Global Strategy,
Competence-Building and Strategic
Alliances
Reading-5
SML-703
Group-5
Sameer Pandita
Gaurav Madan
Ashish Malviya
Asif J siddiqui
Nikhil Prasad
Why do Companies form Strategic
Alliances ?
Obtain economies of
scale
Share costs
Reduce risks
Gain access to new
markets
Take advantages of
another company's
innovations
Learn & acquire
from each other the
technologies,
products, skills
Strategic analytical tools suggest to go for
Alliances
Go for alliance
You will get
competitive
advantage
conventional
wisdom & strategic
analytic tools (BCG
Matrix)
Business shows up as Star or Cash
Cow may actually be marketing products
produced or outsourced abroad but sold
through the companys distribution or
under its brand name..
Example- GE brand microwave oven
(Manufactured by Samsung )
Reduces short term cost
Thus enhances profits
Firm
Enhanced profit
reinforces even
grater level of
outsourcing
Outsourced
manufacturing to
lower Production
cost
Production Skills & technologies
Self directed manufacturing
Allianc
e
Partne
r
Outsourcing may make a business appear to
perform better financially because of reduced
investment needed, while the actually core
technology of the business withers away
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One fallacy
Design
Manufacturin
g
Marketing
Are separable task ?????
No,
with the growing use of CAD/CAM & flexible
manufacturing system design/development & manufacturing
occur in seamless value chain..
If you are outsourcing manufacturing , unwittingly you are giving
your design also to your alliance partner
Divisional & SBUs Organisational
lines
United Technologies
Corporation
Helicopters
(Sikorsky)
Elevators
(Otis)
Jet Engines
(Pratt)
Finance,
Markets
Joint
ventures
with foreign
firms
Have several
technologies in
common such as
motion control,
microelectronics,
closed loop electrical
design etc
Joint
ventures
with foreign
firms
Learning &
Tech Transfer
Joint
ventures
with foreign
firms
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Outsourcing & supply arrangements
What Actually they
invite
Focus on core
Reduce cost
Focus on
Marketing
New Competitors
Deterioration of firms production skills
& technologies that are important
source of organizational learning
Higher
quality
Purpose behind
outsourcing the
manufacturing
through alliances
Alliances- How Information Flow
Technological interrelationship
Collaboration with an alliance partner on one specific
product opens up the firms entire array of related skills &
technologies that may have direct applications to other
field
Faster Learning-
Day to day interaction provides
opportunities for a partner to
learn about a firms technology
Tacit information & knowledge
that cannot be easily transmitted
in written form is passed on in
day to day contact
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Stages of growing dependency How alliances can play
dangerous role for those firm that do not understand their
partners dreams
Begins to apply
acquired corecompetencies to other
industries & arenas
Wiring, assembly, packaging
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Low value components
3
Key
components
Manufacturing skills, designs & functional tech.
Quality skills, precision manufacturing, testing
Core skills surrounding components,
miniaturization, complex systems integration
Alliance partner learnsEntire spectrum of
products
& Skills
Related to underlying core9
GE Microwave
In 1983 GE started outsourcing manufacturing of its Microwave oven to
Samsung Korea because of inability to build low cost, high quality
components at home.
At first, Samsungs ovens were not up to GE standards. But with the help
of GEs quality engineers, things soon got better
General Electric began shifting more of its orders to Samsung
Soon, GEs Korean models were selling as well as those GE itself made in
the United States, and at a much higher profit.
In May 1985, GE publicly announced it would stop U.S. production of
microwave ovens
From now on, GE would be doing the sales and service side of the
product; Samsung, the manufacturing
Samsung would have had a hard time succeeding so quickly in
microwave ovens without GE
The GE helped bring Samsung world-class design, quality, scale, and
legitimacy with other world customers, and GE got a good deal in return
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Creating competitive advantage through building Initiative or
through Alliances ?
Building Initiative
Firms ability to direct resources that
build & refine core competencies, skills &
capabilities
Initiatives provides a firm wide
latitude to choose its own growth
path
Continuous organizational learning
that is focus on Core competencies
Investments in key skills such as
flexible manufacturing & TQM
Redirecting the corporate focus
towards manufacturing activities &
skills
Through Alliances
Alliances can seriously undercut a
firms initiative not only by draining
its unique core competencies & skills
sets
Strategic alliances which were once
considered important for building
competitive
advantage,
could
actually encumber a firms ability to
move quickly its own
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Using Alliances to Renew Competitive Advantage
Define core business
Understand own core
competencies & how a
particular
alliances
might extend these
Careful understand the
alliance partners motive,
their technological scope
and
the
alliances
implications for two-way
knowledge flow
A partner willing to supply high-quality
components at a deep discount evinces a
very strong learning propensity
The more willing a
partner is to supply the
components or endproducts, the more intent
it probably is upon
eventual entry & seizure
of the initiative from the
original firm
Misunderstood alliance can serve to limit a companys future
technological learning & skills base
Example :-Small car & consumer electronics
-alliances
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Using Alliances to Renew Competitive Advantage
Human Resource
Practices
Do not minimize number & tenure of
people assign to the joint venture
Short term horizons limit the firms ability to learn tacit
knowledge that can only be transmitted through
continuous exposure & practice
The amount of legal control is irrelevant, knowledge flow &
rate of learning is more important
Organizational structure
Once an alliance has been formed, design
organisational structure to implement the
alliance's strategy
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Summary
Alliance partnership should not be pursued as quick fix to
raw material or technological problems .
Successful alliances requires identifying the core
competencies of both the partners and their dreams
These Dreams help each partner understand what they
are supposed to contribute & learn from the alliance.
Collaboration
as
CompetitionBoth
partners
simultaneously competing to learn new skills & capabilities
from working with one another.
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Thank You
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