global strategy mike w. peng c h a p t e r 77 copyright © 2014 cengage learning. all rights...

Global StrategyGlobal StrategyMike W. PengMike W. Peng

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Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global StrategyGlobal StrategyMike W. PengMike W. Peng

Chapter 7

Making Strategic

Alliances and Networks

Work

Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Outline

• Defining strategic alliances and networks

• A comprehensive model of strategic alliances and networks

• Formation

• Evolution

• Performance

• Debates and extensions

• The savvy strategist


Defining Strategic Alliances andNetworks

• Strategic alliances are “voluntary agreements between firms”

• Strategic alliances are compromises between pure market transactions and mergers and acquisitions

• Alliances fall into two broad categories: contractual (non-equity) and equity-based

• Strategic networks are strategic alliances formed by multiple firms to compete against other networks and singular firms


The Variety of Strategic Alliances

• Strategic AlliancesA compromise between short-term, pure

market transactions (e.g., spot transactions) and long-term, pure organizational solutions (e.g., mergers and acquisitions)

The Variety of Strategic Alliances

Mergersand

Acquisitions(M&A)

Mergersand

Acquisitions(M&A)

MarketTransactions

MarketTransactions

Figure 7.1

© M. W. Peng (www.mikepeng.com) 7–5

A Comprehensive Model of Strategic Alliances and Networks


A Comprehensive Model of Strategic

Alliances and Networks• Industry-based considerationsTraditional: Firms are independent playersThe dynamic of five forces:

Horizontal alliances, entry barriers, upstream alliances with suppliers, downstream vertical alliances with buyers, and alliances and networks to provide substitute products/services

• Resource-based considerationsThe resource-based view is embodied in the

VRIO framework, which are value, rarity, imitability and organizational aspect of strategic alliance and networks

© M. W. Peng (www.mikepeng.com)

Industry-based considerations

Figure 2.12–7


Resource-based considerations

Alliances can create or diminish value (V)

Reduce costs, risks and uncertainties.Access complementary assets and learning opportunities.Use alliances as real options.

Choosing wrong partners.Potential partner opportunism.Risk of helping nurture competitors (learning race).


… R, I, O aspects of alliances

Rarity – relational

(collaborative) capabilities, the ability to manage inter-

firm relationships, may be rare.

Inimitability – alliances may make it easier to observe and

imitate firm-specific

capabilities.

Organization – some

successful alliances are

organized in a way that is difficult to replicate.

INFLUENCE OF INSTITUTIONS

Formal institutions

Antitrust concerns – antitrust authorities more likely to approve alliances than

acquisitions. Entry requirements – many governments

place limitations on foreign firm’s mode of entry

INFLUENCE OF INSTITUTIONS

Informal institutions

Normative pillar –firms copy other reputable organizations to establish

legitimacy. Cognitive pillar – internalized, taken-for-granted values that guide alliances and

acquisitions.


Strategic Alliances and Networks:Advantages and Disadvantages

• Strategic alliances and networks must create value

• Advantages must outweigh disadvantages

Table 7.1

ADVANTAGES DISADVANTAGES

Reduce costs, risks, and uncertainties Possibilities of choosing the wrong partners

Gain access to complementary assets and capabilities Costs of negotiation and coordination

Opportunities to learn from partners Possibilities of partner opportunism

Possibilities to use alliances networks as real options Risks of helping nurture competitors (learning race)


Formation

• Stage one: To cooperate or not to cooperate

• Stage two: Contract or equity?

• Stage three: Positioning the relationship


FORMATION OF ALLIANCES


Stage Two: Contract or Equity?DRIVING FORCES EQUITY-BASED

ALLIANCES/NETWORKSNON-EQUITY-BASED

ALLIANCES/NETWORKS

Nature of shared resources High Low(degree of tacitness and complexity)

Importance of direct organizational High Lowmonitoring and control

Potential as real options High (for possible upgrading to M&As) High (for possible upgrading to equity-based relationships)

Influence of formal institutions High (when required or encouraged byregulations)

High (when required or encouraged byregulations)


Evolution

• Combating opportunismNeed to protect against opportunismContractual safeguards and credible commitment

• Evolving from strong ties to weak ties Strong ties are cultivated over a long period of timeWeak ties are characterized by infrequent

interaction and low intimacyFirms have a combination of strong ties and weak

tiesBenefits of the different types of ties depend on the

firms’ strategies Many interfirm relationships evolve from an

emphasis on strong ties to a focus on weak ties

Source: M. Peng and O. Shenkar (2002). Joint venture dissolution as corporate divorce. Academy of Management Executive, 16 (2): 95.

Evolution (cont)


Performance

• The performance of strategic alliances and networksA combination of objective and subjective

measures can be used to determine performance

Four factors may influence the performance of alliances and networks: equity, learning and experience, nationality, and relational capabilities

• The performance of parent firms


Alliance- and Network-Related Performance Measures

ALLIANCE/NETWORK LEVEL PARENT FIRM LEVEL

Objective Objective

Financial performance (for example, profitability) Financial performance (for example, profitability)

Product market performance (for example, market share) Product market performance (for example, market share)

Stability and longevity Stock market reaction

Subjective Subjective

Level of top management satisfaction Assessment of goal attainment

Table 7.4


Debates and Extensions

• Majority JVs as control mechanisms versus minority JVs as real options

• Alliances versus acquisitions

• Acquiring versus not acquiring alliance partners


Improving the Odds for Alliance Success

Table 7.7Source: Based on text in M. W. Peng & O. Shenkar, 2002, Joint venture dissolution as corporate divorce (pp. 101–102), Academy of Management Executive, 16 (2): 92–105.

AREAS DO’S AND DON’TS

Contract versus “chemistry” No contract can cover all elements of the relationship. Relying on a detailed contract doesnot guarantee a successful relationship and it may indicate a lack of trust.

Warning signs Identify symptoms of frequent criticism, defensiveness (always blaming others forproblems), and stonewalling (withdrawal during a fight).

Investment in the relationship Like married individuals working hard to invigorate their ties, alliances require continuousnurturing. Once a party starts to waver, it is difficult to turn back.

Conflict resolution mechanisms “Good” married couples also fight. Their secret weapon is to find mechanisms to avoidunwarranted escalation of conflicts. Managers need to handle conflicts-inevitable in anyrelationship-in a credible, responsible, and controlled fashion.


The Savvy Strategist

• New generation of strategists needs to be savvy at both competition and cooperation— “co-opetition”

• Improving relational (collaborative) capabilities is crucial for success

• Need to understand the rules of game governing networks - both formal and informal

• Carefully weigh the pros and cons associated with alliances and acquisitions

global strategy mike w. peng c h a p t e r 77 copyright © 2014 cengage learning. all rights...

Documents

networks strategic alliances

firms strategic alliances

acquisitions alliances

strategic networks

upstream alliances

horizontal alliances

vertical alliances

inimitability alliances