Professional Documents
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Competitive Strategy
Strategic Management
Fig. 6.1: A Company’s Menu of Strategy
Options
Collaborative Strategies:
Alliances and Partnerships
• Companies sometimes use strategic alliances or
collaborative partnerships to complement their own
strategic initiatives and strengthen their competitiveness
• Such cooperative strategies go beyond normal company-
to-company dealings but fall short of merger or full joint
venture partnership
Reasons for Collaborative Strategies
Globalization of the world economy
Revolutionary advances in technology
Untapped markets in Asia, Europe, Africa and Latin
America
Competitive Forces for Strategic
Alliances
1. The global race to build a market presence in many
different national markets and join the ranks of
companies recognized as global leaders
2. The race to seize opportunities on the frontiers of
advancing technology and build resource strengths and
business capabilities to compete successfully in the
industries and product markets of the future
• Collaborative arrangements can help a company
lower its costs and/or gain access to needed
expertise and capabilities
Characteristics of a Strategic Alliance
• Strategic alliance – A formal agreement between two
or more separate companies where there is:
– Strategically relevant collaboration of some sort
– Joint contribution of resources
– Shared risk
– Shared control
– Mutual dependence
• Alliances often involve:
– Joint marketing
– Joint sales or distribution
– Joint production
– Design collaboration
– Joint research
– Projects to jointly develop new technologies or product
Advantages of a Strategic Alliance
1. It is critical to the company’s achievement of an
important objective
2. It helps build, sustain, or enhance a core
competency or competitive advantage
3. It helps block a competitive threat
4. It helps open important new market opportunities
5. It mitigates a significant risk to a company’s
business
Potential Benefits of Alliances to
Achieve Global and Industry
Leadership
• Get into critical countries/markets quickly to accelerate
process of building a global presence
• Gain inside knowledge about unfamiliar markets and
cultures
• Access valuable skills and competencies concentrated in
particular geographic locations
• Establish a beachhead to participate in target industry
• Master new technologies and build new expertise faster
than would be possible internally
• Open up expanded opportunities in target industry by
combining firm’s capabilities with resources of partners
Capturing the Benefits of Strategic
Alliances
• The extent to which companies benefits from entering
into strategic alliance is a function of six factors:
1. Picking a good partner
Desired expertise and capabilities
Sharing the company’s vision about the purpose of the
alliance
No direct competition because of overlapping product
lines
Products are complimentary rather than substitutes
Good chemistry among key personnel
Strong partner with useful resources or skills
2. Being sensitive to cultural differences
Capturing the Benefits of Strategic
Alliances
3. Recognizing that the alliance must benefit both sides
Information must be shared as well as gained
Relationship must remain forthright and trustful
4. Ensuring that both parties live up to their commitments
division of work has to be perceived as fairly
appropriate
Caliber of the benefits received on both sides has to
be perceived as adequate
5. Structuring of the decision-making process so that
actions can be taken swiftly when needed
Capturing the Benefits of Strategic
Alliances
6. Managing the learning process and then adjusting the
alliance agreement over time to fit new circumstances
Alliances are more likely to be long-term when:
1. They involve collaboration with suppliers or distribution
allies and each party’s contribution involves activities
in different portions of the industry value chain
2. Both parties conclude that continued collaboration is in
their mutual interest because:
- new opportunities of learning are emerging
- further collaboration will allow each partner to extend
its market reach beyond what it could accomplish on
its own
Why Alliances Fail
• Reasons for alliances’ failure:
– Diverging objectives and priorities of partners
– Inability of partners to work well together
– Changing conditions rendering purpose of alliance
obsolete
– Emergence of more attractive technological paths
– Marketplace rivalry between one or more allies
Merger and Acquisition Strategies
• Merger – Combination and pooling of equals,
with newly created firm often taking on a new
name
• Acquisition – One firm, the acquirer, purchases
and absorbs operations of another, the acquired
• Merger & acquisition strategies
– Much-used strategic options
– Especially suited for situations where
alliances do not provide a firm with needed
capabilities or cost-reducing opportunities
– Ownership allows for tightly integrated operations,
creating more control and autonomy than alliances
Objectives of Mergers and Acquisitions
1. To create a more cost-efficient operation
Inefficient plants can be closed
Distribution activities partly combined and downsized
Marketing and sales activities combined and
downsized
Reduced supply chain costs because of buying in
greater volume
Cost savings in administrative activities by combining
and downsizing
2. To expand a firm’s geographic coverage
Quickest and best way
In case of geographic overlap, there is the additional
benefit of reducing cost by eliminating duplicate
facilities
Objectives of Mergers and Acquisitions
3. To extend a firm’s business into new
product categories
Quicker and more potent way to broaden company’s product line
than going through the exercise of introducing company’s own new
product line
4. To gain quick access to new technologies
or competitive capabilities
Favorite among technological companies racing to establish a
position in product categories about to be born
Allows companies to bypass time-consuming and expensive R&D
effort
5. To invent a new industry and lead the convergence of industries
whose boundaries are blurred by changing technologies and
new market opportunities
Company’s management betting that two or more distinct industries
are converging into one and deciding to establish strong position in
consolidating market
Merger of AOL and Time Warner – a move predicated on the belief
that entertainment content would ultimately converge into one much
of which will be distributed over internet
Pitfalls of Mergers and
Acquisitions
• Combining operations may result in:
• Sharing of expertise
Support Distributors
Services or Retailers
When Does Outsourcing
Make Strategic Sense?
• Activity can be performed better or
more cheaply by outside specialists
• Activity is not crucial to achieve a
sustainable competitive advantage
• Risk of exposure to changing technology and/or
changing buyer preferences is reduced
• It improves firm’s ability to innovate
• Operations are streamlined to:
– Improve flexibility
– Cut time to get new products into the market
• It increases firm’s ability to assemble diverse kinds of expertise
speedily and efficiently
• Firm can concentrate on “core” value chain activities that best suit its
resource strengths
Risks of Outsourcing Strategy
• Farming out too many or the wrong activities, thus
– Technological superiority
– A superior product
Defensive Strategy
Objectives
• Lessen risk of being attacked
• Blunt impact of any attack that occurs
• Influence challengers to aim attacks at
other rivals
Approaches