Strategic Alliances: Hybrid Forms of Scope Expansion Flashcards
What is the market/hierarchies distinction?
- Market: Spot transactions
- Strategic business alliances; alternative to pure ‘market’ and pure ‘hierarchy’, when making company scope decisions
- Hierarchies: Vertical integration (wholly owned)
What does scope expansion imply?
Scope expansion implies that you need resources/capabilities/knowledge/technology that you don’t currently have
How can you acquire the resources for scope expansion?
- Replicate in-house (build)
- Acquire (buy)
- Ally
What are issues with a Acquire strategy
- Can be expensive (more expensive than real value: premium above market cap)
- Acquirer offers purchase value; acquisition premium is this minus market value (market cap)
- Reason to pay this premium: synergy value is higher than purchase premium
- Integration problems
- e.g. United Continental merger difficulties: practical + cultural
- “Indigestibility”
- Difficult to seperate ‘valuable’ part of acquisition from liabilities or the irrelevant
What is the reality of using an Ally strategy?
- Can achieve all the same outcomes without the costs of acquisitions
- Most managers recognise alliances can attain as good outcomes; but most don’t consider them as an alternative to buying
What are alliances?
- Two or more seperate firms
- Continuing relationship
- Going decision making
What are alliance returns?
- Access to resources for scope expansion (scale, R&D, marketing alliances)
- Attenuate risk-exposure
- Alliances to restructure
- etc.
What are the alliance value creation logics?
- Co-Specialisation
- Co-opting logic
- Internalisation
What is the co-specialisation alliance value creation logic?
- Value creation from combining specialisations
- Creation of new markets/opportunities
- Allows focus on core-competencies
- Valuable in systems ‘solutions’
What is the Co-opting logic alliance value creation logic?
- Building critical mass
- Banding together
- Co-opt with competitors; or with others against market leaders (European telecoms in the 1990s, PowerPC alliance)
- Setting industry standards
- VHS engaged in many alliances; Sony did not, did not license out etc, lost despite having superior product.
What is the Internalisation alliance value creation logic?
- Winning the learning race in alliances
- Related to co-specialisation: this is the first step of internalisation, the second is leaning - internalising - the knowledge of the partner
What are the risks of alliances?
- 50% Failure without meeting objectives
- Relationship risk
- Relationship issues are variables; non existent in buy or build; softer aspects: distrust
- Misappropriation risk
- Unintended tech/knowledge spillover
What is the practical question/answer about alliances?
- Effective coordination while minimising risk?
* Effective design
What are the dimensions of effective alliance design?
- Scope of the Alliance
- Partner choice and contributions
- Alliance governance structure
What is asked in considering the scope of the alliance in assessing effective alliance design?
- What stage of the value chain?
- Avoid core competencies/sources of competitive advantage
- Different MES of production across stages
- Risk-sharing
- Refocus on core competencies, outsource burdens
- Reshape competition in the industry
