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Obtaining Technology - Planning
Obtaining Technology - Planning
Chapter
Obtaining
Technology:
Planning
Overview
Issues addressed in this chapter include:
Reasons to acquire technology
Alliances
Mergers and acquisitions
The importance of goals and due diligence
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its competitors.
2. A new competitor enters or is about to enter the
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Alliances
Level
Levelof
ofFormality
Formality
Duration
Duration
Dimensions
Dimensions
of
ofAlliances
Alliances
Location
Location
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Level of Formality
Formal versus Informal - the degree of formality
often determines the costs and risks involved
with an alliance.
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Duration
The more formal the relationship, the greater should
be the detail in the alliance agreement. The
duration of the alliance should be specified in the
documents.
The negotiations to develop these agreements often
involve long and arduous effortsso duration
should be long enough to recover costs.
The less formal the agreement, the easier it is to
abandon if the environment changes or if
transaction costs are unexpectedly high.
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Location
Domestic versus Internationalthe international alliance
like the domestic alliance must be based on mutual
strategic fit, participant risk and reward, and potential
synergy. Additional challenges include language and
culture differences. Opportunities new product
development and markets.
E.g Embryonic stem-cell research in US - researchers
build R&D facilities or joint ventures with Great Britain,
many countries seeks access to innovation centers in
Silicon Valley to gain cutting-edge technology,
alliances in Japan for appliances technology, US
technological companies form alliances with India to
lower costs.
2007 Thomson/South-Western. All rights reserved.
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National
NationalMarket
Market
Licensing
Licensingand
and
Joint
Ventures
Joint Ventures
International
InternationalMergers
Mergers or
or
Acquisitions
Acquisitions
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FIGURE 6.1
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Joint Ventures
2 or more firms combine equity and form 3 rd
entity. Can be very small or large multimillion
dollar investments. Detailed agreement covering
what each party is to provide, what each can
expect, and how each is to operate in the joint
venture.
e.g Kodak and Sanyo Electric to from SK
Display Corporation manufacturing organic light
emitting diode (OLED). Kodak - $125 million,
guarantee up to $100 million on venture's debt
and 34% ownership. Sanyo contribute less
money but more in technical expertise.
2007 Thomson/South-Western. All rights reserved.
611
Franchise Agreement
A contract between a franchisor and the
franchisee to sell a given product or conduct
business under the companys trademark. Time
period and geographical region where business
can be done are clearly specified. Franchisor
details how business is to be operated and set
standards for behaviors. Initial fee and royalty
payment continuous. E.g Expetec Technology
Services provides products and services
including installation and networking, hardware
and software, service maintenance programs,
telecommunication, etc. McDonalds.
2007 Thomson/South-Western. All rights reserved.
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Consortia
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Licensing Agreements.
Occur when a firm agrees to pay for the right to
either manufacture or sell a product. Licensor
cannot control pricing or marketing of products,
when produced or how product is marketed.
E.g JVC licensed VHS tape technology to
Matsushita, Hitachi and Mutsibishi to promote
the technology. Betamax by Sony was
introduced before therefore first mover but did
not license its Betamax technology but JVC did
better.
2007 Thomson/South-Western. All rights reserved.
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Subcontracting
Intermediate in formality
May or may not be high value adding activities
to business
E.g. American Express subcontracting
computer networks and related support systems
to IBM
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Cost
Cost
Savings
Savings
Reasons
Reasonsfor
for
Alliances
Alliances
Strategic
Strategic
Behavior
Behavior
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2. Cost Saving
Each firm have unique sets of competencies,
corporate cultures, and different management
styles therefore best to retain best practices than
competing with each other depending on the
type of learning desired. E.g IT costs are cut up
to 70% when US outsourced it to India.
3. Strategic reasons new knowledge and
technologies may be developed because firms
have more access to each others strengths.
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Concerns in Alliances
Finding the proper partner
Dealing with the ambiguities of the relationship
Discovering that the partnering firms lack a
shared vision
Getting the timing right
Communicating effectively and efficiently
between the alliance partners
Protecting intellectual property
Measuring real costs and profits from the
alliance
2007 Thomson/South-Western. All rights reserved.
621
Concerns in Alliances
Finding the proper partner
Dealing with the ambiguities of the
relationship
Discovering that the partnering firms lack
a shared vision
Getting the timing right
Communicating effectively and efficiently
between the alliance partners
Protecting intellectual property
Measuring real costs and profits from the
alliance
2007 Thomson/South-Western. All rights reserved.
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Acquisition
The outright purchase of a company or part of a
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Acquire
Acquire
knowledge
knowledgeof
of
technology
technology
Strategic
Strategic
Goals
Goals
Avoid
Avoidcosts
costsand
and
risks
risksof
ofnew
new
product
product
development
development
Gain
Gainmarket
market
power
powerthrough
through
additional
additionalmarket
market
share
share
2007 Thomson/South-Western. All rights reserved.
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1.
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FIGURE 6.2
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Related or Unrelated
Horizontal and Unrelated oil company buys
coal mining company for alternative form of
energy
Vertical and related oil company doing R&D in
coal gasification to ensure ready supply of raw
materials.
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FIGURE 6.3
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FIGURE 6.4
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FIGURE 6.5
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Managerial Guidelines
In planning for acquisitions, managers need to
remember that:
Compatible goals are essential for success.
It is important to match goals to the method.
External efforts to obtain technology require
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Key Terms
acquisition
agency theory
consortia
due diligence
first mover
franchise agreement
horizontal merger or
acquisition
joint venture
licensing agreement
market power
merger
second movers
strategic alliance
transaction costs
vertical merger or
acquisition
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