MIM Programme

INTERNATIONAL BUSINESS STRATEGY

September 25, 2010

Andrey G. Medvedev,
Professor
6. INTERNATIONAL STRATEGIC ALLIANCES

1 INTERNATIONAL STRATEGIC ALLIANCES

2 STRUCTURE OF STRATEGIC ALLIANCES

3 EFFECTIVENESS OF STRATEGIC ALLIANCES

4 NETWORKS

5 ENTRY-MIX AND ENTRY DYNAMICS

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INTERNATIONAL STRATEGIC ALLIANCES

Responsibilities of International Manager:

 Understand the strategic context of an alliances

 Undertake partner analysis
 Design the alliance legal and organisational structure
of strategic alliances
 Develop implementation mechanism

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INTERNATIONAL STRATEGIC ALLIANCE

 Strategic alliance is at least two companies

combining value chain activities for the purpose
of enhancing their competitive advantage
and/or creating new businesses
without loosing their respective strategic autonomy.

Market Alliance Merger of

contract capabilities

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OBJECTIVES OF INTERNATIONAL
STRATEGIC ALLIANCES

 Local (country) strategic alliance

 Market entry alliance
 Resource access alliance

 Often organised as a country-based joint venture.

 Global strategic alliance

 Global reach seekers
(developing global market presence)
 Global leverage seekers
(enhancing the world-wide competitive capabilities)

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ADVANTAGES
OF LOCAL STRATEGIC ALLIANCES
 Foreign partner  Local partner

 Increase in market  Access to foreign

penetration. product and process
technology,
 Profits from dividends, know-how, and
transfer prices, managerial expertise.
and management fees.

 Access to local
natural resources
and skills.

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GLOBAL STRATEGIC ALLIANCES

 Coalitions
 Alliances in the same industry
 Search for global reach; „size‟ is essential
 Co-ordinating geographic assets, pooling capabilities
 Cost reduction or competitiveness growth

 Co-specialisations
 Complementary capabilities (assets, resources)
 Each party concentrates on what it is good
 Creation of new business or new products/processes

 Learning alliances
 Exchange of technology, know-how, information, skills

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GLOBAL STRATEGIC ALLIANCE:
RENAULT – NISSAN
 On March 27, 1999, CEOs of Renault and Nissan
signed an agreement for a total partnership.

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JOINT FOREIGN ENTRY:
PSA – MITSUBISHI
 In May 2008, Peugeot Citroen (PSA), Europe‟s second-largest
carmaker from France, and Japan‟s Mitsubishi Motors have
agreed to produce sport-utility vehicles and mid-sized cars
in Russia. PSA will invest as much as $545 million in the plant,
located near Kaluga, 180 kilometres southwest of Moscow.
 The factory will initially produce 160,000 vehicles a year, of which
50,000 will be SUVs and eventually boost production to 300,000.
 Carmakers including Renault, Paris-based Peugeot‟s French rival,
have built or are building factories in Russia. Renault CEO
Carlos Ghosn said on Jan. 30 that Russia will surpass Germany
as Europe‟s biggest car market within two years.
 Volkswagen, Europe‟s largest carmaker, opened a factory in Kaluga
last year in an attempt to triple its share of the Russian market.
 The Peugeot-Mitsubishi plant will open in 2011.

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LEGAL STRUCTURE
OF STRATEGIC ALLIANCES
 No ownership

 Long-term contract agreements

 Joint projects

 Some ownership

 Minority equity participation

 Joint equity participation (cross-ownership)

 Joint venture (a new separate legal entity)

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MINORITY EQUITY PARTICIPATION:
RENAULT – AVTOVAZ
 In 2008, French auto giant Renault completed an acquisition
of a 25 percent stake in the Russia‟s biggest carmaker, AvtoVAZ.
Renault paid up to $1.17 billion for the stake.
 The companies will share manufacturing and marketing expertise
and technology, carry out exchanges of executives and co-operate
on engines and gearboxes to equip cars made by both companies.
 The state holding Russian Technologies, which includes AvtoVAZ,
realised that the plant, with its 40-year-old equipment and outdated
designs, could not turn AvtoVAZ around on its own.
 The Russian side also believes that the alliance
will help revive the Lada brand.
 Renault hopes the tie-up will significantly enhance
the Renault-Nissan alliance in Russia,
which is expected to become Renault‟s priority market.

