PowerPoint Lecture 9
PowerPoint Lecture 9
Competitive Strategy
• licensing agreements
• distribution agreements
• supply contracts
• outsourcing commitments.
TYPES OF ALLIANCES
A joint venture involves two or more firms creating a legally
independent company to share resources and capabilities
to develop a competitive advantage.
• It is an optimal choice when firms need to combine their
resources and capabilities to create a competitive
advantage that is substantially different from individual
advantages and when highly uncertain, hypercompetitive
markets are targeted.
• Example: In 1999, Germany’s Siemens AG and Japan’s
Fujitsu Ltd. each owned 50 per cent of the joint venture
Fujitsu Siemens Computers B.V., later to become Fujitsu
Technology Solutions when Fujitsu bought Siemens’
share of the joint venture.
TYPES OF ALLIANCES
An equity strategic alliance involves two or more firms
owning different percentages of the company they
have formed by combining some of their resources and
capabilities for the purpose of creating a competitive
advantage.
• Many foreign direct investments, such as those being
made in China, are completed through an equity
strategic alliance.
• Example: Japanese telecom NTT DOCOMO Inc. and
Chinese Internet search operator Baidu Inc.
established an equity strategic alliance in China to
distribute games and other mobile phone content.
TYPES OF ALLIANCES
A non-equity strategic alliance involves two or more firms
developing a contractual relationship to share some of their
unique resources and capabilities to create a competitive
advantage.
• This does not establish a separate interdependent
company, so there are no equity positions.
• The alliance is less formal, has fewer partner commitments
and does not foster an intimate relationship among
partners.
• Example include licensing agreements, distribution
agreements and supply contracts. Hewlett-Packard actively
uses this type of cooperative strategy to license some of its
intellectual property.
Different Markets require Alliances for different reasons
In-Class Activity
Standard Cycle
(tip: think of an industry where the power has shifted due to members of
one link in the supply chain deciding to cooperate)
[note: collusion wrt price fixing is illegal]
Slow Cycle
(tip: think of industries or businesses entering third world countries for the
first time)
Fast Cycle
(tip: think of a business hoping to set up in the USA, Japan or Singapore)
REASONS for ALLIANCES
Alliances can:
• provide a new source of revenue (i.e. 25 per cent
or more of a firm’s sales revenue)
• be a vehicle for firm growth
• enhance the speed and depth of responding to
market opportunities, technological changes and
global conditions
• allow firms to gain new knowledge and
experiences to increase competitiveness.
REASONS for ALLIANCES
Market Reason
Slow- • Gain access to a restricted
cycle market
• Establish a franchise in a new
market
• Maintain market stability
(e.g. establishing standards)
REASONS for ALLIANCES
Fast-cycle markets
• ‘Collaboration mind-set’ is paramount.
• Alliances between firms with current excess
resources and capabilities and those with
promising capabilities help companies compete
in fast-cycle markets to effectively transition from
the present to the future and to gain rapid entry
into new markets.
REASONS FIRMS DEVELOP
STRATEGIC ALLIANCES
Market Reason
Fast- • Speed up development of
cycle new goods or service
• Speed up new market entry
• Maintain market leadership
• Form an industry technology
standard
• Share risky R&D expenses
• Overcome uncertainty
REASONS for ALLIANCES
Standard-cycle markets
• Competitive advantages are moderately shielded
from imitation in these markets, typically allowing
them to be sustained for a longer period than in
fast-cycle market situations, but for a shorter period
than in slow-cycle markets.
• Alliances are more likely to be made by partners
that have complementary resources and
capabilities.
• E.g. Airlines
REASONS for ALLIANCES
Market Reason
Standard- • Gain market power (reduce
cycle industry overcapacity)
• Gain access to complementary
resources
• Establish economies of scale
• Overcome trade barriers
• Meet competitive challenges from
other competitors
• Pool resources for very large
capital projects
• Learn new business techniques
BUSINESS COOPERATION
Firms using a business-level cooperative strategy
combine some of their resources and capabilities for
the purpose of creating a competitive advantage by
competing in one or more product markets, eg:
- Sharing of knowledge
- Benchmarking of Performance
Complementary • Competitors:
strategic – initiate competitive actions to
alliances attack rivals
– launch competitive responses to
Competition their competitor’s actions.
response strategy • Strategic alliances:
– can be used at the business level
to respond to competitor’s attacks
– are primarily formed to take
strategic actions, as opposed to
tactical actions
– can be difficult to reverse
– Are expensive to operate.
BUSINESS-LEVEL COOPERATION
Cost Minimisation
• The partner relationship is formalised with
contracts.
Opportunity Maximisation
• The focus is maximising a partnership’s value-
creation opportunities.
• Informal relationships and fewer constraints allow
partners to:
– take advantage of unexpected opportunities
– learn from each other
– explore additional marketplace possibilities.