerged as the fifth

largest steel producer in the world. o After acquisition Tata benefited itself from Corus: o Distribution network of Europe. o expertise in steel making for automobiles. o In return Corus benefit itself from Tata Steel's expertise in low cost manufacturing of steel.

12. JOINT VENTURE o An entity formed between two or more parties to undertake a specified activity together. Parties agree to create

a new entity by both contributing equity, and they then share revenue, expenses, and control of the enterprise. The venture can be for one specific project only or a continuing business relationship Eg: Sony Ericsson.

o Unlike mergers and acquisitions, in joint venture the parent companies does not cease to exist. o Types of Joint Ventures o (a) Between 2 Indian org. in one industry o (b) Between 2 Indian org. across different industries. o (c) Between an Indian org. & a foreign org. in India. o (d) Between an Indian org. & a foreign org. in that foreign country. o (e) Between an Indian org. & a foreign org. in third country.

Starwood and Vatika set for the Westin New Delhi Hotel & ResidencesStarwood Hotels & Resorts and Vatika Group, one of the leading real estate and hospitality players in India have announced an agreement to construct The Westin New Delhi Hotel & Residences in Gurgaon, India which is scheduled to open in 2007. The hotel however will be managed by Starwood and will feature 300 rooms, five restaurants, 17,500 square feet of meeting space, a 16,000 square-foot health and spa center, as well as upscale retail outlets. Located strategically in Gurgaon, the hotel will provide travelers easy access to key convention and commercial offices.

13. Joint Venture Maruti Udyog Ltd. & Suzuki Motor Corp. o Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car

segment, both in terms of volume of vehicles sold and revenue earned.

o Until recently, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan. o The Indian government held an initial public offering of 25% of the company in June 2003. o As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of

India no longer has stake in Maruti Udyog. o During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported. o In all, over six million Maruti cars are on Indian roads since the first car was rolled out on December 14, 1983.

14. Strategic alliances o A strategic alliance is a form of affiliation that involves a mutual sharing of resources or “partnering” to improve

efficiency. o In strategic alliances, the focus is on “sharing” of resources rather than seeking change in control. Equity

investment in each others company is not any focus. o Types of strategic alliances : o Pre competitive alliance : vertical value chain alliances b/w manufacturers and suppliers. o Non competitive alliances : Intra industry partnerships b/w noncompetitive firms o like two firms in same industry but different geographical locations. o Competitive alliance : partnerships which brings two rival firms in a cooperative arrangement where intense

interaction is necessary. o Pre competitive alliance : partnerships which brings two firms of different industry o together to work on well defined industries such as new technology development.

15. Reasons for strategic alliances o Market entry -A strategic alliance can ease entry into a foreign market . Eg: strategic alliance between British

Airways and American Airlines. o Share risk & expenses -firms involved can share risks. Eg: In early 1990’s film manufacturers Kodak and Fuji

joined with camera manufacturers Nikon, Canon, and Minolta to create cameras and film for an "Advanced Photo System.

o Synergistic Effects of Shared Knowledge and Expertise- help a firm gain knowledge and expertise o Skills+ brand + market knowledge+ assets= synergizing effect o Eg: For example, in the early 1990s, Motorola initiated an alliance among various partners, including Raytheon,

Lockheed Martin, China Great Wall, and Nippon Iridium, to develop and build a global satellite-based communications network.

o Gaining Competitive Advantage- 16. Pitfalls o Lack of trust & commitment. o Perceived misunderstanding among partners. o Conflicting goals & interests. o Inadequate preparation for entering into partnership. o Hasty implementation of plans.

17. Jet airways-Kingfisher Alliance market leaders with share of Jet – 30% kingfisher – 29% o Economic slowdown and high ATF prices resulted in decline of air travel both in international and domestic

segments of the air travel market. o Airline sector is set to incur a loss of $ 2bn (Rs.10,000 Crore) this year o Thus Jet and Kingfisher have decided to form an alliance in fields including fuel management, ground handling,

sharing of technical resources and crew for training and cross-utilization on similar aircraft types. o This will help both carriers to significantly rationalize and reduce costs and provide improved standards of

service and a wider choice of air travel options to consumers with immediate effect. o They could not merge as of rule that two airline companies with o combined market share greater than 40 % can not merge in India. So they formed an alliance.

MERGER

AQUISITION JOINT VENTURE STRATEGIC ALLIANCE Usually two companies of equal size merge Together. Voluntary and friendly process Stock swap : both companies surrender their stocks and stocks of new companies are given as replacement. Parent companies cease to exist. Large company takes over the smaller Company. Often

forceful or unfriendly where larger company attracts the shareholders of target company by offering them better price for their shares. Parent companies cease to exist. Two or more companies agree to form an Entity for a specific task or period. Always friendly. One company receives financial assistance, Managerial inputs and technological inputs from superior company. Parent companies keep functioning in their Respective areas. To improve efficiency of companies. Includes no equity investments. Parent companies keep functioning as normal by supporting each other.

