group 6, strategic alliances vk advanced topics in strategy and organization ws 2004 ao. univ. prof....

VK Advanced Topics in Strategy and Organization WS 2004Ao. Univ. Prof. Dr. Josef Windsperger

Group 6, Strategic Alliances

Presentationof Group 6 WS 2004

Internationalization through

• licensing

• joint ventures

• strategic alliances



Overview of strategic alliances

Financial engagement

Deg

ree

of in

ter-

conn

ectio

nCross

Sharing

Subsidaries Mergers

OEM

contracts

Joint

Venture

Acquisition

Cooperation Licensing

Franchising

Investment



1.1 What are Strategic Alliances?1.1 What are Strategic Alliances?1.2 Key Characteristics of Alliance 1.2 Key Characteristics of Alliance

NetworksNetworks1.3 Advantages of Alliance Networks1.3 Advantages of Alliance Networks1.4 Group-Based vs. Company-Based1.4 Group-Based vs. Company-Based

AdvantagesAdvantages1.5 Hidden Costs of Alliance Groups1.5 Hidden Costs of Alliance Groups

1. Overview of strategic alliances1. Overview of strategic alliances



1.1 What are Strategic Alliances1.1 What are Strategic Alliances

• Companies unite to pursue the same goals but remain legally independent

• The partners share both the benefit of the Alliance and control over the performance

• The partners contribute on a continuing basis to key strategic areas



1.2 Key characteristics of 1.2 Key characteristics of Alliance Networks Alliance Networks

• Size

• Pattern of Growth

• Composition

• Internal Competition

• Governance structure



1.3 Advantages of Alliance Networks1.3 Advantages of Alliance Networks

• Alliance networks can help contending companies promote their technologies and gain a critical mass required to persuade more business to use their design

• Linking with companies may help to spread costs over large volumes and to access to skills and assets

• Networks allow specialists to cooperate and exploit new opportunities much faster



1.4 Group-Based vs. 1.4 Group-Based vs. Company-Based Advantages Company-Based Advantages

• Is the whole greater than the sum of its parts? Cooperation between firms

• Who controls the group? How control is shared

• Where is the competitive advantage created? Advantages according to the group and to the role



1.5 Hidden Costs of Alliance Groups1.5 Hidden Costs of Alliance Groups

• Organizational Constraints

• Strategic gridlock

• Dependence



What we learned from the pioneers

• Manage individual relationships carefully

• Manage the group as whole

• Expand with caution

• Position your company strategically within and among alliance groups

• Be sure that network strategy is sustainable for your company



2.1 Acquisition

= joining of (usually) unequal partners.

A large organization purchases all or a controlling share interest in a smaller business and then subsumes it into its structure

agreed vs hostile acquisitions



2.2 Cross Sharing

= agreement between two or more companies to swap shares. As they get involved with each other’s businesses, they cross share information and/or each other’s facilities



2.3 OEM-Agreements

= Original Equipment Manufacturing

concluded to tie a particular supplier to a manufacturer of the final product

Exclusivity?



2.4 Subsidiaries

• Subsidiaries in transnational organizations: strong local boards of directors with head office, local presentation, boards work out the key strategy.

• managers of subsidiary: active on the key operating committees of parent.



2.5 Consortia

= group of organizations whose purpose is to collectively facilitate and support the work of a service program in ways that add material and human resources beyond those available to each organization individually.



• involves two or more organizations in a form of joint venture arrangement

• focused on a particular venture or project.

• inter-organizational relationships are likely to be formalized, in the form either of shareholding or of agreements specifying asset sharing and distribution of profits.

2.5 Consortia



2.6 Joint Ventures

= separate entity created with two or more active companies (of different nationalities) as sponsors.

allow partners to

+) pool resources and coordinate their efforts

+) sharing development and production costs

+) penetrating new markets



Main reasons for creating Joint Ventures

• Strengthening or protecting the existing business

• Taking products to foreign markets

• Bringing foreign products to local markets

• Diversify into a new business



Transaction Cost Theory of Equity Joint Ventures



We distinguish between

Scale JV’s

• Parents strive to internalize a failing market, but indivisibilities due to scale and scope economies, make full ownership exceedingly difficult

Link JV’s

• Results from the simultaneous falling of the markets for the services of two or more assets (firm- specific-goods), to save management costs



• Raw materials and components

• Knowledge (Patents vs. “tacit” knowledge)

• Distribution• Loan capital

Why are equity links/shared ownerships formed?



Joint venture formation

• Joint venture failure rates remain rather high

• Too many firms jump into joint venture

negotiations without adequate planning

• Joint venture negotiations only represent the

first step in a multiple step relationship



Planning issues

• Value – creation• Forming a JV involves several risk factors• Negotiable and non negotiable issues• Relationship is built between individuals• Development of trust



2.7 LICENSING

• Definition: Licensing is the business of leasing the right to use a legally protected name, graphic, logo, saying or likeness in conjunction with a product, promotion, or service.

• Licensor

• Licensee



Advantages of Licensing

• Less costs and risks

• Easy entry mode in the foreign market

• Especially attractive option for firms lacking capital

• Option when a firm is not willing to commit substantial financial resources to an unfamiliar foreign market.



Disadvantages of Licensing

• Lack of certain control • Licensing limits a firm’s ability to use its

profits to support a different licensee in another country.

