STRATEGIC MANAGEMENT FREEMOVE ALLIANCE

Annisa Muslim Dwicky Syafroza Putra Karel Okta Effendi Ni Nyoman Sri Amandari Setya Nurul Faizin

UNIVERSITAS BAKRIE JAKARTA 2012

FREEMOVE ALLIANCE

I.

Strategic Alliance Create Value

Types of Strategic Alliance A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. There are three types of Strategic Alliances, they are: 1. Joint Venture: a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. 2. Equity Strategic Alliance: an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. 3. Non-Equity Strategic Alliance: an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage (Licensing Agreements, Supply Agreements, Distributions Agreements).

Strategic alliances may create value by exploiting opportunities and neutralize threats which are to be faced by the companies. Here are some key important opportunities to be exploited in order to create value: a. Help the company in developing general operation performance Exploit economic of scale Learn from competitor Manage risk and divide cost

b. Create competitive favorable environment to maximize performance Facilitate the development of technology standard Reduce violations

c. Facilitate entry and exit Enter to the new low cost industry Exit from the low cost industry Manage uncertainty Enter to the new low cost market

TITO-Alliance Implement Strategic Alliance through FreeMove On April 2003, four European mobile operators: T-Mobile (TMO), Orange, Telecom Italia Mobile (TIM) and Teleronica Moviles (TEM) became the founding members of an alliance. They created a Non-Equity Strategic Alliance under the FreeMove alliance by enhancing their products and services portfolio through stronger inter-operability and cooperation among their networks. It created network with access to over 170 million mobile subscribers in Europe. TITO-Alliance combined its product and service offering under joint FreeMove brand compete with Vodafone, worlds leading mobile operator with 122.5 million customers. Their initial focus was to grab highly attractive Multinational Corporations (MNCs) segment. FreeMove partners had market share of 25% in this segment market. In the following four years, FreeMove concentrated on gaining new customers through attractive packages with transparent roaming schemes. Here are some efforts of the alliance in order to create value: a. Help the company in developing general operation performance: For the first time, operational integration would take place without prior equity investments in the respective partners (T-Mobile, Orange, Telecom Italia Mobile and Televonica Moviles). They learn from competitor (Vodafone) how to manage huge market share in order they would successfully gain the expected market share. Roaming-Alliance, by focusing on the inter-operability of networks to enable seamless voice and data roaming at transparent prices. b. Create competitive favorable environment to maximize performance Joint product development allowed their members won customers to access their services abroad to developing joint services; product development would evolve with time.

They sought to gain additional advantages through coordinated handset specification, and thus influence the development of new 3G handsets according to their requirements.

c. Facilitate entry and exit The growth of the mobile industry in the period 2000-2007 had been rather impressive with global penetration of only 12% hitting mere than 50% by early 2008.

II.

Alliance Threat

FreeMove Membership

Launch of FreeMove in April 2003 had an operational integration would take place prior equity investment in the representative partners, T-Mobile, orange, Telcom Italia Mobile (TIM) and Telefonica Movile (TEM). Application On Case: Organization and Scope When T-Mobile, Telefonica Movilles, TIM and Orange launched the Freemove Alliance, they stressed that the alliance was a brand rather than actual company, which would reinforce the partners brand and make the most of their pooled expertise. In this sense, Free Move had established a strong virtual organization, as all experts working for FreeMove remained employed by the partner organizations and were half- or full-time dedicated to FreeMove tasks. The integration of networks to support joint joint enablers and the design of united tariffs and service would be pursued by coordinates task force within each member company. The

