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TRANSCRIPT
Accessing Resources For
Growth From External
Sources: Alliances and Partnerships
Lois S Peters BIET Spring 2010
Alliances and Partnerships
Opening up opportunities
For exploring, exploiting and
developing information and
knowledge
Why not do it yourself?
Pressure for Change
• Downsizing
• Diversity – Innovation at the interfaces
• Enabling Technologies
• Internationalization of Technologies,
Organizations & Markets
• Changing Science/Technology System:
increasing requirement for cooperative efforts
Why Partnerships?
• Funding support
• Cost sharing
• Access to scarce resources
• Access to technology
• Access to science and engineering knowledge or experts
• Establishment of standards
• Market learning
• Proving the value of a new technology
• To generate “customer pull”
• Building a supply chain or business infrastructure
• Acquire the technology needed to develop a specific product
• Risk reduction/sharing
• Shorten innovation cycle
• Legitimizing the project
• User-supplier needs
• Strategic needs
• External factors
Motivation for Partnering a Short
List
• Information exchange
• Complementary resources
• Economies of scale
• International expansion
• Connecting to a national innovation system
Partnership Categories
Partnership Created
TechnologyMarketing
Manufacturing
Know-how
R&D Know-
how
Business
Model
Development
Customer
Access
The Scope of Partnering
• Variety of partners : other firms, universities, federal labs: access to expertise
• Variety of configurations: informal/formal
joint venture/ technology exchange, supplier/buyer, vertical/horizontal
• Variety of function: marketing, manufacturing, technology development
• Variety of objectives: tech development, commercialization, financial, logistics, competitive/pre-competitive
• Variety of impacts: adoption, rebirth, procreation, family ties
Broad Categories of Technical
Alliances
• Private Sector alliances
• University-Industry alliances
• Public Private Alliances
– Industrial technology transfer
– Industrial technical cooperation (e.g. Sematec)
– Government to Government Agreements
– Government-Industry-University Agreements
• International Alliances
CATEGORIES OF PRIVATE SECTOR TECHNICAL ALLIANCES: A
WORKING FRAMEWORK
• PHYSICAL EXPANSION
• - FACILITY EXPANSION/MODERNIZATION
• - SUBSIDIARY
• INVESTMENT
• - ACQUISITION
• - EQUITY INVESTMENT
• INTERFIRM AGREEMENTS
• - CO PRODUCTION
• - JOINT VENTURES
• - LICENSES/PATENTS
• - LICENSES/KNOWHOW
• - LICENSING/MARKETING
• - DISTRIBUTION/MARKETING/SALES AGREEMENTS
• - FRANCHISING
• - TECHNOLOGY EXCHANGE
• - PERSONNEL EXCHANGE
• - INFORMAL TECHNOLOGY EXCHANGE
• - INFORMAL PERSONNEL EXCHANGE
• INTRAFIRM AGREEMENTS
• - TECHNOLOGY TRANSFER
• - PERSONNEL EXCHANGE
• - INFORMAL TECHNOLOGY EXCHANGE
• - INFORMAL PERSONNEL EXCHANGE
Licensing & Licensor
Advantages Income
New uses of technology
No capital/No staff
Avoiding legal problems
Expands opportunities
Equity improvement
R&D improvement
Market improvement
Preparation for other markets
Disadvantageo Limit ability of licensor to work with
competitors of licensee
o Limit profit possibilities
o Lack of direct control or participation
o Extra costs
o Improper performances
o Lack of understanding of the
coverage of the agreement
o Improper competition
o Increased exposure to product liability
over which there is inadequate control
or legal defense
o Unforeseen problems: insufficient
testing, insufficient market experience
Licensing & Licensee
Advantages Additional rights
Assistance
Expanded marketing potential
Expanded profits
Disadvantageo Limit ability of licensee to work
with competitors of licensor
o Licensor may give inadequate
service of training
o Licensor may not perform
required services in a timely
manner.