Once a firm decides to enter a particular market after a thorough macro analysis, the company is faced with the decision of how to enter that particular market. Firms usually have 6 ways of entering a market; these are exporting, turnkey projects, licensing, franchising, joint ventures, and wholly owned subsidiaries. During the process of internationalization, it can be said that exporting is the starting element of globalization. This paper will discuss 2 of the ways to enter a foreign market - Joint Ventures and Wholly Owned Subsidiaries.

Joint Ventures usually involve setting up of an independent company through an agreement with the local company. The new company is jointly owned by the foreign company and a local company. The ownership stake can range from 50/50, to a minority or a majority stake. Some examples of joint ventures include MSNBC, HULU, and Wal-Mart-Bharati Enterprises Ltd.

There are numerous advantages in being part of a joint venture. A joint venture allows a firm to benefit from the local partner's knowledge about the country's culture, language, political system, and business systems. For example, in Wal-Mart-Bharati Enterprises Ltd joint venture, Wal-Mart can benefit from the knowledge Bharati Enterprises has of India's culture, business opportunities, and other issues that only a local firm would be familiar. Since a joint venture usually entails a 50/50 stake, both companies invest significant resources, talents, and commitment to the new firm. This provides both companies advantages in terms of sharing development costs and risks. Another advantage of joint-venture is that it allows a foreign firm to enter a domestic market which it otherwise would have faced restrictions. For example, in the case of Wal-Mart - Bharati joint venture, Wal-Mart cannot enter the Indian retail market on its own because of government regulations which bar foreign firms from entering the retail industry. As such, the only way Wal-Mart could enter the Indian retail industry was through a joint-venture. Additionally, joint-ventures are less prone to being nationalized or being targeted as a foreign firm since the local company has a significant stake in the joint-venture as well. As such joint-ventures provide a good opportunity for firms to enter markets where otherwise they would not have been able to enter.

Although there are numerous advantages, joint-ventures can also bring with them a number of disadvantages. A firm entering a joint venture risks gives the local firm the control of its technology. For example, in Wal-Mart - Bharati joint venture, Wal-Mart risks giving Bharati Enterprises some of its key competencies that give it a competitive advantage over other firms. Bharati Enterprises, a large conglomerate with no experience in retail industry would learn the operations, skills, and other competencies that give Wal-Mart an advantage, and in turn become a potential threat to Wal-Mart not only in the Indian market, but also in other foreign markets as well. If the joint-venture is a 50/50 partnership, it may be possible that both companies differ on the strategic intent of joint venture, management style, which could lead failing of the joint-venture. It might also be possible that at the formation of the joint venture, both companies might have similar goals, but changing competitive environment or other economic and political variables might change the objectives of the companies regarding the purpose of the joint venture.

As mentioned earlier, wholly-owned subsidiaries are another way a foreign company can enter a foreign market. A company can set up a wholly owned subsidiary either through a Greenfield venture or through acquisition. In a Greenfield venture, the firm creates the wholly owned subsidiary from scratch, while in an acquisition a firm buys out a domestic firm.

The primary advantage of a wholly-owned subsidiary is that it gives the foreign company a 100% stake in the ownership of the firm. This allows the firm complete freedom in the direction the company is going, the organizational structure of the firm, and all the profits the subsidiary generates. A company that sets up a new wholly subsidiary has complete control over the type of employees it recruits, thereby giving it control over the corporate culture the new firm eschews. It is a lot easier for a firm to build create a new corporate in a new firm than it is to change the corporate culture of an existing firm. A wholly owned subsidiary also prevents the transfer of technology, as the company's core competencies are kept in-house. For example, a lot of technology companies open wholly subsidiaries in foreign markets - Microsoft and Apple.

As with joint-ventures, wholly owned subsidiaries also carry with them numerous disadvantages. Entering a foreign market through a wholly owned subsidiary can be a costly affair as the firm has to bear all the burden of capital investment, and risk. The new company also has to learn inner workings of the new country; as such there is a learning curve. The company can also be a target for foreign governments and other political organizations which might see the foreign company as appropriating the country's resources. Strategic Alliances can be described as agreements between two companies that seek to gain knowledge in areas that they are deficient in. As described in the lectures, strategic alliances can be described as a live-in relationship as opposed to a full-blown marriage which brings with it, its own set of problem. Although there are contractual agreements in alliances, unlike a joint-venture there are no messy after-effects like one would experience from a divorce, like what would happen to the child or the jointly owned subsidiary.

