Student Learning Notes
MCR008 – Corporate Strategy
Student Learning Notes
Topic 8: Alliances, Partnerships and Networks
(Chapter 9 – Networks, Partnerships and Alliances)
1. Explain why competition is moving from a company level to an alliance and network level. What
implications does this have from the perspective of the end customer?
The current dynamic market environment requires companies to focus on their core competencies
while forming cooperative relationships with other companies to access and build resources.
Contemporary developments in the field of strategy acknowledge that the resources residing outside
the company’s boundary are also potentially available to the company. To benefit from resources
external to the organisation, it is crucial to establish, develop and maintain lasting business
relationships with customers, suppliers and other important parties.Companies can no longer be
isolated and independent; rather they must be flexible and cooperative. This has resulted in a new
interconnected and interdependent environment with intercompany partnerships that help
companies to access required resources and develop new capabilities to respond to the rapidly
changing business environment.
This increasing interest in cooperative models reflects an important shift in strategy formulation and
implementation. An understanding of the importance of collaboration of companies with various
groups of stakeholders not only challenges former views on the company owning and controlling all
aspects of its own activities, but it also means that the responsibilities of companies are extended
outside of its boundaries. The end customer will also benefit from the collaboration between
companies because product or service offerings may be more innovative, competitive and of quality
because of the collaborations between companies at the network level.
2. Explain how strategic alliances assist companies in implementation of their strategies. What are
the advantages that can be achieved through alliances?
The following advantages can be achieved via alliances:
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 Entry into new markets
Alliances allow companies to enter new markets more quickly. Most (if not all) companies lack the
full set of resources and capabilities needed to reach their objectives. Lack of all the required
resources makes entry to a new market slower if companies undertake this entry on their own,as
opposed to making alliances with partners who can contribute required resources to enter a new
market. Alternatively, to make a more speedy entry to a new market, companies might reallocate
their resources from other areas.
 Increased market power and economies of scale and scope
Alliances can increase market power by jointly offering products and services to customers or by
jointly purchasing from suppliers. Economies of scale are attributed to the ability of the company
to increase the volume of its production and sales which leads to the reduction of the cost of
production per unit. A single company, for various reasons, may not have the scale to benefit from
these economies. By combining the production or sales (or both) with another company, the
benefits of economies of scale and scope can be realised.
 The acquisition and exchange of skills
It is common that in alliances partners learn new knowledge and skills from each other.
 Strategic renewal
Many companies bring in new ideas from the outside. They develop these outside ideas and add
value by advancing the external ideas within their own organisation. This process stretches the
company and allows it to develop new capabilities and competencies and, in some cases, it forces
the company to re-invent itself. Nintendo uses carefully selected contributions made by its
partners to create high-quality, rapid innovation.
 Risk and investment sharing
Alliances can motivate companies to make investments by sharing risks. For example, a supplier
may not be prepared to make an investment outside an alliance agreement if it would link its
company closely to one buyer.
 Reductions in liabilities of foreignness
Research into foreign direct investment shows that foreign subsidiaries face disadvantages or
experience liabilities of foreignness relative to domestic companies due to various factors. Dell
and Hewlett Packard, for example, formed alliances with foreign computer manufacturers to
reduce the liability of foreignness and improve their competitiveness in foreign markets.
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3. What types of alliances can be formed by companies? How does the choice of a certain type of
alliance impact the possible behaviour of partners in an alliance?
A joint venture is a strategic alliance in which two or more cooperating companies (the ‘parents’)
create a legally independent company in which they invest and from which they share any profits .
Joint ventures allow companies to establish long-term relationships and transfer tacit knowledge.
Many joint ventures have 50–50 ownership and control; however, there is no need for an equal
partnership. It is more important that the partners specify certain aspects of the alliance they are most
interested in. By investing in a separate entity, both parent companies have a financial interest in the
joint venture. If one cheats the other, the joint venture suffers. Losses incurred by the joint venture
affect the financial results of both companies. Joint ventures are the preferred mode of alliances when
the possibility of cheating is high.
An equity alliance is an alliance in which one or more partners assume a greater ownership interest in
either the alliance or another partner. Equity investments increase the stake for companies involved in
the alliance. Because one partner has invested in the equity of another as part of the alliance, this
company is not likely to cheat on the joint-venture partner. If it does, then its equity in the joint
venture partner loses value.
The most common form of strategic alliance is associated neither with a separate entity nor equity
interests. Arrangements such as licensing, franchising and supply contracts are examples of non-equity
alliances. Non-equity alliances are agreements under which companies collaborate in order to supply,
produce, market or distribute products over an extended period of time but without substantial
ownership investment in the alliance.
It is also common that alliances involve multiple partners. In consortia, several companies and possibly
governments, collaborate towards a shared strategic purpose. Inputs to these cooperative agreements
include information and sharing of other resources. The development of technology, for instance,
often requires the collaboration of multiple partners.
4. Why do some alliances fail while others succeed?
Alliances fail due to the following reasons:
 Some alliances fail due to the cultural clashes between partners;
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 Partnering for the wrong reason (e.g. adopting an ‘everyone else is doing it’ herd mentality) also
might lead to alliance failure;
 Companies may demonstrate opportunistic behaviour in their alliance formation; they may ignore
responsibilities and become free-riders (expecting that their partners will do the job); they may
distort information or have hidden agendas (partners in an alliance also compete with each other
and have very different characteristics);
 Staff may display their loyalty to their respective companies rather than to the alliance;
 Partners may be entering into an alliance with an objective to test the market before the launch of
a wholly owned subsidiary;
 Companies believe that their successful experience in alliances with other partners can be
transferred to their new alliances without working on the implications of doing so.
