Professor Jeff Dyer
BYU, Marriott School
Alliances-Alliances-How far have we come?How far have we come?
“Alliances are mere transitional devices and because of this they are destined to fail”
Michael Porter
“Many so-called alliances between Western companies and their Asian rivals are little more than sophisticated outsourcing arrangements -- the traffic is almost entirely one way”
Hamel, Doz, and Prahalad
“Avoid alliances like the plague.”Reich and Mankin
Professor Jeff Dyer
BYU, Marriott School
Alliances Growing as a Source of RevenueAlliances Growing as a Source of RevenueAlliances as a Percentage of Revenue forTop 1,000 U.S. Public Corporations
Source: Columbia University, European Trade Commission, Studies by BA&H, AC.1983-1987, 1988-1993, 1994-1996, 1999
0%
5%
10%
15%
20%
25%
30%
1980 1985 1990 1995 1998
Professor Jeff Dyer
BYU, Marriott School
Total business conducted Total business conducted through alliancesthrough alliances
20%
30%
40%
0%
10%
20%
30%
40%
50%
2000 2005 2010
Source: EIU Global Executive SurveyAndersen Consulting, Warren Company
3-5%
1990
Professor Jeff Dyer
BYU, Marriott School
Alliances-Alliances-How far have we come?How far have we come?
“If you think you can go it alone in today’s global economy, you are highly mistaken” (Jack Welch, CEO of GE)
“Microsoft can’t make it alone, but together anything is possible.” (Bill Gates, Chairman of Microsoft)
“Our approach is to develop long term relationships with companies that offer a unique advantage with General Motors. The Alliance Strategy is our major thrust.” (John F. Smith, Jr., Chairman & CE of General Motors)
Professor Jeff Dyer
BYU, Marriott School
Corporate EvolutionCorporate Evolutionand Alliancesand Alliances
Moving from Managing a Portfolio of Products...
To Managing a Portfolio of Businesses...
To Managing a Portfolio of Relationships
Professor Jeff Dyer
BYU, Marriott School
Alliances-Alliances-How far have we come?How far have we come?
“Goodbye mergers and acquisitions. In a global market tied together by the Internet, corporate partnerships and alliances are proving a more productive way to keep companies growing.”
“This may be the most powerful trend that has swept American business in a century. Strategic alliances are hot.” (Mathew Schifrin, Editor, Forbes.com’s Best of the Web Magazine)
Professor Jeff Dyer
BYU, Marriott School
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1996 1997 1998 1999 2000
Strategic Alliances are More Important for Growth-Forbes
M&A Transactions JV/Alliances
Source: Thomas Financial, reported in Forbes, May 21, 2001, p. 27.
M&A
Alliances
Growth in Mergers & Acquisitionsvs. Alliances
Professor Jeff Dyer
BYU, Marriott School
Alliances vs. Acquisitions: Stock Market Response to Announcements
Average Stock Market Gains (Average over 10 day window following announcement)
.84 percent
Per
cen
t S
tock
Mar
ket
Gai
ns
Fol
low
ing
Ann
ounc
emen
ts(in
per
cen
tag
es)
0
0.2
0.4
0.6
0.8
1
0 percent
Alliances* Acquisitions** (Acquirers)* Source: Dyer, Kale & Singh, 2001
** Source: Bradley, Desai, & Kim, 1988
Professor Jeff Dyer
BYU, Marriott School
OUR STOCK ROSE FIVE POINTS ON
THE ANNOUNCEMENT
IN TODAY’S NEWS, OUR COMPANY HAS DECIDED TO BUY ANOTHER DYING COMPANY IN A BUSINESS WE DON’T FULLY UNDERSTAND.
WHY DOES OUR STOCK GO UP EVERY TIME WE DO SOMETHING BONEHEADED?
I LIKE TO THINK OF IT AS OUR COMPETITIVE ADVANTAGE.
Professor Jeff Dyer BYU, Marriott School
THE STATUS OF OUR STRATEGIC ALLIANCE IS “DOOMED.”
OUR PONDEROUS AND INEFFICIENT MANAGEMENT SYTLE CAUSED THEIR BEST PEOPLE TO QUIT AND CREATE A COMPETING COMPANY.
WE MUST FIND A WAY TO DESTROY THAT NEW COMPANY.
I’LL SEE IF THEY’RE INTERESTED IN A STRATEGIC ALLIANCE.
Professor Jeff Dyer
BYU, Marriott School
Strategic Alliances
Based on: Yoshino and Rangan, 1995
The Scope of Inter-firm Relationships
Contractual Agreements Equity Arrangements
Traditional Nontraditional No New Firm Creation of Entity DissolutionContracts Contracts of Entity
Arm’s-length Joint Research Minority NonsubsidiaryJV Mergers and Buy/Sell Equity JVs Subsidiaries Acquisitions Contracts Investments of MNCs
Franchising Joint Product Equity Fifty-fifty Development Swaps Joint Ventures
Licensing Long-term Unequal Sourcing Equity Agreements Joint
Ventures Cross- Joint Manufacturing licensing
Joint Marketing
Shared Distribution/ Service
Standard Setting/ Research Consortia
Professor Jeff Dyer
BYU, Marriott School
Strategic Alliances
Benefits:– Speed (vs. acquisition
or greenfield)– Access to key
complementary assets– Removal of potential
competitor– Maintain incentives for
partner management
Drawbacks:– Lack of control; must
share decision making– Potential spillover of
knowledge and capabilities
– Organizational clashes may impede ability to collaborate
Professor Jeff Dyer
BYU, Marriott School
Mergers & Acquisitions
Benefits:– Speed (vs. greenfield)– Full control over
complementary assets– Removal of potential
competitor– Upgrade corporate
resources & capabilities
Drawbacks:– Cost of acquisition
(premiums)– Unnecessary adjunct
businesses– Organizational clashes
may impede integration
– Major commitment
Professor Jeff Dyer
BYU, Marriott School
M&A Returns-Acquiring Firms
-0.015
-0.01
-0.005
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
-15 -10 -5 0 5 10 15 20 25 30
Event day
Cu
mu
lati
ve a
bn
orm
al r
etu
rns
Single BidderMultiple Bidders
Source: Bradley, Desai, & Kim, 1988
Professor Jeff Dyer
BYU, Marriott School
M&A Returns-Targets
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
-15 -10 -5 0 5 10 15 20 25 30
Event day
Cu
mu
lati
ve a
bn
orm
al r
etu
rns
Single BidderMultiple Bidder
Source: Bradley, Desai, & Kim, 1988