o Lack of understanding of the
coverage of the agreement
o Improper competition
o Unforeseen problems: insufficient
testing, insufficient market
experience
Franchising & Franchisee
Advantages Reduced Risk
Product Acceptance
Mgmt. Expertise
Buying Power
Market Knowledge
Financial Advice
Controls
Disadvantageo High Start-up Costs
o Franchisor Unable To Perform
o Franchisor Failure Or Sale
Franchising & Franchisor
Advantages Quick Expansion & Little Capital
Large Operation Yet Few HQ
Employees
Economies Of Scale
Large Advertising Budget
Disadvantageso Difficult To Find Quality
Franchisees
o Single Franchisee Failure
Reflects On Entire System
o Expansion Creates Loss Of
Control
Joint Ventures
• Types
– Operational
– Nonoperational
• Success
– Assessment &
Management
– Symmetry
– Realistic Expectations
– Timing
Acquisitions
Advantages Established Business
Location
Established Marketing Structure
Cost
Existing Employees
Opportunity For Creativity
Disadvantageso Marginal Success Record
o Overconfidence
o Key Employee Loss
o Over Valued
Merger
A. Motivation
1. Survival
2. Protection
3. Diversification
4. Gain
B. Leveraged Buyout
1. Reasonable Price
2. Debt Capacity
3. Appropriate Financial Package
Structure Joint
Venture
Limited
Partnership
R&D
Partnership
Licensing Mergers/
Acquisitions
Regulatory Uniform Partnership
Act (priv. co.'s) /SEC
(pub. co.'s)
Uniform Partnership &
Uniform Ltd. Part.
Acts/SEC (pub. co.'s)
Uniform Partnership &
Uniform Ltd. Part.
Acts/SEC (pub. co.'s)
SEC (pub. co.'s) Dept.
Commerce (offshore
partner)
SEC (pub. co.'s), state
agencies
Price 20% or less equity
giveup
10 to 20% of amount
raised
25%-45% annual
royalties
$15,000-$100,000
(domestic co.'s)
Up to $200,000 for
legal/acctng.
Time Up to 1 year Up to 1 year 8 months to 1 year 6 months 6 months
Upside Cheap money, fast
growth, bigger market
flexibility
Limited filing, investors
take loss, cheap money
No monetary loss to
small co., less dilution,
tax-driven expenses
Flexible, cheap money,
expanded markets, fast
growth
Cheap growth, taxes
deferred, flexibility
Risks Finding partner,
different goals, offshore
costs, antitrust issue
Late profits, IRS
effects, low risk strategy
Needs 50% gross
margin, hard to go
public
Patent protection,
vague terms, need
IRS problems, stubborn
stockholders, vague
terms
Exits Buyout, merger,
permanent partnership
ROI in 3 to 8 years
from profits
IPO, buyout, merger,
royalty income
Buyout, merger,
partnership
Liquidation, sale
Strategic Alliance Structures
Formal Informal
Equity
Investment
Unwritten
Collaboration
Marketing
Agreements
Joint
Ventures
Types of Strategic Alliances by
Formality
Comparison of the Characteristics of Knowledge Generation & Exchange in
Different Settings
• University
• Multinational Firm
• Federal Laboratories
• Research Institutes
• Independent Research Laboratories
• Research Consortia
• The "High Tech" Entrepreneurial Firm
CHARACTERISTICS OF U.S.
UNIVERSITY-INDUSTRY TIES
• Industry support of university research in the U.S. remains a small part of academic R&D expenditures - about 7%
• Interactions go much beyond just direct funding
• Most industry funding goes to professional schools, --over 60% sixty percent to engineering and computer science departments, around 15% to medical schools and 5% to agricultural schools
• For the most part it is Fortune 500 or Large Multinational Companies companies that interact on a significant scale and on a continuing basis
• Over the last twenty years the tempo and variety of interactions has increased
• On a global basis the US except perhaps for Switzerland has the most active cooperation between universities and companies.
