International Marketing

Strategic Alliances
Prepared to
Dr. Amr Kheir El-din
Prepared by
Mohammed Khairy Derballa

Agenda

Definition
Motives
Advantages
Disadvantages
Risks
Types
Success Factors
Success Examples
Failure Examples

Definition Strategic
Alliances
Definitions including Joint Ventures
A strategic alliance is an agreement between
two or more players to share resources or
knowledge, to be beneficial to all parties
involved. It is a way to supplement internal
assets, capabilities and activities, with access
to needed resources or processes from
outside players such as suppliers, customers,
competitors, companies in different
industries, brand owners, universities,
institutes or divisions of government.

Definition Strategic
Alliances Cont.
Definitions excluding Joint Ventures
An arrangement between two companies that have
decided to share resources to undertake a specific,
mutually beneficial project. A strategic alliance is less
involved and less permanent than a joint venture, in
which two companies typically pool resources to
create a separate business entity. In a strategic
alliance, each company maintains its autonomy while
gaining a new opportunity. A strategic alliance could
help a company develop a more effective process,
expand into a new market or develop an advantage
over a competitor, among other possibilities.

Motives Strategic Alliances

All-in-one solution
Flexibility
Aqcuisition of new customers
Add strengths, reduce weaknesses
Access to new markets+technologies
Common sources
Shared risk

Advantages Strategic
Alliances
Shared risk: The partnerships allow the involved companies to
offset their market exposure. Strategic Alliances probably work best if
the companies portfolio complement each other, but do not directly
compete.
Shared knowledge: Sharing skills (distribution, marketing,
management), brands, market knowledge, technical know-how and
assets leads to synergistic effects, which result in pool of resources
which is more valuable than the separated single resources in the
particular company.
Opportunities for growth: Using the partners distribution
networks in combination with taking advantage of a good brand
image can help a company to grow faster than it would on its own.
The organic growth of a company might often not be sufficient
enough to satisfy the strategic requirements of a company, that
means that a firm often cannot grow and extend itself fast enough
without expertise and support from partners

Advantages Strategic
Alliances Cont.
Speed to market: Speed to market is an essential
success factor In nowadays competitive markets
and the right partner can help to distinctly improve
this.
Complexity: As complexity increases, it is more
and more difficult to manage all requirements and
challenges a company has to face, so pooling of
expertise and knowledge can help to best serve
customers.
Costs: Partnerships can help to lower costs,
especially in non-profit areas like
Research&Development.

Advantages Strategic
Alliances Cont.
Access to resources: Partners in a Strategic Alliance can
help each other by giving access to resources, (personnel,
finances, technology) which enable the partner to produce it
s products in a higher quality or more cost efficient way.
Access to target markets: Sometimes, collaboration with a
local partner is the only way to enter a specific market.
Especially developing countries want to avoid that their
resources are exploited, which makes it hard for foreign
companies to enter these markets alone.
Economies of Scale: When companies pool their resources
and enable each other to access manufacturing capabilities,
economies of scale can be achieved. Cooperating with
appropriate strategies also allows smaller enterprises to work
together and to compete against large competitors.

Advantages Strategic
Alliances Cont.
Access to new technology, intellectual property rights,
Create critical mass, common standards, new
businesses,
Diversification,
Improve agility, R&D, material flow, speed to market,
Reduce administrative costs, R&D costs, cycle time
Allowing each partner to concentrate on their
competitive advantage.
Learning from partners and developing competencies
that may be more widely exploited elsewhere.
To reduce political risk while entering into a new market

Disadvantages Strategic
Alliances
Sharing: In a Strategic Alliance the partners must
share resources and profits and often skills and
know-how. This can be critical if business secrets are
included in this knowledge. Agreements can protect
these secrets but the partner might not be willing to
stick to such an agreement.
Creating a Competitor: The partner in a Strategic
Alliance might become a competitor one day, if it
profited enough from the alliance and grew enough
to end the partnership and then is able to operate
on its own in the same market segment.

Disadvantages Strategic
Alliances Cont.
Opportunity Costs: Focusing and
committing is necessary to run a Strategic
Alliance successfully but might discourage
from taking other opportunities, which might
be benefitial as well.
Uneven Alliances: When the decision
powers are distributed very uneven, the
weaker partner might be forced to act
according to the will of the more powerful
partners even if it is actually not willing to do
so.