There are many theories on why alliances are formed by companies; we will be discussing two such theories which explain the reasons why firms pursue alliances. According to the learning race theory, firms pursue alliances to gain knowledge they are deficient in. According to this theory, firms in an alliance are in a race to gain as much knowledge as they can from their partner. The idea is that firms purse alliances for purely selfish reasons, and as such, once a company has gained the knowledge it lacks from its partner company, it can dissolve the alliance and use the gained knowledge to further its own competitive advantages. For example, Prashant Kale, Harbir Singh, and Howard Perlmutter argued that strategic alliances between Japanese and American firms allowed the Japanese firms to gain project engineering and production skills that underlie the competitive success of many U.S. companies. These strategic alliances according to them allowed the Japanese firms to build their competitive at the cost of American Corporations. The evolution of blu-ray discs is another example where companies come together to gain knowledge from each other. The basic elements of blu-ray technology was started by Sony, but because of the risks in implementing entering such a venture by itself, the firm formed an alliance with movie studios and other technology companies that would allow it to benefit from the skills of these various corporations. The blu-ray strategic alliance was called Blu-Ray Disk Association, and had companies from Fox Studios, Sony Corporation to LG Electronics and Samsung Electronics. This strategic alliance allowed the companies to pool their talents, skills, resources, and influences to ensure that their product would gain acceptance once the project is publicly distributed. Although the idea is to gain knowledge where they are deficient in, which would ultimately serve all the members of the alliance, the alliance members - particularly the technology companies are also in a race against each other to gain the knowledge from others as quickly as possible. For example, if companies like Samsung were quickly able to learn and internalize the basic knowledge of blu-ray from Sony and other partners, they would be able to use that appropriated technology to build factories that would give them a first mover advantage and eventually cost and location economies that would give them a upper hand in the new blu-ray disc industry.

Resource based theory of the alliance on the other hand believes that no contractual agreement is perfect, and as such companies have to trust each other, and exhibit voluntary behaviors or social exchanges that would result in benefitting all the companies in an alliance. According to this theory, for a firm to be successful in a strategic alliance, they have to develop trust in their partners, foster greater cooperation or reciprocity, avoid blatant opportunistic behavior, and show an understanding of the requirements or the needs of other partners. Examples of resource based theory can include the alliance of Apple with AT&T in production and launching of the Iphone, or Google's Alliance with HTC and T-Mobile in building, manufacturing, and launching of Google Android phones. The above two alliances require that partners have trust in each other. For example, Apple needed to trust AT&T that it would not share Apple's key technologies with other mobile manufacturers and undermine Apple's

competitive advantage. AT&T on the hand needed to trust Apple that once the Iphone was created, it wouldn't disband the alliance, and launch its phones with another subscriber.

As stated earlier, firms choose to enter into alliances for a variety of reasons. These reasons include trying to gain knowledge and skills that they are deficient in, to leverage the size and influence of the alliance to ensure market acceptance of a product, as was the case with Blu-Ray Disc Association. As stated in lectures, national and organizational culture can have a huge impact on how firms approach strategic alliances. For example, it was stated that the Japanese firms acted like students, and American firms acted like teachers. What this meant was that the Japanese firms were able to gain knowledge from the American peers - as they were more readily interested in teaching the Japanese firms their skills and competencies, while the American peers were only interested in teaching and not learning any skills from their Japanese counterparts. This allowed the Japanese firms to appropriate American skills, competencies, internalize that knowledge, which was then utilized against the very same companies that taught them those competencies in the first place.

I believe that the application of resource based views or learning race hypothesis depends on the nature of strategic alliance, and the nature of the company's position within the alliance. For example, when Microsoft enters in a strategic alliance with other PC manufacturers, its relationship with the PC manufacturers is mostly resource based as opposed to learning race hypothesis. It would be in the interest of Microsoft and other alliance partners to ensure that there is a significant trust, reciprocity, and lack of opportunism in ensuring that a launch of a new operating system, such as Windows 7 is successful. Even though the product belongs to Microsoft, its success would ensure that hardware manufacturers would reap benefits in terms of new computer sales. Within the same strategic alliance, PC manufacturers are in race to gain to knowledge that would ensure them a competitive advantage. For example, HP would be in a race with Dell and other pc manufacturers in ensuring that it learns all it can about the intricacies of the operating system from Microsoft and how it behaves with different hardware from other manufacturers. With the appropriated knowledge HP would attempt to ensure that its products are the most successfully integrated with the new operating system and thus ensuring its place as the most desired PC system.

I believe that being part of a strategic alliance where the core competency is technology would be one of the most challenging parts in managing an alliance. Since the primary reason for formation of such an alliance is accumulation of technology, firms and managers need are placed with the task of ensuring enough access that would further the technology, which would ultimately benefit all the firms within the alliance, but at the same time ensure that the core competencies aren't leaked to competitors which would end up creating a strong competitor in the future.

As firms face increasing pressure to globalize in order to realize location economies, economies of scale, experience effects, and cost reductions, they are presented with a variety of decisions including the strategy they would be pursuing globally, the structure of the firm that would complement their adopted strategy, and how these strategies would attain the firm a competitive advantage for the firm. In addition firms are also faced with decisions on how they would approach strategic alliances and the risks they would face by sharing their competencies and skills with potential and actual competitors.