Strategic Alliances &

Joint Ventures
Prof. Arindam Mondal
XLRI Jamshedpur
Cooperative Strategy
• Cooperative Strategy
➢ A strategy in which firms work together to achieve a
shared objective.
• Cooperating with other firms is a strategy that:
➢ Creates value for a customer.
➢ Reduces the cost of constructing customer value in
isolation.
➢ Establishes a favorable position relative to
competitors.
Strategic Alliance
• A primary type of cooperative strategy in which
firms combine some of their resources and
capabilities to create a mutual competitive
advantage.
➢ Involves the exchange and sharing of resources and
capabilities to co-develop or distribute goods and
services.
➢ Consistently pursuing ways to combine partners’
resources and capabilities to create value.
➢ Requires cooperative behavior from all partners.
➢ A competitive advantage developed through such
cooperation.
Strategic Alliance

Firm A Firm B
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Combined
Resources
Capabilities
Core Competencies

Mutual interests in designing, manufacturing,

or distributing goods or services
Reasons for Strategic Alliances
Market Reason
Slow Cycle • Gain access to a restricted
Dassault – market
Reliance JV
• Establish a franchise in a new
market
Reasons for Strategic Alliances (cont’d)
Market Reason
Fast Cycle • Speed up development of new
TCS- goods or service
Mitsubishi
Corporation • Speed up new market entry
JV • Maintain market leadership
• Form an industry technology
standard
• Share risky R&D expenses
• Overcome uncertainty
Reasons for Strategic Alliances (cont’d)
Market Reason
Standard Cycle • Gain market power
Tata Projects • Gain access to complementary
Limited - China resources
Harbour • Establish economies of scale
Engineering • Overcome trade barriers
Company JV for • Meet competitive challenges from
Mumbai Metro other competitors
• Pool resources for very large
capital projects
• Learn new business techniques
Most Common Reason: Gaining Access to
Emerging Technologies
Access to technology and innovation are
increasingly driving alliances
Key differences between alliances and M&A
• Joint Venture
➢ Two or more firms create a legally independent
company by sharing some of their resources and
capabilities.
Common challenges that can derail alliances

“Forming alliances can be challenging, but with a sound strategy and

thoughtful planning and execution, the opportunity to reap the benefits is
huge.” Greg McGahan, Partner, US Alliances Services Leader, PwC
 Seven factors for a successful strategic
alliance or joint venture (1)
• Put strategy first
➢ Start with a strategy, not a partner, facilitate clarity
around core capabilities, tradeoffs, and strategic
priorities
➢ Be clear on why and how this alliance helps execute
your strategy more effectively than organic growth
➢ Consider the bigger picture and the alternatives -
market trends, competitor actions, and whether the
alliance would be better as a JV or an acquisition
 Seven factors for a successful strategic
alliance or joint venture (2)
• Invest in joint upfront planning
➢ Invest the time upfront to plan collaboratively with
your partner; get to know them, their track record,
learnings from previous alliances, and their
culture/way of working; identify and pursue common
objectives
➢ Jointly develop a compelling business case based on
incremental sources of value, and how these will be
delivered
➢ Agree on desired culture and behaviors and
appropriate incentives to drive these; choose the right
people
➢ Establish clear governance, responsibilities, and
decision rights
 Seven factors for a successful strategic
alliance or joint venture (3)
• Plan the end
➢ Consider the circumstances that might lead to
dissolution, and agree on a formal process
➢ Decide what will happen to any shared assets and
people after the dissolution
• Create trust
➢ Make and live up to small, ongoing commitments;
facilitate equity (each party proportionately being
rewarded based on what they put in); cooperate with
one another; be open and transparent; be willing to
adapt; celebrate successes
➢ Adopt a ‘win-win’ mind-set; focus on growing the
whole pie, not securing the biggest slice
 Seven factors for a successful strategic
alliance or joint venture (4)
• Start small
➢ Begin with a narrow, achievable shared objective;
manage expectations, focus, and aim for early
success
➢ Expand your joint ambitions as trust and confidence
grows
• Keep track
➢ Agree on the metrics that will reflect success at
achieving the alliance’s objectives
➢ Adjust metrics as the alliance evolves
 Seven factors for a successful strategic
alliance or joint venture (5)
• Build enterprise-wide capability
➢ Establish a dedicated corporate alliance management
function to oversee alliance activity
➢ Use this function to codify and share leading
practices, drive collaboration, provide expertise,
coordinate relationships with key partners, and
ultimately create an enterprise-wide ‘alliance culture’
 Few Quotes
• “Foreign companies form JVs to test waters,” says Uday Kotak,
executive vice-chairman, Kotak Mahindra Bank. “If they like the
market, they either buy out the local partner, even if it means
paying an exorbitant premium, or sell out at a throwaway price
to start afresh under full control.”

• Company insiders say Honda, the Japanese partner, wanted a

greater say in decision-making, particularly in sourcing parts
from original equipment manufacturers (OEMs), which the
Munjal family wasn’t willing to concede. “Friends and associates
of the Munjals control substantial part of Hero Honda’s OEM
business,” says an institutional investor who has tracked the
company for about two decades. Another point of disagreement
was over expansion: the Munjals wanted to expand abroad, but
Honda wanted to keep it to India only. “There can’t be two
leaders in a company”.