FreeMove products and service offering targeted primarily the 170 million existing European customer of the Alliance. Worldwide, the alliance had an additional 60 million customers, mainly through TEM and TIM shareholdering in Latin amerika and T-Mobile USA which would be targeted at a later stage. An example: FreeMove alliance entered the Eastern European market through new acquisitions made by telefonica ini the Czech Republic. Alliance footprint extended to incorporate the US market via T-Mobile operation there. The program launched under the brand of worldview covered network in the USA, the UK, France, Belgium, Switzerland and the Netherlands. Whether individually or together with other freemove member, all operators involved in the alliance were working continuously on improving their roaming schemes. The founding members of the freemove alliance were increasingly reaping the benefits of their partnership. Alliance Threat When the partners (-Mobile, Telefonica Movilles, TIM and Orange) stresses that the alliances was a brand rather than actual company. It will make the partners felt uncomfortable from the alliance because they feel exploited by freemove. Each other take some advantages to developed based their network and development roaming outside of European countries to boost demand. And the threat generated by the partners called adverse selection which explains that there is potential partners misrepresent the value of the skills and ability they bring to the alliance. Adverse selection in a strategic alliance is likely only when it is difficult or costly to observe the resource capabilities that a partner bring to the alliance. Firms considering the alliance with partners that bring intangible resources such as knowledge of local conditions or contact with key political figures. This fact looks when the firm is seeking an alliance partner is in some sense an indication that the firm has limited abilities to evaluate potential partners.

III.

Strategic Alliances and Sustained Competitive Advantage

Rarety Strategic Alliance of Freemove The rarety of strategic alliances does not only depend on the number of competing firms that have already implemeted an alliance. It also depends on whether the benefits that firms obtain from their alliance are common across firm competiting in an industry. As the freemove as the alliance from the enormous telecomunication. It not only compile the expertise inside but also the develop technology from each alliance company. This is becomeing something rare for Freemove compared to other alliance communication. From this alliances they could bring a certain company growth. Freemove could create value such as the convinience for service to their customer which others alliance may not bring in the europe especially and worldwide as well. Imitability Strategic Alliance of Freemove Based on the case described, the freemove as the alliance is hard to imitate. It is because if the several companies are going to make an alliance againts the Freemove. They have to invest a very big amount of money. It is quite difficult to imitate the service given, the coverage, technology and others part of this alliance.

IV.

Substitutes for Strategic Alliances

Going It Alone, firm choose going it alone when they attempt to develop all the resources and capabilities they need to exploit market opportunities. Sometimes going it alone can create the same or even more value than using alliances. But, there are three conditions when Alliances will be preferred over going it alone when: 1. The level of transaction-specific investment required to complete an exchange is moderate. 2. An exchange partner possesses valuable, rare, and costly-to-imitate resources and capabilities. 3. There is great uncertainty about the future value of an exchange.

Acquisitions, the acquisition of other firms can also be substitutes for alliances. But, there are four conditions that make alliances will be preferred to acquisitions when: 1. There are legal constraints on acquisitions. 2. Acquisitions limit a firms flexibility under conditions of high uncertainty. 3. There is substantial unwanted organizational baggage in an acquired firm. 4. The value of a firms resources and capabilities depends on its independence. If we see the substitutes for Freemove alliances in the case is the firm that choose the going it alone such as Vodafone, Sympac. They choose to going it alone because the Freemove didnt possesses valuable, rare, and costly to imitate, because in fact, Vodafone was world second larger operator, and the largest pure play mobile operator.

V.

Organizing to Implement Strategic Alliances

One of the most important determinants of the success of strategic alliances is their

organization. The primary purpose of organizing a strategic alliance is to enable partners in the alliance to gain all the benefits associated with cooperation while minimizing the probability that cooperating firm will cheat on their cooperative agreements. A variety of tools and mechanisms can be used to help realize the value of alliance and minimize the threat of cheating. These include contracts, equity investments, firm reputations, joint ventures, and trust. Explicit Contracts and legal Sanctions One way to avoid cheating in strategic alliances is for the parties to an alliance to anticipate the ways in which cheating may occur (including adverse selection, moral hazard, and hold up) and to write explicit contracts that define legal liability if cheating does occur. Writing the explicit contract were called nonequity alliances. This contract may require parties in a strategic alliance to make available to the alliance certain proprietary technologies or processes.

