Strategy Implementation: Partnerships Day 4, Global Strategy II Scott Marshall SBA Corporate Partners Professor Master of International Management School.

Strategy Implementation: Partnerships Day 4, Global Strategy II

Scott MarshallSBA Corporate Partners ProfessorMaster of International ManagementSchool of BusinessPortland State University

Partnerships in Dynamic Markets and under Strategic Uncertainty

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

partnerships…oh, the drama!!


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.


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.


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.Top 5 Vendors,

Worldwide Converged Mobile Device

Shipments and Market Share, 1Q 2004

Rank Vendor1Q 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%

5Sony Ericsson

197 5.9%

Other 575 17.1%

Total 3,358 100.0%


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 acquired…by Motorola,

by Apple, by someone, somewhere…


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

Slow Cycle

Market

Gain access to a restricted marketGain access to a restricted marketEstablish franchise in a new marketEstablish franchise in a new marketMaintain market stabilityMaintain market stability


Market Cycles and Partnerships


Standard Cycle

Market

Gain market powerGain market powerGain access to complementary resourcesGain access to complementary resourcesOvercome trade barriersOvercome trade barriersMeet competitive challengeMeet competitive challengePool resources for large projectsPool resources for large projectsLearn new business techniquesLearn new business techniques

Fast Cycle Market

Fast Cycle Market

Maintain market leadershipMaintain market leadershipMaintain market leadershipMaintain market leadershipForm an industry technology standardForm an industry technology standardForm an industry technology standardForm an industry technology standardShare risky R&D expensesShare risky R&D expensesShare risky R&D expensesShare risky R&D expensesOvercome uncertaintyOvercome uncertaintyOvercome uncertaintyOvercome uncertainty

Increase speed of product, service, market entryIncrease speed of product, service, market entryIncrease speed of product, service, market entryIncrease speed of product, service, market entry

Market Cycles and Partnerships


DEVELOPED MARKETS

% OF RESPONDENTS

0 20 40 60 80 100

North America

Western Europe

Japan

Australia and New Zealand

Market Maturity, Culture and Partnerships


% OF RESPONDENTS

EMERGING MARKETS

0 20 40 60 80 100

Market Maturity, Culture and Partnerships


Alliance Researchers YearFailure

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%

Surveys of Alliance Failure Rates

adopted from Bernhut 2002


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

Methods to Minimize Alliance Failure

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.

Let’s play the Blue-Yellow Chip Game


Individualism/Collectivism and Trust in Alliances

Individualism Collectivism

Easy to Start, But Unstable

Easy to Start, Easy to End

Slow to Start, But Highly

Stable

Difficult to Start; but Relatively

Stable

Mono-cultural Context

Pluri-cultural Context

Multi-cultural Context


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.

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).



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.



Partner Interactions Chair of each committee/teams from Renault and the

vice chair from Nissan or vice versa Cross-Company Teams

Cooperation 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.



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.


Joint Ventures and Alliances

Joint Venture: A separate entity formed from capital contributions from 2 independent companies.

Majority/minority equity stakes Equal equity stakes


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-Royce’s 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.


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.


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


Technology Alliances DaimlerChrysler and Fiat Powertrains MindTree and Borland

Distribution and Marketing Alliances Apple iPod and Nike Microsoft Xbox and adidas


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.


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.


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.


You’re 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.

Strategy Implementation: Partnerships Day 4, Global Strategy II Scott Marshall SBA Corporate Partners Professor Master of International Management School.

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