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MINORITY PARTICIPATION

CORPORATION

LOCAL PARTNER

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LOCAL JOINT VENTURE:
GENERAL MOTORS – AVTOVAZ
 In 2001, AvtoVAZ, Russia's biggest car maker,
General Motors, and the European Bank for
Reconstruction and Development (EBRD)
created a joint venture
for manufacturing VAZ-2123 "Niva" cars
under the Chevrolet (Chevy-Niva) brand.
 A new plant was built in Togliatti
with the capacity 75 thousand cars per year.
 Investment in the project totalled $332 million.
AvtoVAZ and GM each holds 41.5 percent stakes
in the project, EBRD has 17 percent.

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DYADIC AND MULTILATERAL
STRATEGIC ALLIANCES

 Dyadic strategic alliances

 Involve only two partners.

 Multilateral strategic alliances

 Networks
one alliance – several partners.

 Portfolios
one partner – several alliances.

 Webs
several partners – several alliances.

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NETWORKING STRATEGIC ALLIANCE:
SKYTEAM
 SkyTeam is a strategic alliance of airlines.
 With its 11 member airlines SkyTeam provides
16,409 daily flights to 841 destinations in 162 countries.
 The alliance members are Aeroflot, Aeromexico, Air
France – KLM Group, Alitalia, China Southern,
Continental Airlines, CSA, Delta Air Lines Inc., Korean
Air, Northwest Airlines.

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STRATEGIC ALLIANCE FORMATION
AND IMPLEMENTATION FRAMEWORK

 Formulation an international alliance strategy

 Partners’ analysis

 Negotiation and design of the alliance

legal and organisational structure

 Implementation of the alliance

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STRATEGIC CONTEXT, OBJECTIVES,
AND VALUE CREATION IN ALLIANCES

 Comprehensive alliances
 Partners participate in all facets of conducting business –
from product design to manufacturing and marketing.
 Most comprehensive alliances are organised as joint ventures.

 Functional alliances
 Production alliances
 R & D alliances
 Marketing alliances
 Commercial alliances
 Financial alliances

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PARTNERS’ ANALYSIS

 Studying a potential foreign partner

 Factors to take into account

 Strategic fit
relative competitive positions of partners,
compatibility, the relative safeness of the alliance,
the learning potential of the alliance

 Capabilities fit
required capabilities and contribution of the partners
(resources, assets, competencies – value chain study)

 Organisational fit
the degree of decision-making decentralisation

 Cultural fit
corporate and national cultures
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NEGOTIATION AND DESIGN

 Legal structure

 Organisational design

 The appointments of executives

 Management control

 The distribution of value

 The reporting and communication process

 The conflict resolution mechanisms

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MANAGEMENT CONTROL
IN STRATEGIC ALLIANCES
 Shared management

 Dominant parent

 Mixed decision-making
 Shared strategic decision-making
and separated functional-level decision-making

 Independent management

 Rotating management

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DOMINANT PARENT:
GENERAL MOTORS – AVTOVAZ
 In 2001, AvtoVAZ, Russia's biggest car maker,
General Motors, and the European Bank
for Reconstruction and Development (EBRD)
created a joint venture for manufacturing VAZ-2123
"Niva" cars under the Chevrolet (Chevy-Niva) brand.
 According to the agreement,
GM took management control
of the joint venture from Day One.

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MIXED DECISION-MAKING:
RENAULT – NISSAN

 On March 27, 1999, CEOs of Renault and Nissan

signed an agreement for a total partnership.

 The two companies are operating independently,

but their strategic orientation
and the organisation of synergies are supervised
by a joint management company, Renault-Nissan BV.

