7

cchapter
h a p t
e r

Making Strategic
Alliances and
Networks Work
Part II:

Business-Level Strategies

Global Strategy
Mike W. Peng
Copyright 2009 Cengage.
All rights reserved.

PowerPoint Presentation by John Bowen, Columbus State Community College

Outline
Defining strategic alliances and networks
A comprehensive model of strategic alliances
and networks

Formation
Evolution
Performance
Debates and extensions
The savvy strategist
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72

Defining Strategic Alliances and

Networks
Strategic alliances are voluntary agreements
between firms

Strategic alliances are compromises between

short-term and long-term solutions

Alliances fall into two broad categories:

contractual (non-equity) and equity-based

The term strategic networks is derived from the

term social networks highlighting the social
aspects of interfirm relationships
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73

The Variety of Strategic

Alliances

Strategic Alliances

A compromise between short-term, pure

market transactions (e.g., spot
transactions) and long-term, pure
organizational solutions (e.g., mergers
and acquisitions)
The Variety of Strategic Alliances

Market
Market
Transactions
Transactions

Mergers
Mergers
and
and
Acquisitions
Acquisitions
(M&A)
(M&A)

Figure 7.1

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74

A Comprehensive Model
of Strategic Alliances
and Networks

Copyright 2009 Cengage. All

Figure 7.2

75

A Comprehensive Model of
Strategic
Industry-based
considerations
Alliances
and Networks

Traditional: Firms are independent

players
The dynamic of five forces:
Horizontal alliances, entry barriers, upstream alliances
with suppliers, downstream vertical alliances with
buyers and alliances and networks to provide
substitute products/services

Resource-based considerations
The resource-based view is embodied in
the VRIO framework, which are value,
rarity, imitability and organizational
aspect of strategic alliance and networks

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76

Strategic Alliances and

Networks:
Advantages
andnetworks
Disadvantages
Strategic
alliances and
must create
value
Advantages must outweigh disadvantages

ADVANTAGES

DISADVANTAGES

Reduce costs, risks, and uncertainties

Possibilities of choosing the wrong partners

Gain access to complementary assets and capabilities

Costs of negotiation and coordination

Opportunities to learn from partners

Possibilities of partner opportunism

Possibilities to use alliances networks as real options

Risks of helping nurture competitors (learning race)

Table 7.1

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77

Formation
Stage one: To cooperate or not to cooperate
Stage two: Contract or equity?
Stage three: Positioning the relationship

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78

A Three-Stage Decision Model

of Strategic Alliance and
Network Formation

Source: Adapted from S. Tallman & O. Shenkar, 1994, A managerial decision model of international
cooperative venture formation (p. 101), Journal of International Business Studies, 25 (1): 91113.

Copyright 2009 Cengage. All

Figure 7.3

79

Stage Two: Equity or Contract

(Non-equity)
EQUITY-BASED
ALLIANCES/NETWORKS

NON-EQUITY-BASED
ALLIANCES/NETWORKS

Nature of shared resources

(degree of tacitness and complexity)

High

Low

Importance of direct organizational

monitoring and control

High

Low

Potential as real options

High (for possible upgrading to M&As)

High (for possible upgrading to

equity-based relationships)

Influence of formal institutions

High (when required or encouraged by

regulations)

High (when required or encouraged by

regulations)

DRIVING FORCES

Table 7.2

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710

Evolution
Combating opportunism
Need to protect against opportunism
Contractual safeguards and credible commitment

Evolving from strong ties to weak ties

Strong ties are cultivated over a long period
of time
Weak ties are characterized by infrequent
interaction and low intimacy
Firms have a combination of strong ties and
weak ties
Benefits of the different types of ties depend
on the firms strategies
Many interfirm relationships evolve from an
emphasis on strong ties to a focus on weak ties

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711

Performance
The performance of strategic alliances and
networks
A combination of objective and
subjective measures can be used to
determine performance
Four factors may influence the
performance of alliances and networks:
equity, learning and experience,
nationality, and relational
capabilities

The performance of parent firms

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712

Alliance- and Network-Related Performance Measures

ALLIANCE/NETWORK LEVEL

PARENT FIRM LEVEL

Objective

Objective

Financial performance (for example, profitability)

Financial performance (for example, profitability)

Product market performance (for example, market share)

Product market performance (for example, market share)

Stability and longevity

Stock market reaction

Subjective

Subjective

Level of top management satisfaction

Assessment of goal attainment

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Table 7.3

713

Debates and Extensions

Learning race versus cooperative specialization
Majority JVs as control mechanisms versus
minority JVs as real options
Alliance versus acquisitions

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714

Improving the Odds for Alliance Success

AREAS

DOS AND DONTS

Contract versus chemistry

No contract can cover all elements of the relationship. Relying on a detailed contract does
not guarantee a successful relationship and it may indicate a lack of trust.

Warning signs

Identify symptoms of frequent criticism, defensiveness (always blaming others for

problems), and stonewalling (withdrawal during a fight).

Investment in the relationship

Like married individuals working hard to invigorate their ties, alliances require continuous
nurturing. Once a party starts to waver, it is difficult to turn back.

Conflict resolution mechanisms

Good married couples also fight. Their secret weapon is to find mechanisms to avoid
unwarranted escalation of conflicts. Managers need to handle conflicts-inevitable in any
relationship-in a credible, responsible, and controlled fashion.

Source: Based on text in M. W. Peng & O. Shenkar, 2002, Joint venture dissolution as
corporate divorce (pp. 101102), Academy of Management Executive, 16 (2): 92105.

Copyright 2009 Cengage. All

Table 7.4

715

The Savvy Strategist

Strategic horizon has expanded from how a

single firm strategizes to highlighting interfirm

strategy
Improving relational (collaborative) capabilities is
crucial for success
Need to understand the rules of game governing
networks - both formal and informal
Carefully weigh the pros and cons associated
with alliances and acquisitions
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