Q1. Why is a Joint Venture (JV) preferable to more general collaboration form of the Strategic Alliance?
Q2. What are the relative merits and weaknesses of JVs and SAs?
Q3. Why would company seek M&A as a market entry strategy? What are the advantages and disadvantages of M&A? why might a merger fail and what might be the outcome?
Q4. What are the relative merits/ disadvantages of JVs, SAs, and M&As
Cooperation between two or more firms can take many forms, such as cross- licensing of proprietary technology, sharing of production facilities, co-funding of research projects and marketing of each other’s products using existing distribution networks. Such cooperation is know as strategic alliance or joint venture (a special type of strategic alliance).
There are two types of collaboration: those who include and those that exclude.
Excluded: one or both of the companies pursuit their own interests. Then there will be opportunity for cheating, either: -Aggressive cheating: cheating in which is detrimental to the other party. - Neutral cheating: the other party can benefit but you don’t say or do anything for their advantage.
Included: When both parties refrain from cheating through patients.
The ingredients to a successful collaboration is:
-Performance expectations (goals, governance)
-Mutual adjustment (flexibility)
Element to think about when selecting a partner:
-Nature of a potential partner’s products or services- its often hard to cooperate with a firm in one market while doing a battle with the same firm in another market. Under such circumstances, each firm may be unwilling to reveal all its expertise to the other partner for the fear that the partner will use the knowledge against the firm in the other market.
Most experts believe a firm should ally with a partner whose products or services are complementary to but not directly competitive with its own.
-The learning potentials of the alliance- before establishing a strategic alliance, partners should also assess the potential to learn from each other. At the same time each partner should carefully assess the value of its own information and not provide the other partner with anything that will result in competitive disadvantage for itself if the alliance should dissolve.
* The relative safeness of the alliance- Given the complexities and potential costs of failed agreements should gather as much information as possible about the potential partner before entering into a strategic alliance. For example managers should assess the success or failure of previous strategic alliances formed by the potential partner.
Advantages of collaboration
* Overcome entry barriers
* Risk and cost shared
* Access to requisite:
* Technologies (IP)
* Capabilities (distribution, production, design)
* Knowledge/ skills (technology, management)
* Share goals
* Quick solution
Disadvantages of collaboration
* Challenge of finding the right partner
* Difficulty of negotiation of ‘right ‘ terms
* Integration difficulties
* Potential for conflict
Reasons for Dissolution to collaboration
* Objectives completed
* Objectives no met –incompatibility of partners
* Disagreements arise about existing objectives or new objectives– access to information or loss of autonomy or conflicts over distribution of earnings. * Objectives no longer appropriate- changing circumstances
Strategic alliance: a coalition of two or more organizations to achieve strategically significant goals and objectives that are mutually beneficial. These goals and objectives can be pursued in either the economic or political areas and can be flexible in time orientation....