Chapter 4: Development Methods: Cooperation Or Alliances Between Enterprises Flashcards
Strategic alliance definition
Where two or more organisations share resources and activities to pursue a strategy. It is a tool to achieve specific objectives
Features of strategic alliances
- There is no hierarchical relationship between cooperators
- Loss of some organizational autonomy
- Blurring the boundaries of the organization
- Interdependence
- Achieving a specific goal
Motives for strategic alliances
- Economic motives
- Strategic motives
- Other factors
Economic motives for strategic alliances
- Economies of scale
- Economies of scope
- Learning economies
- Reduced transaction costs
Strategic motives for strategic alliances
- Acces to resources and capabilities
- Entering or developing an industry or country
- Reduce the level of competition in an industry
- Taking advantage of vertical integration
- Getting the right size to compete in a global market
- Differentiate vs Competitors
Other motives for strategic alliances
- Political factors
- Defensive reasons
- Trends
Advantages of alliances
- Combining operational efficiency with flexibility of agreement
- Easiness to break up
- Possibility of having complementary R&Cs
- Reduces risk and uncertainty
Advantages of alliances with respect to internal development
- The organizational complexity of integrated companies is avoided
- Each partner can concentrate on managing their key activities
- Exit barriers are reduced
Advantages of alliances with respect to market transactions
- Greater stability to carry out shared activities
- Reduction of risks of entry
- Reduction of transaction costs
Advantages of alliances with respect to mergers and acquisitions
- Reducing problems of cultural and organizational integration
- Easier to deal with competition law issues
- It is a more reversible commitment
Disadvantages of alliances
- Possibility to reinforce a competitor
- Loss of autonomy in decision making
- Time and financial costs
- Managerial complexity
- Possibility of divergent interests
- Possible lackof trust and commitment
Types of cooperation agreements or alliances
- Contractual agreements
- Shareholder agreements
- Inter-organizational networks
Types of contractual agreements
- Long-term contracts on specific activities
- Franchise
- Licenses
- Subcontracting
- Spin-off
- Consortium
Long-term contracts on specific activities characteristics
- Simpler form of cooperation
- Two companies carry out specific activities together
- Starts an ongoing relationship between the parties of the contract
- Generally, it focuses on a single activity
- It can lead to a wide range of activities
- Each company usually has a similar weight in the agreement
Franchises definition
Type of contract in which one company assigns to another the right to market goods and services in a given geographical area and under certain conditions in exchange for direct or indirect economic compensation
Franchises characteristics
- The franchiser provides marketing rights
- The franchisee is the owner of the business and who makes the necessary investments
Franchise types
- Distribution franchise: transfer of marketing rights
- Service franchise: it gives the idea of service and how to provide it
- Industrial franchise: mixes license and franchise contracts
Advantages of franchises
- To the franchiser: quick availability of the distribution network, no investment risks, good result in international markets
- To the franchisee: access to the franchisor’s competitive advantage, prestigious brand, support from the franchisor
Disadvantages of franchises
- To the franchiser: lower ability to control, possible loss of brand image, missmanagement
- To the franchisee: excessive dependence on the franchiser, possible understanding problems between parties, too high royalties and fees
Licenses definition
Contract by which one company grants another the right to use its industrial property rights for a fee
What licenses include
- Patents, design, copyright, know-how, technical information, IP rights
- Supply of materials, technical assistance, technological advances