STRATEGIC ALLIANCE

A Strategic Alliance is a 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. This form of cooperation lies between M&A (Mergers and acquisitions) and organic growth.
Strategic alliance is a co-operative & collaborative approach to

achieve the larger goals.

 Mergers and acquisitions (abbreviated M&A) refers to the

aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.

Reasons for Alliances

Slow Cycle Market Gain access to a restricted market Establish franchise in a new market Gain market power Gain access to complementary resources Meet competitive challenge Pool resources for large projects Learn new business techniques Increase speed of product, service or market entry Maintain market leadership Form an industry technology standard Share risky R&D expenses

Standard Cycle Market

Fast Cycle Market

FUNCTIONAL ALLIANCES
PRODUCTION ALLIANCES MARKETING ALLIANCES
FINANCIAL ALLIANCES
RESEARCH & DEVOLOPMENT ALLIANCES

 PRODUCTION ALLIANCES : Two or more companies

share the common manufacturing facilities in production. Ex. Toyota and general motors joint ventures. They used general motors assembly plant in california. MARKETING ALLIANCES : Two or more companies Share marketing services expertise and facilities. Ex. St. louis pharmaceutical established M.A with INDIAs Cadila pharmaceutical. Used medical, pharmaceutical & lab products. Mahindra & mahindra with Yamaha motors are joined together for share there market services.

 FINANCIAL ALLIANCES: Two companies join together to

reduce financial risks.

RESEARCH & DEVOLOPMENT ALLIANCES: Due to high cost

of R&D & fast changing technology. Ex. Siemens, motorola, IBM & toshiba joined together in designing a 1gb DRAM semiconductor chip.

where their

Strategic Alliances Partnerships between firms

Resources

Firm A
Firm B

Capabilities

are combined to pursue mutual interests to

Develop Manufacture Distribute

Core Competencies

Goods

Services

TYPES OF STRATEGIC ALLIANCES

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. Non-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 two) across national boundaries and increasingly across industries, sometimes formed between company and a foreign government, or among companies and governments.

 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 expertise), economic specialization, shared expenses and shared risk.

DIFFERENT NAMES 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.

STAGES OF ALLIANCE FORMATION

A typical strategic alliance formation process involves these steps: Strategy Development: Strategy development involves studying the alliances 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 partners strengths and weaknesses, creating strategies for accommodating all partners management styles, preparing appropriate partner selection criteria, understanding a partners 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 calibre negotiating teams, defining each partners 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 managements commitment, finding the calibre 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

Allowing each partner to concentrate on activities that best

match their capabilities. Learning from partners & developing competences that may be more widely exploited elsewhere. Adequate suitability of the resources & competencies of an organization for it to survive. Strategic Alliances Help Your Company Raise Capital Faster

MANAGING CONFLICTS SITUATION

Compatibility.

Ex a UK company and the siemens of germany failed due to incompatibility of mgmt styles.
Nature of potential partners products & services. Companies

with complimentory products can have alliance.

The relative safeness of alliance. Both companies should assess

their potentials for the success & failure of the alliance.

BREAKUP OF ALLIANCE:
Incompatibility of partners: Mgmt styles, financial position, cultures, business interests etc. Ex. Above Access to information: Ex. Ford & mazda Motor Corporation. to work on the design of the new ford Escort almost stalled

when mazda officials refused to ford to visit their Laboratory.

Distribution of income. i.e profits.

Changes in business environment.

Acquiring the strenths of partner. Ex. know how Legal factors.

The whole is greater than sum of parts

 Partners may provide the strategic

Strategic alliance

alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. Ex : Star Alliance

Few Strategic Alliances HeroHonda

Reliance and Samsung Reliance and Aaj Tak

MarutiSuzuki Ltd.

Microsoft and Nokia

THANK YOU

PRESENTED BY: YASHWANT YADAV VISHWA VISHWANI INSTITUTE OF SYSTEMS & MANAGEMENT HYDERABAD.