Global logic to strategic

alliances
Going all alone without any
help for a cause merely have
fruitful results
With increasing trends of
Globalization alliances are
GLAXO(JAPAN) GLAXO(US)

a mandate GLAXO
There is a lack of trust in the (UK)

companies to go for alliances

The alliance made by Glaxo
in the countries like Japan
and US represents same
 Californiazation of needs
People buy product
not because of
sentiments but for
value
The market of the
product is not defined
by border but by
inherent appeal
The national identity
of the product have
virtually disappeared
 Dispersion of Technology
Today, no one company can keep all relevant
technologies in-house
Not even OEMs are immune to this
The focus lies on constantly evolving
technology, no one player can master
everything
The Importance of Fixed Costs
In the past, sustainable competitive advantage
was established by dominating all of the
business systems critical areas
Competitors tried building a wall against each
other
Beating the competition was the name of the
game
 Globalization and its Impact

Meeting customer needs is the key. No wall stands

erect, no door stays shut
The importance of partners in todays business
scenario, they amortize your fixed costs
Variable costs are coming down, fixed costs going
up. Automation has driven labor costs down
With globalization, all major players in the
industry may become your competitors
 The Importance of Fixed Costs
Partners are needed, but your own R & D matters a lot too.
That is fixed cost
Building and maintaining a brand is a fixed cost. A brand
name has no value if the brand recognition falls below a
certain level
Sales and distribution networks are fixed costs. Dealers are
variable costs, but training them has to be done which again
is a fixed cost
Time sharing in MIS could make costs variable in the past.
But to get competitive advantage, you need dedicated MIS.
Once again, a fixed cost
 The Importance of Fixed Costs
This new logic forces managers to amortize their
fixed costs over a larger market base, pushing more
and more towards globalization
Maximizing the contribution to fixed costs has
become the focus of the managers
However, this does not come naturally at all to many
companies. Tradition and pride play a major role in
this
Companyism, competitor focused approach to
strategy, not knowing how to operate globally are
some of the barriers that managers must overcome
 Dangers of Equity
For going global, alliance is the best way
Money, time and luck are always short
supply
Cascade model of expansion no longer
works
Acquiring others and joint venture share a
risk of equity
Popular misconception Total control
increases the chances of success
 Dangers of Equity
Arguments between the new owner and
partner about success can lead to alliance
break up
Middle managers play important role in
keeping the alliance
You may buy the company equity, but you
cannot buy the mind, spirit or devotion of the
people
You cannot just hire replacements
In different environment , professional services
varies
 Dangers of Equity
Having control doesnt mean a better
managed company
A global company cannot be managed by the
control, its the last RESORT
 Dangers of Equity
Dangerous equation is 51% with 100% and
49% with 0%
Good partnership is like good marriages
No control, only effort and commitment will
work
Trust and confidence is the key drivers for
further expansion eg: HP and Yokogawa
Electric in japan
Development of intercompany management
skills is important
 Dangers of Equity
Keirestsu work with equity of only 3% to
5%
Joint ventures obstacles are
Contract
Parents mentality
Fuji film and Xerox
PPG and Asahi glass (1966)
 Dangers of Equity
A prudent and non equity dependent set of
arrangements through which globally active
companies can maximize the contribution to
their fixed costs
 The Logic of Entente
Necessary to make alliances work: Shift from a focus on ROI to a
focus on ROS (return on sales).

An ROS orientation means that managers will concern themselves

with the ongoing business benefits of the alliance, not just sit
around and wait for a healthy return on their initial investment

Motivation
Entrepreneurship
Control Customer relation
Persistence
Creativity
values and skills
 When firms get together in a GSA, both firms have to come up to
speed and learn about one another in order to effectively
operate.

Creating operational and managerial synergy and effective

relationships requires a degree of openness that is difficult to
obtain.
Managing GSA Cooperation & Trust
Personal attachment is accentuated through personal contact,
socialization, longer appointments, and careful selection of
people and expatriates

Conflicts are reduced through pursuing mutual understanding of

actions and positions, having alliance executives jointly set
milestones, clearing the alliance of parent goals and strategies,
maintaining flexibility, and promoting understand and empathy
among HR groups
 Why break-up then?
Alliance partners can easily fall into destructive pattern of thought,
complaining about the annoyances of coordination, of working
together, of not having free rein. Its all too easy for doubts to start to
grow.
Example: A British whiskey company used a Japanese distributor
until it felt it had gained enough experience to start its own sales
operation in Japan.
But There is a tremendous :
Cost and risk in establishing your own distribution, logistics,
manufacturing, sales and R&D in every key market around the
globe.

It takes time to build skills in your own people and develop good
relations with vendors and customers.
 How IBM is doing it??
Managing multiple partners is more difficult in manufacturing
industries but still quite doable.

IBM in the United States has a few important allies; in Japan it has
teamed up with just about everyone possible.
It has links with Ricoh in distribution and sales of low-end
computers
With Nippon Steel in systems integration
With Fuji Bank in financial systems marketing
With OMRON in CIM, and with NTT in value-added networks

IBM is not a jack-of-all-trades. It has not made huge fixed-cost

investments. In the eyes of Japanese customers, however, it has
become an all-around player. No wonder IBM has achieved a major
insider position in the fiercely competitive Japanese market.
 Summary
Equity-based mind-set makes the eye wander. It sends the
message that alliances are not a desirable.
It reinforces the short-term orientation of managers already hard-
pressed by the uncertainties of a new global environment.
Success of an alliance requires frequent, rapport-building
meetings at least three organizational levels:
Top management,
Staff, and
Line management at the working level
Yet the relentless challenges of globalization will not go away. And
properly managed alliances are among the best mechanisms that
companies have found to bring strategy to bear on these challenges.
In todays uncertain world, it is best not to go it alone.
Thank You!