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Chapter 8 Strategic alliances and networks - Coggle Diagram
Chapter 8
Strategic alliances and
networks
STRATEGIC ALLIANCES
Purpose
Overcome resource limitations
Achieve economies of scale
Expand markets
Access new technology
Benefits of strategic alliances
Large firms: Gain specialized expertise, enter new markets.
Small firms: Access to capital, organizational resources.
Defintion
Partnership to share knowledge/resources for mutual benefit, formal or informal.
Factors driving strategic alliances
Rising R&D costs.
Need for critical technical resources
Increased competition.
Shorter product life cycles.
THE ROLE OF TRUST IN STRATEGIC ALLIANCES
The concept of trust
Partner selection
Prior professional knowledge
Social knowledge
Trust vs Confidence
Trust
Involves risk of opportunistic behavior
Personal judgment
Emotional and cognitive dimensions
Confidence
Based on future expectations
Lacks risk element
Types of trust
Innovation risks in strategic outsourcing
Strategic outsourcing
Beyond traditional outsourcing
Seeking competitive advantages
Strategic sourcing arrangements
Multiple partners
Short-term engagements
Minimal protection of core functions
Main risks
THE USE OF GAME THEORY TO ANALYSE STRATEGIC ALLIANCES
Equilibrium
Each player is playing his/her best strategy
No player has incentive to change his/her action unilaterally
The prisoner’s dilemma
Demonstrate how 2 rational individuals might not cooperate
In this case, 2 criminals, A and B, are arrested for drug dealing
The possible outcomes are
One confesses
: who confesses will receive a minimal sentence (e.g., 1 year).
Another will get a full sentence (e.g., 10 years)
Both confess
: they will receive a lighter sentence (e.g., 6 years)
No one confesses:
both receive a lighter sentence (e.g., 3 years)
EX:
Setup:
Two companies A and B compete in the same market
Choices:
Keep prices stable or lower prices
Keep prices stable
: Both enjoy high profits ($10 million)
Lower prices
Both companies lower prices:
profits for both decrease ($6 million).
One company lowers prices:
earns more profit $15 million), the other loses customers ($5 million).
The Assumptions
Rationality
Players
aim to maximize their payoffs
are perfect calculators
Common Knowledge
Each player knows
the rules of the game
another player knows the rules
The repeated game
More realistic
Encourages cooperation
Changes in Outcomes (Prisoner’s Dilemma):
Awareness of revenge
Do not confess to avoid retaliation
NEGOTIATING A LICENSING DEAL
Termination
Conditions for ending the agreement
Post-expiration confidentiality and know-how handling
Material breach and notice period
Arbitration
Dispute resolution rules
Independent arbitration body
License Restrictions
Market, territory, and commercial rights restrictions
Rights of prior licensees
Infringement
Handling third-party infringement
Division of recovery
Improvements
Handling improvements during the term
Future technology: included or reserved?
Rights Granted
Patent rights, know-how rights, or both
Exclusive, co-exclusive, or non-exclusive rights
Representations/Warranties
Warranty disclaimer
Validity of intellectual property
Terms for Agreement
Definitions: Clear, specific definitions (e.g., which company entities are involved)
Licensed products/processes: Specify licensed items
Consideration (Monetary Value)
Royalties, milestones, exchange rates
Equity ownership, minimum annual payments
COMPLEMENTARY CAPABILITIES AND EMBEDDED TECHNOLOGIES
Technology transfer and forming alliances
Exchange of technology, skills
Developed skills and competencies
Interfirm knowledge-sharing routines
Information sharing
Hard Copy
Electronic Data Transfer
Know-how and skills
Interpersonal interaction
Time spent in other firms
THE PROCESS OF FORMING A SUCCESSFUL STRATEGIC ALLIANCE
2. Alliance Structure
Division of benefits and responsibilities
Risk management
Agreement on intellectual property rights
Apple provides technology (iPod, iPhone), while Nike develops the Nike+ app and accessories.
3.Managing Alliances
Continuous performance monitoring
Ongoing communication
Conflict resolution
Nike and Apple regularly improve their products and maintain communication to enhance user experience, like connecting to Apple Watch.
1. Partner Selection
Complementary capabilities
Common goals
Similar culture and values
Nike chose Apple because Apple has advanced technology, while Nike excels in sports.
FORMS OF STRATEGIC ALLIANCE
Relational contract:
long-term contract for services or products from
another company
Licensing
Joint Venture
Joint Venture
Licensing
is a relatively common and well-established method of acquiring
technology
A joint venture
separate legal entity with the partners to the alliance
normally being equity shareholders
Collaboration (non-joint ventures)
provides the opportunity to extend the
cooperation over time, if so desired
Supplier relations
: close working relations with their suppliers and without realising it
Outsourcing
: the delegation of non-core operations from internal
provision or production to an external entity specialising in the management of
that operation*
A consortium
come together to undertake what often is a large-scale activity
The ‘virtual company
’: the business is outsourced
and run by unknown suppliers
Industry clusters
:geographic concentrations of interconnected
companies, specialised suppliers, service providers and associated institutions in a particular field
Innovation networks
: is the new form of organisation offering a sort of ‘virtual
organisation’
