BU398 Chapter Notes - Chapter 6: Accelerating Change, Technology Transfer, Developed Market
Chapter 6: Engaging in Cross-Boarder Collaboration: Managing Across
Corporate Boundaries
• Historically the strategic challenge for company has been viewed primarily as
protecting potential profits from erosion
• The key challenge facing a company was assumed to be its ability to maintain its
independence by maintaining strong control over its activities
• The need to pursue multiple sources of competitive advantage simultaneously led to
the need to building not only an interdependent and integrated network
organization within the company, but also collaborative relationships with other
firms, be they competitors, customers, suppliers or a variety of other institutions
• Instead of trying to enhance their bargaining power over customers, companies
began to build partnerships with them, thereby bolstering the customers
competitive position and, at the same time, leveraging their own competitiveness
and innovative capabilities
Why Strategic Alliances?
• The term strategic alliance is used to describe a variety of interfirm cooperation
agreements, ranging from shared research to formal joint ventures and minority
equity participation
• The key challenges surrounding the management of the various types of alliances
will vary
• In some cases, it may relate to the fairness of management or technology
payments, in others, it may be related to where the organizational problems
typically arise
• Every form of alliance has predictable strengths and weaknesses, because each form
is intended and designed for particular circumstances
• Many firms worldwide, including industry leaders, are increasingly involved in
strategic alliances
• Classically, traditional joint ventures were formed between a senior multinational
headquartered in an industrialized country and a junior local partner in a less
developed country
o The primary goal that dominated their formation was to gain new market
access for existing products
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o The senior partner provided existing product, while the junior partner
provided the local marketing expertise, the means to overcome any
protectionist barriers and the governmental contracts to deal with national
regulations
o Both partners benefitted
• In contrast, the scope and motivations for the modern form of strategic alliances are
clearly broadening
• There are three trends that are particularly noteworthy
o Present day strategic alliances are frequently between firms in
industrialized countries
o The focus is often on the creation of new products and technologies rather
than the distribution of existing ones
o Present day strategic alliances are often forged for only short periods of time
• New forms of strategic alliances expand the strategic importance of cooperation
considerably beyond that which existed for classic joint ventures, and the
opportunity for competitive gain and loss through partnering today is substantial
Technology Exchange
• Technology transfer or R&D collaboration is a major objective of many strategic
alliances
• The reason that technological exchange is such a strong driver of alliances is
because as more breakthroughs and major innovations are based on
interdisciplinary and niter-industry advances, the formerly clear boundaries
between different industrial sectors and technologies become blurred
• As a result, the necessary capabilities and resources are often beyond the scope of a
single firm, making it increasingly difficult to compete effectively on the strength of
one’s own internal R&D efforts
• The need to collaborate is intensified further by shorter product life cycles that
increase both the time pressure and risk exposures, while reducing the potential
payback of massive R&D investments
• Technology intensive sectors, such a telecommunications, have become the central
arenas for major and extensive cooperative agreements
• Companies in these industries face an environment of accelerating change, short
product life cycles, small market windows and multiple vertical and lateral
dependencies in their value chains
• Because interfirm cooperation has provided solutions to many of these strategic
challenges, much of the technological development in these industries is being
driven by some form of R&D partnership
Global Competition
• A widespread perception has emerged that global competitive battles will
increasingly be found between teams of players aligned in strategic partnerships
• Particularly in industries in which there is a dominant worldwide market leader,
joint ventures, strategic alliances, and networks allow coalitions of smaller partners
to compete more effectively against a global common enemy rather than against
one another
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Industry Convergence
• Many high technology industries are converging and overlapping in a way that
seems destined to create a huge competitive traffic jam
• Producers of computers, telecommunications and components are merging,
biological and chip technologies are intersecting and advanced materials
applications are created greater overlaps in diverse applications from the aerospace
automotive industry
• The preferred solution to this challenge has been to create cross industry alliances
• Strategic alliances are sometimes the only way to develop the complex and
interdisciplinary skills necessary in the time frame required
• Alliances become a way of shaping competition by reducing competitive intensity,
excluding potential entrants and isolating particular players, and building complex
integrated value chains that can act as barriers to those who choose to go it alone
Economies of Scale and Reduction of Risk
• There are several ways that strategic alliances and networks allow participating
firm to reap the benefits of scale economies or learning- advantages that are
particularly interesting to smaller companies trying to match the economic benefits
that accrue to the largest MNEs
• Partners can pool their resources and concentrate their activities not only to raise
the scale of activity, but also to increase the rate of learning within the alliance
compared to what each firm could achieve operating separately
• Alliances enable partners to share and leverage the specific strengths and
capabilities of all other participating firms
• Trading different or complementary resources among companies can result in
mutual gains and save each partner the high cost of duplication
• While partnering has proven to be particularly useful for smaller firms that pursue
rapid growth with limited resources, even the very largest MNEs have recognized
the investment and growth benefits associated with partnering with other
companies rather than going it alone
Forming Alliances as an Alternative to Merging
• There remain industry sectors in which political, regulatory and legal constraints
limit the extent of cross border mergers and acquisitions
• In such cases, companies often create alliances not because they are inherently the
most attractive organizational form, but because they represent the best available
alternative to a merger
o Examples: airline and telecommunication industries
• Alliances of this type often lead to full-scale global integration if restrictions on
foreign ownership are lifted.
• Firms may prefer to engage in longer-term partnerships relations rather than
merge.
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Document Summary
Chapter 6: engaging in cross-boarder collaboration: managing across. Instead of trying to enhance their bargaining power over customers, companies began to build partnerships with them, thereby bolstering the customers competitive position and, at the same time, leveraging their own competitiveness and innovative capabilities. Forming alliances as an alternative to merging: there remain industry sectors in which political, regulatory and legal constraints limit the extent of cross border mergers and acquisitions. Building cooperative ventures: three aspects to pre-alliance process to which managers must pay close attention if the alliance is to have the best possible chance of success: partner selection, escalating commitment, and alliance scope. Some managers involved in the process can build up a great deal of personal enthusiasm and expectations in trying to sell the idea of the alliance within their own organization. (cid:498)the thrill of the chase blinds the pursuers to the consequences of the catch(cid:499)