Motivations for Research Relations
Industrial
• Access to manpower
• Access to Technology
• Problem solving or
information gathering
• Prestige
University
• Diversity funding sources
• Expose students to
practical research
• Obtain specially
designated government
funds
• Employment for graduates
Key Types of Current
Interactions
• Consulting
• Research grants and contracts
• Centers
• Corporate Partnerships
• Technology Offices
• Incubators
• Research Parks
• Spin off Firms
What external resources do small "high tech" entrepreneurial firms seek as
they prepare to enter and develop their markets?
• Information and skills– Contacts and ideas on on how to exploit the new venture's technology
– Information on comparative technology
– Foreign technology to meet a market need in the firms home base
– Technical resources to futher develop the firms technolgy
– Complementary technologies to complete a product concept
• Vehicles for market development– Channels for distribution and market development
– Ties to foreign markets
• Facilities– Computer facilties
– Libraries
– Laboratories
– Production capabilities
– Warehouse space
• Capital– Money to further develop a product concept
– Money to further develop a new technology
– Venture capital to explore the market possibles of a new technology
The small new "high tech" venture and alliances
• Proscribe the geographic market or vertical industry in which the partner can sell the product.
• Focus: Does the agreement involve making, using and selling, research and development, just selling or some other combination of activities. Try to hold onto the right to produce and to sell the product to the licensee for additional cash flow.
• Be Specific: To the extent that the agreement involves new technology carefully outline for what types of products and or processes the partner has the right to use the technology and for what fee.
• Set exact minimum annual royalties.
• Set a precise time period for the term of the agreement such as three to five years.
• Type: In the case of licensing determine if this will be an exclusive or non exclusive license.
• Information: Demand and receive a right to audit the licensee's books and records to make sure the royalties paid to you are accurate.
• Payment: Demand an up-front payment equal to one-half of the licensee's estimated first-year royalty payments to the new venture. This may help avoid future disputes.
• Set precise minimum sales targets on which royalties are based, and have the licensee agree to pay the entrepreneurial company the minimum each year ( at some other time period). whether the licensee actually makes the sales or not.
• Exiy/Evolution:: You may want to include a trigger sales point for setting up a joint venture or more comprehensive agreement.
• Default: Clearly delineate events of default. Set these out in writing, and take back the license if the licensee defaults.
• Carefully consider add-ons which you may be able to charge for especially if they restrict your freedom to deal with others. Examples are giving a right of first refusal to the licensee on any and all new or related products or requirements for sharing related R&D data.
The Corporate View on investment in small new
"high tech" ventures
• Keep an eye out for new technologies that may
affect current or future business
• Watch the development of new markets based on
new technologies
• Be kept informed about new high growth
companies
• Keep an eye out for potential new acquisitions that
are financially and technologically strong
Why corporations Make Venture Capital Investments
or tie up with Small Firms
• To incubate and reduce the cost of acquisition
• Exposure to possible new markets
• To add new products to existing distribution channels
• To participate in a less expensive form of research and development
• To expose middle management to entrepreneurship
• Training for junior management
• Utilize excess plant space, time and people
• To mesh the activities of several departments
• To generate capital gains
• Develop antennae for new technologies
• Income generation
• Provide an outlet for senior management
• Public relations
• Follow the competition
• To keep excellent employees
• To encourage company formation in the community
Who are Suitable Partners for RI?
Technical Source RI
Idea Generation
0
2
4
6
8
10
12
14
Busines
s Uni
t
Corpo
rate
R&D
Busines
s Uni
t R&D
Division
R&D
Unive
rsitie
s
Suppliers
New V
entu
re w
/ R&D
Form
al S
.A.
Corpo
rate
Ven
ture
or N
PD
Labs
of o
ther
Dom
estic
Firm
s
Small H
T Co
Fore
ign
Labs
of F
irm
Subside
s
Labs
of L
arge
FF
Inde
pend
ent R
Lab
Oth
er G
over
nmen
t Lab
Fede
ral L
ab
Corpo
rate
Finan
ce
Oth
er
Fre
quency M
entio
ned
The Importance of Various Types of
Partners over the RI Life Cycle
TECHNOLOGY SOURCE
Average Importance of Organizational Type
Corporate
R&D
Business Unit
R&D
Small High-
Tech Co.