Disadvantages Strategic
Alliances Cont.
Foreign confiscation: If a company is engaged in
a foreign country, there is the risk that the
government of this country might try to seize this
local business so that the domestic company can
have all the market on its own.
Risk of losing control over proprietary information,
especially regarding complex transactions requiring
extensive coordination and intensive information
sharing.
Coordination difficulties due to informal cooperation
settings and highly costly dispute resolution.

Risks Strategic Alliances

Partner experiences financial
difficulties
Hidden costs
Inefficient management Activities
outside scope of original agreement
Information leakage
Loss of competencies

Risks Strategic Alliances

Cont.

Loss of operational control

Partner lock-in
Partner product or service failure
Partner unable or unwilling to supply
key resources
Partner's quality performance
Partner takes advantage of its
position

Types Strategic Alliances

Horizontal strategic alliances, which
are formed by firms that are active in the
same business area. That means that the
partners in the alliance used to be
competitors and work together In order to
improve their position in the market and
improve market power compared to other
competitors. Research &Development
collaborations of enterprises in high-tech
markets are typical Horizontal Alliances.

Types Strategic Alliances

Cont.

Vertical strategic alliances, which describe the

collaboration between a company and its
upstream and downstream partners in the Supply
Chain, that means a partnership between a
company its suppliers and distributors. Vertical
Alliances aim at intensifying and improving these
relationships and to enlarge the companys
network to be able to offer lower prices. Especially
suppliers get involved in product design and
distribution decisions. An example would be the
close relation between car manufacturers and
their suppliers.

Types Strategic Alliances

Cont.

Intersectional alliances, are

partnerships where the involved
firms are neither connected by a
vertical chain, nor work in the same
business area, which means that
they normally would not get in touch
with each other and have totally
different markets and know-how.

Types Strategic Alliances

Cont.

Joint ventures, in which two or more

companies decide to form a new company.
This new company is then a separate legal
entity. The forming companies invest equity
and resources in general, like know-how.
These new firms can be formed for a finite
time, like for a certain project or for a lasting
long-term business relationship, while
control, revenues and risks are shared
according to their capital contribution.

Types Strategic Alliances

Cont.

Technology development alliances,

which are alliances with the purpose of
improvement in technology and knowhow, for example consolidated
Research&Development departments,
agreements about simultaneous
engineering, technology
commercialization agreements as well as
licensing or joint development
agreements.

Types Strategic Alliances

Cont.

Operations and logistics

alliances, where partners either
share the costs of implementing new
manufacturing or production
facilities, or utilize already existing
infrastructure in foreign countries
owned by a local company.

Types Strategic Alliances

Cont.

Marketing, sales and service

strategic alliances, in which
companies take advantage of the
existing marketing and distribution
infrastructure of another enterprise
in a foreign market to distribute its
own products to provide easier
access to these markets.

Types Strategic Alliances

Cont.

Multiple activity alliance, which

connect several of the described types of
alliances. Marketing Alliances most often
operate as single country alliances,
international enterprises use several
alliances in each country and Technology
and Development Alliances are usually
multi-country alliances. These different
types and characters can be combined in
a Multiple Activity Alliance

Types Strategic Alliances

Cont.

Cartels: Big companies can cooperate

unofficially, to control production and /or
prices within a certain market segment or
business area and constrain their competition
Franchising: a franchiser gives the right to
use a brand-name and corporate concept to a
frachisee who has to pay a fixed amount of
money. The franchiser keeps the control over
pricing, marketing and corporate decisions in
general.

Types Strategic Alliances

Cont.

Licensing: A company pays for the

right to use another companies
technology or production processes.
Industry Standard Groups: These
are groups of normally large
enterprises, that try to enforce
technical standards according to
their own production processes.

Types Strategic Alliances

Cont.

Outsourcing: Production steps that do not

belong to the core competencies of a firm
are likely to be outsourced, which means
that another company is paid to accomplish
these tasks.
Affiliate Marketing: Affiliate marketing is
a web-based distribution method where one
partner provides the possibility of selling
products via its sales channels in exchange
of a beforehand defined provision.

Types Strategic Alliances

Cont.

Outsourcing: Production steps that do not

belong to the core competencies of a firm
are likely to be outsourced, which means
that another company is paid to accomplish
these tasks.
Affiliate Marketing: Affiliate marketing is
a web-based distribution method where one
partner provides the possibility of selling
products via its sales channels in exchange
of a beforehand defined provision.

