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AlliancesHow far have we come? “Alliances are mere transitional devices and because of this they are destined to fail” Michael Porter “Many so-called alliances between Western companies and their Asian rivals are little more than sophisticated outsourcing arrangements -- the traffic is almost entirely one way” Hamel, Doz, and Prahalad “Avoid alliances like the plague.” Reich and Mankin BYU, Marriott School Professor Jeff Dyer Alliances Growing as a Source of Revenue Alliances as a Percentage of Revenue for Top 1,000 U.S. Public Corporations 30% 25% 20% 15% 10% 5% 0% 1980 1985 1990 1995 1998 Source: Columbia University, European Trade Commission, Studies by BA&H, AC.1983-1987, 1988-1993, 1994-1996, 1999 BYU, Marriott School Professor Jeff Dyer Total business conducted through alliances 50% 40% 40% 30% 30% 20% 20% 10% 3-5% 0% 1990 2000 2005 2010 Source: EIU Global Executive Survey Andersen Consulting, Warren Company BYU, Marriott School Professor Jeff Dyer AlliancesHow far have we come? “If you think you can go it alone in today’s global economy, you are highly mistaken” (Jack Welch, CEO of GE) “Microsoft can’t make it alone, but together anything is possible.” (Bill Gates, Chairman of Microsoft) “Our approach is to develop long term relationships with companies that offer a unique advantage with General Motors. The Alliance Strategy is our major thrust.” (John F. Smith, Jr., Chairman & CE of General Motors) BYU, Marriott School Professor Jeff Dyer Corporate Evolution and Alliances Moving from Managing a Portfolio of Products... To Managing a Portfolio of Businesses... To Managing a Portfolio of Relationships BYU, Marriott School Professor Jeff Dyer AlliancesHow far have we come? “Goodbye mergers and acquisitions. In a global market tied together by the Internet, corporate partnerships and alliances are proving a more productive way to keep companies growing.” “This may be the most powerful trend that has swept American business in a century. Strategic alliances are hot.” (Mathew Schifrin, Editor, Forbes.com’s Best of the Web Magazine) BYU, Marriott School Professor Jeff Dyer Growth in Mergers & Acquisitions vs. Alliances 14,000 12,000 M&A Alliances 10,000 8,000 6,000 4,000 2,000 0 1996 1997 1998 M&A Transactions JV/Alliances Strategic Alliances are More Important for Growth -Forbes 1999 2000 Source: Thomas Financial, reported in Forbes, May 21, 2001, p. 27. BYU, Marriott School Professor Jeff Dyer Alliances vs. Acquisitions: Stock Market Response to Announcements Average Stock Market Gains (Average over 10 day window following announcement) 1 .84 percent 0.8 0.6 0.4 0.2 0 percent 0 Alliances* * Source: Dyer, Kale & Singh, 2001 Acquisitions** (Acquirers) ** Source: Bradley, Desai, & Kim, 1988 BYU, Marriott School Professor Jeff Dyer IN TODAY’S NEWS, OUR COMPANY HAS DECIDED TO BUY ANOTHER DYING COMPANY IN A BUSINESS WE DON’T FULLY UNDERSTAND. BYU, Marriott School OUR STOCK ROSE FIVE POINTS ON THE ANNOUNCEMENT WHY DOES OUR STOCK GO UP EVERY TIME WE DO SOMETHING BONEHEADED? I LIKE TO THINK OF IT AS OUR COMPETITIVE ADVANTAGE. Professor Jeff Dyer THE STATUS OF OUR STRATEGIC ALLIANCE IS “DOOMED.” BYU, Marriott School OUR PONDEROUS AND INEFFICIENT MANAGEMENT SYTLE CAUSED THEIR BEST PEOPLE TO QUIT AND CREATE A COMPETING COMPANY. WE MUST FIND A WAY TO DESTROY THAT NEW COMPANY. I’LL SEE IF THEY’RE INTERESTED IN A STRATEGIC ALLIANCE. Professor Jeff Dyer The Scope of Inter-firm Relationships Contractual Agreements Traditional Contracts Nontraditional Contracts Equity Arrangements No New Firm Arm’s-length Buy/Sell Contracts Joint Research Minority Equity Investments Franchising Joint Product Development Equity Swaps Licensing Long-term Sourcing Agreements Crosslicensing Joint Manufacturing Creation of Entity Dissolution of Entity Nonsubsidiary JV JVs Subsidiaries of MNCs Mergers and Acquisitions Fifty-fifty Joint Ventures Unequal Equity Joint Ventures Joint Marketing Shared Distribution/ Service Strategic Alliances Standard Setting/ Research Consortia Based on: Yoshino and Rangan, 1995 BYU, Marriott School Professor Jeff Dyer Strategic Alliances Benefits: – – – – Speed (vs. acquisition or greenfield) Access to key complementary assets Removal of potential competitor Maintain incentives for partner management BYU, Marriott School Drawbacks: – – – Lack of control; must share decision making Potential spillover of knowledge and capabilities Organizational clashes may impede ability to collaborate Professor Jeff Dyer Mergers & Acquisitions Benefits: – – – – Speed (vs. greenfield) Full control over complementary assets Removal of potential competitor Upgrade corporate resources & capabilities BYU, Marriott School Drawbacks: – – – – Cost of acquisition (premiums) Unnecessary adjunct businesses Organizational clashes may impede integration Major commitment Professor Jeff Dyer Cumulative abnormal returns M&A Returns-Acquiring Firms 0.035 0.03 0.025 0.02 0.015 Single Bidder Multiple Bidders 0.01 0.005 0 -0.005 -15 -10 -5 0 5 10 15 20 25 30 -0.01 -0.015 Event day Source: Bradley, Desai, & Kim, 1988 BYU, Marriott School Professor Jeff Dyer M&A Returns-Targets Cumulative abnormal returns 0.5 0.45 0.4 0.35 0.3 Single Bidder Multiple Bidder 0.25 0.2 0.15 0.1 0.05 0 -15 -10 Source: Bradley, Desai, & Kim, 1988 BYU, Marriott School -5 0 5 10 15 20 25 30 Event day Professor Jeff Dyer