Chapter 14- strategies for firm growth

Strategic Alliances and Joint Ventures

• A strategic alliance is a partnership between two or more firms developed to achieve a specific goal.
• Participating in alliances can boost a firm's rate of patenting, product innovation, and foreign sales.
• Strategic alliances tend to be informal and do not involve the creation of a new entity.

Types of Alliances

• Technological Alliances: feature cooperation in R&D, engineering, and manufacturing.
• Marketing Alliances: typically match a company with excess distribution capacity with a company that has a product to sell.

Joint Ventures

• A joint venture is an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization.

Advantages and Disadvantages of Strategic Alliances and Joint Ventures

• Advantages: gain access to specific resources, economies of scale, risk and cost sharing, gain access to a foreign market, learning, speed to market, and neutralizing or blocking competitors.
• Disadvantages: loss of proprietary information, management complexities, financial and organizational risks, risk becoming dependent on a partner, partial loss of decision autonomy, partners' cultures may clash, and loss of organizational flexibility.

International Expansion

• International new ventures are businesses that, from their inception, seek to derive significant competitive advantage by using their resources to sell products or services in multiple countries.
• International expansion is a complex form of growth.

Foreign-Market Entry Strategies

• Exporting: producing a product at home and shipping it to a foreign market.
• Joint Ventures: involves the establishment of a firm that is jointly owned by two or more otherwise independent firms.
• Licensing: an arrangement whereby a firm with proprietary rights to a product grants permission to another firm to manufacture that product for specified royalties or other payments.
• Franchising: an agreement between a franchisor and a franchisee, where the franchisor has an established business method and brand.
• Turnkey Project: a contractor from one country builds a facility in another country, trains the personnel, and turns over the keys to the project when it is completed.
• Wholly Owned Subsidiary: a company that has made the decision to manufacture a product in a foreign country and establish a permanent presence.

External Growth Strategies

• Mergers and Acquisitions
• Licensing
• Strategic Alliances and Joint Ventures
• Franchising

Advantages and Disadvantages of Emphasizing External Growth Strategies

• Advantages: reducing competition, gaining access to proprietary products or services, gaining access to new products and markets, obtaining access to technical expertise, gaining access to an established brand name, economies of scale, and diversification of business risk.
• Disadvantages: incompatibility of top management, clash of corporate cultures, operational problems, increased business complexity, loss of organizational flexibility, and antitrust implications.