Success Factors Strategic Alliances

Understanding: The cooperating companies
need a clear understanding of the potential
partners resources and interests and this
understanding should be the base of set the
alliance goals.
No time pressure: During negotiations time
pressure must not have an influence on the
outcome of the process. Managers need time
to establish a working relationship with each
other, develop a time plan set milestones and
design communication channels.

Success Factors Strategic Alliances

Cont.

Limited alliances: Some incompatibilities

between enterprises might not be avoidable, so the
number of alliances should be limited to a
necessary amount, which enables the companies to
achieve their goals.
Good connection: Negotiations need experienced
managers especially the managers from the larger
firm need to be connected very well so that they
have the possibility to integrate different
departments and business areas over internal
borders and they need legitimations and support
from the top management.

Success Factors Strategic Alliances

Cont.

Creation of trust and goodwill: The best basis

for a profit-yielding cooperation between
enterprises is the creation of trust and goodwill,
because it increases tolerance, intensity and
openness of communication and makes the
common work easier. Further it leads to equal
and satisfied partners.
Intense Relationship: Intensifying the
partnership leads to the fact that partners get to
know each other better, each other's interests
and operating styles and increases trust.

Success Examples Strategic

Alliances
Starbucks
According to Rebecca Larson, assistant Professor of
Business at Liberty University, Starbucks partnered with
Barnes and Nobles bookstores in 1993 to provide in-house
coffee shops, benefiting both retailers. In 1996, Starbucks
partnered with Pepsico to bottle, distribute and sell the
popular coffee-based drink, Frappacino. A StarbucksUnited Airlines alliance has resulted in their coffee being
offered on flights with the Starbucks logo on the cups and
a partnership with Kraft foods has resulted in Starbucks
coffee being marketed in grocery stores. In 2006,
Starbucks formed an alliance with the NAACP, the sole
purpose of which was to advance the company's and the
NAACP's goals of social and economic justice.

Success Examples Strategic

Alliances Cont.
Apple
According to "An Overview of Strategic
Alliances," Apple has partnered with Sony,
Motorola, Phillips, and AT&T in the past.
Apple has also partnered more recently with
Clearwell in order to jointly develop
Clearwell's E-Discovery platform for the Apple
iPad. E-Discovery is used by enterprises and
legal entities to obtain documents and
information in a "legally defensible" manner,
according to a 2010 press release.

Success Examples Strategic

Alliances Cont.
Hewlett Packard and Disney
Hewlett-Packard and Disney have a longstanding alliance, starting back in 1938, when
Disney purchased eight oscillators to use in
the sound design of Fantasia from HP
founders Bill Hewlett and Dave Packard. When
Disney wanted to develop a virtual attraction
called Mission: SPACE, Disney Imagineers and
HP engineers relied on HP's IT architecture,
servers and workstations to create Disney's
most technologically advanced attraction.

Success Examples Strategic

Alliances Cont.
Eli Lilly
Pharmaceutical giant Eli Lilly has been forming alliances for
nearly a century, according to its brochure, Power in
Partnerships, and was the first in their industry to establish an
office devoted to alliance management. Lilly currently has over
one hundred partnerships around the world devoted to
discovery, development, and marketing. For example, Lilly
partners with the Belgium-based company Galapagos to develop
treatments for osteoporosis. Lilly also partners with Canada's
BioMS medical group in a licensing and development agreement
for a novel treatment for multiple sclerosis. In Japan, Lilly is
partnering with Kyowa Hakko Kogyo Co., Ltd., to bring a targeted
cancer treatment to market. Lilly will have the exclusive license
to develop and sell the product worldwide except in Japan, and
the two companies will share rights in certain Asian countries.

Failure Examples Strategic

Alliances
IBM and Apple
created the joint venture known as Tali
gent. One of the biggest reasons why
this strategic alliance failed is because
at the time both companies had multiple
lawsuits against each other due to
patent infringement.

Failure Examples Strategic

Alliances Cont.
Cisco and Motorola
The partners had turned into
competitors because of acquisitions.

Cisco and Ericsson

The partners had turned into
competitors because of acquisitions.

Failure Examples Strategic

Alliances Cont.
Sony and Ericsson
Failed due to improper development of
mobile phones hardware.

Thank You