Defining Strategic Alliances

In strategic alliances firms cooperate out of mutual need and share the risks to reach a common objective. Strategic alliances provide access to resources that are greater than any single firm could buy. This can greatly improve its ability to create new products, bring in new technologies, penetrate other markets and reach the scale necessary to survive in world markets.

Collaboration with other firms, however, can take many forms. Virtually all firms have networks of suppliers, and in some cases this can form part of a firm's competitive advantage. This chapter will explore the area of firms' networks and the linkages that firms use.

Defining strategic alliances

Faced with new levels of competition many companies, including competitors, are sharing their resources and expertise to develop new products, achieve economies of scale, and gain access to new technology and markets. Many have argued that these strategic alliances are the competitive weapon of the next century. One of the major factors that prevent many firms from achieving their technical objectives and, therefore, their strategic objectives, is the lack of resources. For technology research and development (R&D), the insufficient resources are usually capital and technical 'critical masses. In the past, strategic alliances were perceived as an option reserved only for large international firms. Intensified competition, shortening product life cycles and soaring R&D costs mean that strategic alliances are an attractive strategy for the future. They argue it is beneficial for both parties since it allows large firms to access the subset of expertise and resources that they desire in the smaller firm, while the smaller company is given access to its larger partner's massive capital and organisational resources. The term strategic alliance is used to cover a wide range of cooperative arrangements.

The fall of the go-it-alone strategy and the rise of the octopus strategy

The formation of strategic alliances means that strategic power often resides in sets of firms acting together. The development of cell phones, treatments for viruses such as AIDS, aircraft manufacture and motor cars are all dominated by global competitive battles between groups of firms. For example, the success of the European

Airbus strategic alliance has been phenomenal. The so-called octopus strategy gets its name from the long tentacles of the eponymous creature. Firms often develop alliances with a wide range of companies. It is not just large established firms that are rushing into new fields in which they are comparatively small and inexperienced. Many small and medium-sized firms are also entering strategic alliances with a variety of different firms. They are able to offer their existing skills; knowledge and technology, which together with other areas of expertise can create 'hybrid' technologies' such as bio-electronics, or by combining process and product innovations from different industries. Firms are increasingly finding they need an array of complementary assets.

Complementary capabilities and embedded technologies

The example of IBM above illustrates that even firms with a long and impressive heritage to defend see technology as the main determinant of competitive success. As a result they increasingly realise they need access to new technology. Moreover, they also realize they cannot develop it all themselves. Acquiring technology from outside using technology transfer and forming alliances with others is now regarded as the way forward. Many large established firms such as Sony, IBM and Nokia have developed global brands and sophisticated distribution infrastructures, but these are of limited value in the computer hardware industry without a constant stream of new products and technologies. American firms have demonstrated an ability to generate significant profits from market innovations, but then do not make the continual improvements in cost and quality, whereas Japanese and Asian firms have extensive skills in the areas of quality and production efficiencies. Given this global spread of expertise firms have consequently developed linkages with a wide variety of firms all over the world.

The mechanisms of patents, licensing and technology transfer agreements help to create an efficient market for technology, but as we have seen in earlier chapters, technology is usually embedded with experience, know-how and tacit knowledge. Hence, alliances allow not only for exchange of technology but also for the exchange of skills and know-how often referred to as competencies.

Interfirm knowledge-sharing routines

It is the interpersonal interaction which facilitates the transfer of tacit knowledge. Design and manufacturing alliances such as those established by Nike are very effective at knowledge-sharing routines and hence become more innovative than their competitors. This then becomes a powerful competitive advantage which is extremely difficult to replicate and copy and may give a firm an advantage for many years. Moreover, it is an advantage that a firm may possess which does not require costly patent protection and avoids the risk of copycat branding.

Forms of strategic alliances

Strategic alliances can occur intra-industry or inter-industry. For example, the three US automobile manufacturers have formed an alliance to develop technology for an electric car. This is an example of an intra-industry alliance. This is in response to US legislation requiring a certain percentage of US cars to be gasoline-free by 2010. The

UK pharmaceutical giant GlaxoSmithKline has established many inter-industry alliances with a wide range of firms from a variety of industries; it includes companies such as Matsushita, Canon, Fuji and Apple. Furthermore, alliances can range from a simple handshake agreement to mergers, from licensing to equity joint ventures. Moreover, they can involve a customer, a supplier or even a competitor. Research on collaborative activity has been hindered by a wide variety of different definitions. There are six generic types of strategic alliance:

1 licensing;

2 supplier relations;

3 joint venture;

4 collaboration (non-joint ventures);

5 R&D consortia;

6 industry clusters; and

7 innovation networks.

Licensing

Licensing is a relatively common and well-established method of acquiring technology. It