Equity Investments The effectiveness of contracts can be enhanced by having partners in an alliance make equity investments in each other. When Firm A buys a substantial equity positions in its alliance partner, Firm B, the market value of Firm A now depends to some extent, on the economic performance of that partner. The incentive of firm A to cheat Firm B falls, for to do so would be to reduce the economic performance of Firm B and thus the value of Firm As investment in its partner. These kinds of strategic alliances are called equity alliances. Many firms use crossequity investments to help manage their strategic alliances. Firm Reputations A third constraint on incentives to cheat in strategic alliances exists in the effect that a reputation for cheating has on a firms future opportunities. Information about an alliance partner that has cheated is likely to become widely known. A firm with a reputation as a cheater is not likely to be able to develop strategic alliances with other partners in the future, despite any special resources or capabilities that it might be able to bring to an alliance. Substantial evidence suggests that the effect of reputation on future business opportunities is important. Firm go to great lengths to make sure that they do not develop a negative reputation. Nevertheless, this reputational control of cheating in strategic alliances does have several limitations. Joint Ventures A fourth way to reduce the threat of cheating is for partners in a strategic alliance to invest in a joint venture. Creating a separate legal entity, in which alliance partners invest and from whose profits they earn returns on their investments, reduces some of the risk of cheating in strategic alliances. When a joint venture is created, the ability of partners to earn returns on their investments depends on the economic success of the joint venture. Trust Trust, in combination with contracts, can help reduce the threat of cheating. More important, trust may be enable partners to explore exchange opportunities that they could not

explore if only legal and economic organizing mechanisms were in place. Commitment, coordination, and trust are all important determinants of alliance success. Strategic alliance is a relationship that evolves over time. APPLICATION ON CASE: FreeMove Strategic alliance On April 7, 2003, Teleronica Moviles (TEM) of Spain, T-Mobile International (TMO) of Germany and TIM (Telecom Italia Mobile) signed a memorandum of understanding to set up an alliance to provide their customers with the opportunity to access all their products and services abroad. They were also joined by Orange, Frances incumbent mobile operator. The initial focus of the newly created alliance was the highly attractive Multinational Corporation (MNC) segment. In the beginning, this alliance was based on memorandum of understanding which a kind of agreement among the partners. This agreement is a writing contract which contains points of dealing in order to make collaboration among partners. However, in our opinion, memorandum of understanding could not explain more depth in legal sanctions because it could not define the legal liability if cheating does occur. From 1990s, many European Telco sought to broaden their geographical footprint in order to do internationalization. The most commonly used means was the acquisition of equity stakes in the newly emerging operators. The launch of FreeMove in April 2003 heralded the beginning of an unprecedented level of cooperation between European mobile operators. But for the first time, operational integration would take place without prior equity investment in the respective partners. To reduce cheating in form of strategic alliance, many firms should set up equity alliances which the firms buy a substantial equity positions in their alliance partner. For the FreeMove members, there was no equity investment agreement in their contracts. This will lead to increasing in risk among partners because another partner will potentially cheat the others. When T-Mobile, Telefonica Moviles, TIM, and Orange launched the FreeMove Alliance, they stressed that the alliance was a brand rather than an actual company, which would reinforce the partners brands and make the most of their pooled expertise. In this sense, Free

Move had established a strong virtual organization, as all experts working for FreeMove remained employed by the partner organizations and were half- or full-time dedicated to FreeMove tasks. FreeMove was registered as a legally incorporated entity and had defined a clear corporate governance structure consisting of both a Management Board and A Supervisory Board with a semi-annually rotating presidency. The Supervisory Board included the CEOs of all four member operators. Operationally, the integration of networks to support joint enablers and the design of unified tariffs and services would be pursued by coordinated task forces within each member company. A specific set of key performance indicators was established to monitor the progress of the alliance.