What is a Strategic Alliance? • A formal and mutually agreed commercial collaboration between companies • The partners pool, exchange or integrate specific business resources • Yet they remain separate businesses, making alliances distinct from mergers and acquisitions Merger & Acquisition (M&A) Before Merger A B Before Acquisition A B After Merger A B After Acquisition A Strategic Alliance 1. A new jointly owned firm is formed. => Joint Venture Before A After B A B A1B1 2. No new company is formed. => Non-JV alliance Before A After B A B Strategic Alliance or Collusion? • On December 2001, the Justice Dept. advised the Dept. of Transportation to reject a proposed alliance between American Airlines and British Airways. Why not approved: The alliance “threatens a substantial loss of competition which would likely result in higher air fares and reduced service.” Strategic Alliance or Collusion? • In 2008, GE Aircraft Engines and Whitney have established a JV to develop and sell a new engine for the Airbus “super-jumbo jet A380. Why Approved: · Huge R&D costs · limited market The Scope of Strategic Alliance Comprehensive Alliance Bosch and Samsung joint venture for Lithium-ion batteries The fifty-fifty joint venture “SB LiMotive Co. Ltd.” of Bosch and Samsung SDI has started its operations on September 1, 2008. The objective of the new company is to develop, manufacture, and sell lithium -ion batteries for automotive applications. The JV plans to market the products worldwide in 2011. Top Seven U.S. JV SIC Codes (1990-00) SIC Code Industry # of Joint Ventures 1311 Crude Petroleum & Natural Gas (Oil and Gas Exploration industry) 80 3711 Motor Vehicles & Passenger Car Bodies 44 3573 Electronic Computing Equipment 28 2834 Biological Products 25 3674 Semiconductors & Related Devices 18 3714 Motor Vehicle Parts & Accessories 18 2911 Petroleum Refining 14 IKEA’s Non-Equity Buyer-Supplier Alliances IKEA provides component suppliers with… • Product design • Technical assistance • Leased equipment • Loans IKEA’s suppliers get… • New skills • Direct access to growing retailer • Steady sales IKEA gets… • Low cost, high quality supply • Loyalty (partnership) 삼성전자는 하반기에 세화 등 9개 TV 부품 협력사에 TOC 사출기와 같은 양산 설비 570억원 규모를 무상으로 지원했다고 6일 밝혔다. 삼성은 상반기에도 160억원 설비를 투자해 올 한 해에만 총 730억원을 지원하게 됐다. 이는 지난해 490억원에 비해 49% 증가한 규모다. 삼성전자 측은 “대당 20억∼30억원에 이르는 고가 설비 투자를 지원해 협력사는 제조 기술 역량을 극대화할 수 있을 것” 이라고 말했다. 삼성전자와 협력사는 TV 업계에서 처음 시도하는 이중 사출 프레임을 개발하기 위해 상품 기획 단계부터 협력을 진행해 왔다. 개발자들이 공동으로 해외 선진 현장을 방문해 관련 기술을 벤치마킹하는 등 단순한 ‘자금 지원’ 차원을 넘어 긴밀한 협력 관계를 유지해왔다. 상생 협력으로 탄생한 삼성전자 ‘크리스털 로즈’ 디자인 TV는 프리미엄 라인업인데도 지난 4월 출시 이후 불과 5개월 만에 100만대 이상을 판매했다. <전자신문 2008. 11> Popular View Says JVs are: •A transitional organization form. •Less profitable. •Impossible to manage. •A sure way to lose one’s technology. •Only undertaken as a last resort. Objective Reality •Average age of international JVs nearly 10 years (similar to greenfield startups; longer than acquisitions). •Profitability identical with other organizational alternatives. •Managing has become easier, so usage up. 40% of all investments in Asia Pacific are JVs. JVs in China proliferate. Objective Reality (cont’d) •Japanese companies which possess strong technology often prefer to use JVs. •The days of government regulation forcing the use of JVs are behind us. Designing the Successful Alliance Testing the Partnership Shape Strategic and and Logic Fit Design 1. Testing the Strategic Logic • Why are we discussing working together? • What benefits will accrue to each of us? • How will we each measure performance? Is there congruity? 2. Partnership and Fit •The scope of activity •Partner selection Scope of Activity Narrow vs. Wide Single, Geographic Market vs. Multi-Country Single Function vs. Complete Value Chain Modest Investment vs. Large Scale Existing Business vs. New Business Limited Term vs. Forever Partner Selection Possesses + Access + Compatibility the Skills Access vs. Acquisition Parent A Parent B Wants access to partner’s knowledge Wants access to partner’s knowledge The Classic “Joint” Venture  A cooperative alliance (very stable) Wants acquisition of partner’s knowledge Mixed Motive  A pseudo alliance (eventually unstable) Wants acquisition of partner’s knowledge Mixed Motive  A pseudo alliance (eventually unstable) “Race to Learn”  A competitive alliance (very unstable) Partner Selection: Comfort vs. Competence Higher Unstable Target Non-Starter Unstable Partner Comfort Lower Lower Higher Partner Competence Shape and Design •What investment is required of each prospective partner to deliver success? •How should joint activity be managed? Investment Necessary for Success • Physical (money, people, assets) • Attitudinal commitment!! • After the deal… – trust vs. legal consideration – continuing top management attention – watch for inequities – be flexible, or you’ll lose it Control in Joint Ventures Two types: 1. One parent dominates the venture’s decision making 2. Parents are both involved in decision making – shared – split