• Firm can quickly lose control over its technology by licensing it. However, technological know – how constitutes the basis of many multinational firm’s competitive advantage.



Research: Licensing or Joint ventures?

• Objective

to identify how successfully existing theories can be applied to the understanding of entry mode into China` s socialist market economy



• Cost Motives H1: “The greater the motives for investing directly in

China, the more EC firms are likely to employ joint ventures as opposed to licensing”

• Country Risks H2: “EC firms which consider China as a high risk country

are less likely to enter china through joint ventures”.

• Firm Experience H3: “The greater the international experience and

business experience of EC firms in China, the more they will employ joint ventures.”



• Firm Size H4: “The larger the firm size, the more likely that firms

will employ joint ventures.”

• Physic Distance: H5a: “The larger the cultural distance between EC firms`

home countries and China, the more likely they are to employ joint ventures instead of licensing.

• H5b: “The larger the political and economic distance between EC firms ` home countries and China, the less likely these firms are to employ joint ventures.”

• Outcomes



Licensing or direct foreign Investment ?

The effects of national culture



Measures

To understand the cultural differences we need to find measures of cultural values, two measures are used to proxy trust:

• Hofstede’s power distance scale

• Confucian Connection’s integration index



Hypothesis

• H1: Managers in high integration societies will perceive lower transaction costs than will managers in low integration societies and will be more likely to favour licensing to direct foreign investment

• H2: Managers in high power distant societies will perceive higher transaction costs than will managers in low power distant societies and will be more likely to favour direct investment to licensing



Results• Licensing is preferred in countries in which trust is

greater• Nations with high levels of government barriers to direct

foreign investment have higher levels of foreign investment relative to licensing (perplex)

• Correlation between countries that barriers foreign investment/licensing is 0.80

• Licensing is more common in highly developed countries

• The low R² value demonstrated that economic forces are probably of greater importance than cultural ones in motivating direct foreign investment (culture has some explanatory power



Conclusion

We can say that cultural differences in trust do influence perceptions of trans action costs and the preference for direct foreign investment across countries, and thereby the choice of foreign market entry mode.



2.8 Partnership

• Partnership is a voluntary collaborative agreement between two or more parties in which all participants agree to work together to achieve a common purpose.

2.9 Mergers

• A combination of two or more companies in which the assets and liabilities of the selling firm(s) are absorbed by the buying firm.

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Case study: mobilkom austria AG& Co KG

History » 1995 mobilkom austria as profit center of Post &Telekom Austra(PTA)» 1996 mobilkom austria AG as subsidiary of Telekom Austria AG» 1997 Telecom Italia Mobile(TIM) joined (25%+1 interest)» 2002 Telekom Austria bought back TIM‘s interest

mobilkom austria AG & Co KG

38© Balam Ngo 2004

» Strategy» Think global, act local!

» Internationalisation» Consortium» Cooperation

• Revenue: 428,3 Mio. EURCustomers: 3,192 Mio. Market share:41,8% of total Austrian mobile phone marketMarket penetration:93,7% of population have a mobile phone(3rd Quarter 2004)


39© Balam Ngo 2004

mobilkom austria goes abroad» Greenfield operation after license award» Consortium with VIPnet in Croatia

How to choose the Consortial partner» Firms with infrastructure (network, sales

outlets for distribution)» Firms with financial power & political

influence» Firms with press coverage power


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The consortial contract» Partners and contributions» Equity shares and voting rights» Call options and share purchase» Management board members and responsibilities» Supervisory board setup


Why Vipnet?» Press coverage power with Vecernij List

- good publicity for mobilkom austria- job announcements- environment protection

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Goal of mobilkom austria:» Int. growth in Central & Eastern Europe» Shareholding steps

25%+1 at least own blocking minority 50%+1 majority and consolidation 75%+1 no other blocking minority 100% full ownership

» VIPnet Croatia also got UMTS licence» Simobil Slovenia ownership

from currently 75%+1 to 100% in 2007


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» Boom is over ( Austria 93.7% penetration rate)» Saturation of the market also soon to be reached in

Liechtenstein, Slovenia and Croatia

• International Growth, but how?

Cooperation with Vodafone

Why Vodafone?» Vodafone worldwide ( 28 Countries, 13 Partner countries)» Vodafone in European Top 5 markets ( Ger, Fr, Sp, It, UK)» 135m proportionate customers worldwide» Coverage in Western Europe» Lack of coverage in Eastern Europe

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Partnership agreement

» Brand» Dual branding (Slovenia, Austria, except Croatia)» Vodafone Live Package » Joint Marketing» Joint Services & Products Developement» Joint Global Account Management» Hand Sets, Vodafone Live Design» Vodafone Fee

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» Vodafone» Global Player Western Europe» Goal: North America

» Mobikom austria» Regional Player Eastern Europe» e.g. Bosnia, Serbia, Bulgaria


Advantages on both sides

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Question:Position of Consortia?

Financial engagement

Deg

ree

of in

ter-

conn

ectio

nCross

Sharing

Subsidaries Mergers

OEM

contracts

Joint

Venture

Acquisition

Cooperation Licensing

Franchising

Investment

Consortia



The Final End

Thank you for your attention!

group 6, strategic alliances vk advanced topics in strategy and organization ws 2004 ao. univ. prof....

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