（Chapter 13) Strategic Alliance

Definition of 'Strategic Alliance'

An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities.

Strategic alliances usually make sense when the firms involved have complementary strengths.　A good strategic alliance partner will have products or services that complement your company’s products or services. One of the　fastest and most effective business growth strategies is supplying your lead generation system with a number of strategic alliances. 

Definition of 'Joint Venture - JV'

The cooperation of two or more individuals or businesses in which each agrees to share profit, loss and control in a specific enterprise.
A joint venture is a general partnership typically formed to undertake a particular business transaction or project and is intended to exist for a limited time period. Joint ventures typically exist for 5-7 years. In a joint venture, two or more "parent" companies agree to share capital, technology, human resources, risks and rewards in a formation of a new entity under shared control. A joint venture is created with a specific project in mind and generally dissolves once the project has been completed. Members of the joint venture are exposed to full legal liability. A joint venture is treated like a partnership for federal income tax purposes.

Example:

Sony-Ericsson is a joint venture by the Japanese consumer electronics　company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Both companies have stopped making their own mobile phones. 

(Chapter 12) Implementing Corporate Diversification

Agency Problem

A conflict of interest arising between creditors, shareholders and management because of differing goals.
For example, an agency problem exists when management and stockholders have conflicting ideas on how the company should be run.


Agency Costs

A type of internal cost that arises from, or must be paid to, an agent acting on behalf of a principal. Agency costs arise because of core problems such as conflicts of interest between shareholders and management. Shareholders wish for management to run the company in a way that increases shareholder value. But management may wish to grow the company in ways that maximize their personal power and wealth that may not be in the best interests of shareholders.


Organization Structure - M Form / Multidivisional Structure

Division = Strategic Business Unit (SBU) = Profit-and-loss centers

Shared Activity Managers: Support the operation of multiple divisions (bounding)

Board of Directors: Monitoring – Evaluating firm’s decision making, consistent with the interests of Equity holders.

Division General Managers: One unit is like a company but have to decide how division will corporate strategies assure strategy implementation (bounding)

(Chapter 11) Corporate strategy: Diversification

Corporate strategy: Diversification

-          New market with new products/services.

-          2 types - Related/Unrelated

-          Vertical integration – along your value chain

-          Horizontal diversification – moving into new industry

-          Geographical diversification – open up new markets

Cases:

Google acquires innovative companies to diversify Into new areas or to add value to existing technologies and services.

From 2001 to 2011 Google acquired over 100 companies based in USA, Australia, Brazil, Canada, China, Finland, Germany, Greece, Ireland, Israel, South Korea, Spain, Sweden, Switzerland, UK.

Android. Acquisition of Android, the mobile phone platform, for approximately US$ 50 million in 2005 was Google’s one of the best deal ever. Only two years after launch, Android has become the second-most-popular mobile platform in the world, with almost 25% share. Android generates revenue indirectly. Google gives the OS away, but it provides a built-in user base for mobile search and mobile advertising, which generate more than $1 billion a year.

YouTube. When Google bought the video-sharing service in 2009, YouTube was full of copyrighted content that users uploaded without permission. Google skillfully instituted a reasonable takedown policy and negotiated contracts with content owners to make YouTube safer and highly profitable.

On2. Having bought On2 video compression company for US$133 million in 2010, Google open-sourced the VP8 video codec it acquired with On2, and renamed it WebM. Google’s objective was to push WebM as a replacement for H.264, a much more widely used standard for Web video.

Slide, SocialDeck. Google bought two social gaming companies in 2010 to develop new social initiatives.

In late 1980s, Toyota , Nissan, and Honda moved into adjacent market segments. They launched luxury cars Lexus, Infinity, and Acura respectively to compete with BMW and Mercedes. The Japanese cars were priced about one-third lower and had a superior service network.  The value proposition was solid enough to win over potential and current BMW and Mercedes customers, despite the power of their brands.