A Strategy for Alliances - S Raghunath

Group -3 K.Gautam Dinesh Panchbhai

Introduction
Strategic alliances are arrangements between firms forming a cooperative
partnership to reach objectives of common interest. Reasons-

Growth Strategies and entering new markets Obtain new technology , best quality at cheapest cost

Reduce financial risk and share cost of R & D

Achieve or ensure competitive advantage

Why some alliances fail?

Underlying cause- failure of matching between strategic visions of individual partners For example failure of ITC- Peregine alliance to form investment bank - Peregrine had some fundamental reservations over ITCs disclosure norms and style of

functioning - The structure of the board gave peregrine higher representation which was not in consonance with the MOUs premise of equal shareholding. - ITCs policy was to assume a leadership role in all its activities. The alliances board structure ran counter to this corporate policy. - The fallout affected both the parties- ITC lost employees assigned to JV, Peregines entry into Indian market was delayed.

Key Success Factors - common framework

Strategic alliance activities Selecting the right partners and developing a winning combinations. Implementing the agreement and developing effective relationship.

Developing Compatible strategies

Negotiating the alliance details

Developing Common vision

Evaluating the options

Finding significant links in the value chain

Setting Realistic Objectives

Common Framework
Developing Compatible strategies create a common vision for the partners, enabling
them to develop a road map for the future.

Selecting the right partners and developing a winning combinations. what each partners
brings strengths & resources.

Negotiating the alliance details Comprehensive and written agreements guide future
managers to interpret original intentions.

Implementing the agreement and developing effective relationship. Mutual trust and respect ,
a certain understanding and appreciation of different work cultures and practices and great deal of patience and perseverance are required.

Developing Common Vision / Benefits

A strategic alliance is created mainly to provide access to far more resources and
opportunities than any single firm can own or buy.

Essar Groups JV agreement with the Riva group under ILP of Italy
-Essar groups - strategy of accessing the Italian raw material market for the group companies , finding new market for hot rolled coils (HRC).

- ILP imports iron ore and esser is largest exporter of it (sales steps up) - Esser gets access to technology of ILP (Ilva laminiti piani) - ILP operates downstream units which can use the HRC produced by essar Gujarat.

Evaluating the options

Internal expansion
- Better option when focusing on the core strength Acquisition - Better option if partners are closely related with clear financial synergies Arms length transactions - Used by companies to get needed goods and services Strategic alliances - Used to bolster competitive advantages - Better to consider only after evaluating all alternatives as they require ongoing mutual adjustments, great commitment and time investment.

Links in value chain

Choosing the right partner is of utmost importance Economic gains from alliance should justify costs Maintaining competitive advantage even after alliance
Ex. Timex watches, a JV by Titan and Timex watches

Focus on link in value chain through competencies Both contributed to JV based on their competitiveness Fit required between partners which complement their needs

Setting Realistic objectives

Establishing achievable objectives build strong foundation for satisfactory business
relationship

Ex. Coimbatore Cots & coatings Limited, promoted by Laxmi machine works and Textool Limited

Objective of meeting captive demands of both companies Setting achievable targets is important feature of designing a workable strategy and
result in ensuring faster growth

Unrealistic objectives only result in frustations

Grounding in Economic reality

Strategic plan should be grounded in economic reality to avoid eventual economic
failure Ex. Proctor and Gamble Godrej Limited, a JV between Godrej and P&G

Objective was to increase competitiveness through synergizing of individual

strengths

Result indicated the fall in market shares of Godrej and its brands whereas P&G
brands took off

Gain for both companies is vital for fulfillment of alliance objective

Balanced pay-off from Alliance

Alliance may fall if one party gains at the expense of other party Dedication and perseverance to alliance plays vital role in the success of
partnership Ex. Agreement between Snecma of France and GE to produce new type of commercial aircraft engine

Program failure avoided due to perseverance and commitment of both partners Development of people with relationship building and cross-cultural skills in
essential

Conclusion
Dynamic markets for products and technologies, coupled with the increasing costs
of doing business, have resulted in a significant increase in the use of alliances.

Strategic alliances are important way to grow product and service offerings, develop
new markets and leverage technology and R&D.

With competition increasing in developing countries like India, strategic alliance is

bound to be a quick and economic route to increased competitive capabilities

It is essential that businesses enter into strategic alliance with comprehensive plan
outlining detailed expectations, requirements and expected benefits

THANK YOU