The key success factors of alliances include: specific goals, life span, tasks, responsibilities and
achievement measures; use of pilot ideas; ongoing management, coordination, transparency and
communication; commitment; value chain alignment; active team work and staff training.
5. Why and how should companies plan for their exit from an alliance?
Exiting an alliance should be performed the same way the company enters it — in a spirit of
cooperation, openness, trust, mutual benefit and assistance, and in accordance with the original
guiding principle. Companies should plan for their exit from an alliance if they do not gain any
competitive advantage from their partnerships. They may consider exiting if they are not able to
capitalise on opportunities, strengthen their capabilities, and share their resources.
Should companies plan for their exit from an alliance, partners may help each other to find alternative
suppliers, customers or partners. The best approach to exit is when partners agree upfront what the
‘rules of disengagement’ are for an alliance. These rules set out each partner’s responsibilities and
obligations when the relationship is to be terminated or is to be downsized to a less critical or strategic
position. These accepted rules will clarify a wide range of issues with regard to people and other
resources allocation, fair access to training equipment and sites, appropriate confidential information,
and fair pricing for intellectual property issues, and maintenance and service issues.
6. Discuss moral hazards that can derail an alliance and prevent one partner from doing its best in
the alliance. What can be done to deal with it?
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Companies may demonstrate opportunistic behaviour in their alliance formation, ignore
responsibilities and free-ride on their partners (expecting that their partners will do the job), distort
information or have hidden agendas to strengthen their own capabilities and disregard any benefits to
their partners.
7. ‘Strategic alliances will not survive in the long term if the participating partners do not share
clearly-defined objectives’. Discuss this statement in relation to any alliances that have been
featured in this chapter or have recently been highlighted by the media.
TAB (Tingyi-Asahu Beverages Holding Co. Ltd) has formed an alliance with PepsiCo to be their franchise
bottler in China. The two companies have worked very well as they have clearly-defined objectives for
the alliance. PepsiCo wants to be more competitive with its long-term rival, Coca-Cola Co. With the
difficulty to enter China’s market, PepsiCo would need a partner to do this. TAB is responsible for
bottling Pepsi products and the partnership would enable TAB to be associated with a strong brand
and improve its overall revenues. PepsiCo at the same time is able to improve its operating efficiencies
and forms closer relationships with its customers through its partnership with TAB. As China is being
considered as the largest beverage market in the world, the partnership will create sustained value for
both companies as they have clearly-defined objectives and need each other to be competitive. Both
companies share the objectives of further penetration of the Chinese market and share risks and
investments.
8. Alliances can be used to assist companies analyse the economic potential of entering a new
industry or market. Why would a company seeking to analyse these opportunities simply not
hire market analysts and industry experts to evaluate the economic potential of entering into a
new market? Is there anything that makes an alliance a better way to evaluate entry modes than
alternatives (i.e. by doing it alone or through acquisitions)?
Both internal development (‘going it alone’) and acquisitions can substitute for alliances under certain
circumstances. If the risks of new investments are known with certainty and the company has the
resources to implement the desired activity, it may ‘go it alone’ or, in other words, vertically integrate
into the activity. Alliances are preferred over ‘going it alone’ when the potential partner has valuable
resources that are costly to acquire. Further, alliances offer a great deal more flexibility compared to
‘going it alone.’ Under certain conditions, forging a strategic alliance is a better option than an
acquisition.
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One such circumstance is when there are legal (antitrust/competition law) constraints on an
acquisition. A second circumstance is when an acquisition would allow for less flexibility under
conditions of uncertainty. A third circumstance is when an acquisition may bring ‘undesired’ parts of
the acquired company to the acquiring company. This ‘extra load’ may make the acquisition less
preferred. Ultimately, in some cases, the value of a company is maximised when it is an independent
entity. This value may be reduced when it is owned by another company. Since strategic alliances
allow the company to retain its independent status, they may be preferred over acquisitions. One
study on intercompany resource combination emphasises the importance of three factors that make
an alliance a more attractive option than an acquisition: (1) the resource similarity and
complementarity between the two companies, (2) the combined relational capabilities of the two
companies, and (3) the partner-specific knowledge between the two companies.
9. There is a growing popularity of strategic alliances as a vehicle to access international markets.
Review the reasons that make alliances fail. Do you think these reasons are more relevant to
international strategic alliances? Why, or why not?
Alliances fail due to the following reasons:
 Some alliances fail due to the cultural clashes between partners; and this is certainly even more
relevant to international strategic alliances because partners are from different culture.
 Partnering for the wrong reason (e.g. adopting an ‘everyone else is doing it’ herd mentality) also
might lead to alliance failure; this is no more relevant to international strategic alliances;
 Staff may display their loyalty to their respective companies rather than to the alliance;
 Partners may be entering into an alliance with an objective to test the market before the launch of
a wholly owned subsidiary;
 Companies believe that their successful experience in alliances with other partners can be
transferred to their new alliances without working on the implications of doing so.
All these reasons are even stronger in international strategic alliances. Different countries obviously
have their different cultures; this coupled with different organisational cultures may make alliances
difficult to manage.
10. How do stable and dynamic environments make alliances different? How is alliance success
affected by the characteristics of the environment? Support your statements by using examples
of alliances in stable and dynamic environments.
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Alliances are normally used in dynamic industries where frequent changes happen. One organisation
may be facing constraints due to the numerous and quick changes, but with the partnership of another
organisation, the constraints may be minimised. In a dynamic environment, the basis of alliance is
based on innovation and technological superiority. In a stable environment, the basis of alliance could
be based on differentiation, cost leadership and incremental product or service improvements.
An example of an alliance in stable environments is the alliance between a public utility board and a
supplier in providing utility services within the country or state. An example of this would be Sydney
Water.
An example of an alliance in dynamic environments is the alliance between Nissan and Renault.