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REACHING ADVANTAGES
IN STRATEGIC ALLIANCES

 Ease of market entry

 Knowledge and expertise swap

 Synergy and competitive advantage

 Shared risk

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JOINT VENTURE:
BALTIKA – GROUPE SOUFFLET
 In a move to cut costs, the Baltika brewing company,
with an annual capacity of 600 million litres, set up
a new malt-producing factory in a joint venture with a French
company Groupe Soufflet, the world‟s leading malt producer.
The new factory, which cost $50 million, is 30 percent owned
by Baltika and 70 owned by Groupe Soufflet. It was built
in St. Petersburg to produce 110,000 tons of malt per year,
mainly for Baltika brewery, covering 70 percent of its needs
in light malt and partly supplying other domestic breweries.
 The new facility resulted in significant savings for the brewery
because its location eliminated the need to pay 10 percent
customs duty on imported malt. The French company
is betting on increasing beer consumption in the Russian
market, said Groupe Soufflet director Michel Soufflet.

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JOINT VENTURE: BENEFITS FOR BALTIKA
AND GROUPE SOUFFLET
 GROUPE SOUFFLET  BALTIKA

 

 

 

 

 

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INTERNAL DEALS IN ALLIANCE:
RENAULT – AVTOVAZ
 Togliatti, Russia-based AvtoVAZ, controlled by state-run
holding company Russian Technologies Corp,
sold a 25 percent stake to Renault SA in February 2008.
 In September 2008, an agreement was approved
under which AvtoVAZ will pay Renault €220 million
for licensing rights.
 AvtoVAZ will spend €120 million for licenses
to assemble and distribute Renault power-supply
devices and an additional €100 million for rights
to the Renault‟s car platforms.

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LEARNING EFFECT IN ALLIANCES

 Local partner could serve as a marketing satellite

(trade and service companies, consulting agencies).
 They know local conditions better.
 They may concentrate on sales, marketing and services.

 Local partners may help a foreign firm

learn and understand local conditions better.

 Many joint ventures in Russia were turned

into fully-owned subsidiaries after foreign partners
had accumulated enough local experience.

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SYNERGIES IN ALLIANCE:
RENAULT – NISSAN

 Common purchases.
 Common platforms.
 Cross-manufacturing operations.
 Common distribution in Europe.
 Common information system.
 Exchange of best practices.

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SYNERGIES IN ALLIANCE:
DANONE – UNIMILK
 In June 2010, Danone and Unimilk announced the signature of an
agreement to merge Danone‟s Fresh Dairy Product businesses in
the CIS area with those of Russian company Unimilk. The merger
covers all dairy products.
 Danone–Unimilk will draw strength from the tie-up between two fast-
growing and highly complementary businesses offering:
 A complementary geographical presence
Danone operates mainly in the West, and Unimilk in the East of Russia;
 Complementary product ranges
Danone‟s strength in the value-added health segment will round out
Unimilk‟s strong positions and powerful brands in core markets
 Complementary distribution networks: Danone‟s access to modern trade
will be matched by Unimilk‟s strength in proximity distribution
 Complementary strengths in production:
Danone has been a global expert in making dairy products since 1919,
while Unimilk covers the whole of Russia, Ukraine and Belarus
with 28 production sites

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ALLIANCE DISSOLUTION

 Most alliances represent a temporary co-operation

 Endings of strategic alliances

are either strategic purpose fulfilment
or a failure of the alliance

 International strategic alliance failure rate

is around 30–60 percent

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ALLIANCE DISSOLUTION:
CLOETTA FAZER
 In June, 2008, the principal owners of Cloetta Fazer AB
– Oy Karl Fazer Ab (“Fazer Group”)
and AB Malfors Promotor – who together own
approximately 78.5 percent of the votes in Cloetta Fazer,
have struck an agreement
concerning a de-merger of Cloetta Fazer.
 Through the de-merger, Cloetta Fazer creates the two
future companies Cloetta and Fazer Confectionery.
 The new Cloetta intends to apply for a listing
on the OMX Nordic Exchange Stockholm.
 Fazer Confectionery will be consolidated
in the privately held Fazer Group.

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INTERNATIONAL NETWORKS

 Networks take account of partners’ interactions

 Co-ordination of firms’ activities

is achieved through these interactions

 Role of each firm in the network

has to be defined clearly

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INTERNATIONAL NETWORKS
MNCS AND INDEPENDENT FIRMS

 International network could be organised

on the base of MNC’s subsidiaries.

