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A) three governing mechanisms for strategic alliances: non-equity, equity, and joint venture. List the benefits and...

A) three governing mechanisms for strategic alliances: non-equity, equity, and joint venture. List the benefits and downsides for each of these mechanisms.
B) An alliance’s purpose can affect which governance structure is optimal. Compare a pharmaceutical R&D alliance with a prescription-drug marketing agreement, and recommend a governing mechanism for each. Provide reasons for your selections.
C) Alliances are often used to pursue business-level goals, but they may be managed at the corporate level. Explain why this portfolio approach to alliance management would make sense.

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Answer #1

A) Strategic alliances are voluntary arrangements between firms that involve the sharing of knowledge, resources and capabilities with the intent of developing processes, products or services. Firms enter into many different types of alliances. Firms enter strategic alliances for a number of reasons, such as strengthening their competitive advantage or to hedge against uncertainty. There are 3 types of alliances
1) Non-equity. This alliance is governed by a contract. Here, firms share explicit knowledge. It is flexible, fast and easy to initiate/terminate. Unfortunately, it involves weak ties and therefore a lack of trust and commitment.
2) Equity. These are less common than non-equity. It is governed byan equity investment. This type of alliance involves stronger ties, more trust and commitment and serves as a window into new technology. On the other hand, equity alliances are less flexible, slower and involve large investments.
3) Joint ventures : These are governed by the creation of a new entity by two or more parent firms. These types of alliances provide for the strongest possible tie, a great deal of trust and commitment and are usually required by institutional settings. Unfortunately, they do require long negotiations, significant investments, multiple bosses and long term solutions.  

B) Governing mechanism for a pharmaceutical R&D alliance: leverage relationships to successfully join in an acquistion and/or merger aka relational capability.
Governing mechanism for a prescription-drug marketing agreement: instigate a process of a three person team that consists of a alliance leader, champion, and manager.

C) This portfolio approach to alliance management would make sense because they are trying to accomplish the following three things:

  • partner selection and alliance formation,
  • alliance design and governance,
  • and post-formation alliance management.
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