 Industrial network could also include

independent partners
which create a strategic alliance
together with MNC‟s subsidiaries.

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INDUSTRIAL CO-OPERATION
AND NETWORKING
 Local companies (SME’s, in particular)
could be integrated in international chains & networks.

 Local companies may benefit from concentration

on manufacturing (no supply or marketing problems)
and use of free facilities.

 Foreign companies may have

an access to separate local resources.

 A synergy may appear in some cases

from combination of core competencies of the partners.

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CORPORATE NETWORKING:
STORA ENSO
 The new Impilahti Sawmill, a part of Stora Enso Timber,
is located in Russia, Republic of Karelia, by Lake Ladoga.
The main function of the sawmill is to process Karelian spruce
for Finnish and Russian sawn timber markets. The sawmill consists
of one modern small-log line. A major part of green whitewood
will be further processed in Kitee Sawmill, Finland.
 Nebolchi Sawmill in Novgorod Region, the second green-field
sawmill of Stora Enso Timber in Russia, produces sawn timber
for building industry in Europe (mostly Germany) and delivers some
of the product to Stora Enso Timber's Estonian sawmills for further
processing. The products are part of Stora Enso Timber‟s globally
marketed product portfolio. The sawmill has a modern profiling saw
line for small logs. Local raw material is emphasised in its
production. Procurement areas include Novgorod, Leningrad,
Vologda, Tver and other North-West Russian regions.

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CORPORATE NETWORKING:
STORA ENSO

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INTERNATIONAL NETWORKING:
BALTIKA – GROUPE SOUFFLET

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ENTRY MIX: GENERAL MOTORS

 1993 Exporting

 2001 Joint venture (with AvtoVaz)

 2004-2008 Co-operation
(with assemblers in St. Petersburg)

 2008 Green-field
(St. Petersburg)

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ENTRY MIX – FRANCHISING
PLUS INVESTMENT: OBI

 German OBI (do-it-yourself retailer) has franchising

agreements with two stores in Moscow Region
and one in Leningrad Region near St. Petersburg.
 49 percent of investment were made by OBI,
51 percent by franchisee, DIY Project Russia.

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INTERNATIONALISATION
AS A GRADUAL PROCESS

 Gradual process of internationalisation

can be subdivided in one way or another

 Indirect exporting

 Direct exporting

 Licensing or contract manufacturing

 Undertaking joint projects

 Acquiring or establishing a wholly-owned subsidiary

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ENTRY STAGES – INDESIT
FOLLOWING WINDOW OF OPPORTUNITIES
 1993 Merloni international trading
 Later Three branches, around 100 service centres
 2000 Acquisition of Stinol company in Lipetsk
(refrigerators)
 2004 Green-field project in Lipetsk (washing)
 2009 Temporary frozen project in Lipetsk (cooking)

 Alexander Shindyapin, Marketing director

of Indesit Company in Russia, CIS and Baltic States:
“Home appliances market in Russia is only starting to move towards
saturation. Washing machine market is full for 50–60 percent, for
dishwashing machines – for 5 percent. Definitely the Russian market
is offering a lot of opportunities for ambitious companies.”
01.09.2008
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ENTRY STAGES – TIKKURILA
FOLLOWING WINDOW OF OPPORTUNITIES
 1993 Joint venture (Lenbytchim),
buy-out (Finncolor)
Learning local conditions
Developing distribution
 1999 Green-field (Kraski Tikkurila)

 2006 Acquisition (Teks)

plant in Belgorod region
warehouse in Chelyabinsk region

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ENTRY STAGES – WRIGLEY
FOLLOWING WINDOW OF OPPORTUNITIES
 1991 Indirect exporting
Learning local conditions
Developing distribution
 1995 Representation Wrigley‟s Russia
 1999 Green-field (St. Petersburg)
 2004 Reconstruction of St. Petersburg plant

 2008 Diversification through acquisition

(Odintsovo confectionery plant
in Moscow region)
 2008 Wrigley has been acquired by MARS

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STEP-BY-STEP INTERNATIONALISATION

ADVANTAGES DISADVANTAGES

 

 

 

 

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