Formal
Strategic
Alliances
Univer-
sities
Idea
Generation 3.8* (13)** 3.8 (9) 2.2 (6) 2.3 (6) 3.3 (7)
Business
Opportunity
Definition 3.2 (13) 3.9 (8) 2.2 (5) 2.8 (5) 2.1 (7)
Early
Development 3.7 (14) 3.1 (9) 2.8 (6) 3.8 (6) 2.6 (7)
Later
Development 3.4 (12) 4.2 (7) 2.2 (5) 3.6 (5) 1.4 (5)
Rump Up/
Commercial-
ization 2.6 (11) 4.0 (4) 2.0 (5) 2.8 (4) 1.3 (4)
* - 1 = of little importance, 5 = extremely important
** - (number of respondents indicating this unit was involved)
Company Perspectives on the University’s Role in RI
• Universities provide the foundation for idea generation
• Universities can be the spark in idea generation
• Universities are used to explore options.
• Universities are used for technology assessment and
evaluation
• Universities have valuable resources that can be
brought to bear on industry problems but they need to
be guided to help companies effectively focus on
industry problems
• Universities Provide Access to Knowledge Networks
Alliance Strategies: A Knowledge
Management Perspective
• Learning ( knowledge acquisition)
• Demonstrating and proving technology value
(knowledge verification)
• Gaining credibility (knowledge demonstration)
• Building infrastructure (contingent knowledge)
• Providing technology to enable development of a
product ( knowledge creation)
Functions Performed by Alliances
• Provide backup producers for a firm’s critical products
• Spreading risks of system development and market
penetration
• Aiding in reaching common agreements for specifications
and standards for a product, an important tool for
marketing
• Lowering development costs
• Facilitating marketing strategies by providing for lasting
long-term relationships with important customers or with
dissimilar companies servicing the same use (market)
Finding Partners
• Using prior contacts
• Attending industry association meetings
• Attending conferences
• Participating in short courses
• Participation in research consortia or university research centers with multiple company members
• Participating in collective industrial research
• Locating in technology parks or technology clusters
• Participation in standards setting or regulatory committees
• Getting government grants
• Using the library and information data bases
• Conducting industry analyses
Negotiating an Alliance
• Integrating Technology and Strategy
• Searching for Partners
• Determine the Objectives and Type of Relationship
• Building Trust
• Disposition of Intellectual Property Rights
• Writing the Agreement
• Carrying Out and Monitoring the Agreement
Resource Negotiation
• Tasks
– Distribution
– Integration
• Reservation Price- Bargaining Zone
• Assessments
– No Agreement
– Issues- Importance?
Negotiation Strategies
1) Build Trust/Share Information
2) Ask Questions
3) Multiple Offers
4) Mutually Beneficial Trade-Offs
Closing the Deal
• Determine your unique selling point and market it
• Collect data on your potential strategic partners
• Find the gatekeepers and go around them
• Find a champion for your idea
• Leverage others to help close
• Control the conversation and ask direct questions about the potential deale.g. are you looking for this kind of technology at this time?
what is your overall budget for this king of deal?
have your ever done this kind of deal before?
what are your constraints?
will your R&D department be interested in working on this technology
do you have decision making responsibility in this area?
what kind of information do you need to take about this deal to your superiors or committee?
when and where will you present this deal?
can I or a representative of my company attend this presentation?
do you want to meet other member of my team?
• Use third party endorsement and facilitators
Evaluation
• What were the outcomes and their value?
• How did the outcomes match the original objectives of the alliance?
• What learning occurred?
• What was the return on investment?
The Evolution of Partnerships: learning and the
dynamics of knowledge management
• Dissolution
– Learning there is no opportunity
• Refocus technology and or markets
• Building trust
• Team building
– “Yeah, I think things have changed. I think we’ve become much more of
a joint developer together of the technology. “
• Changed objectives and knowledge requirements
• New funding opportunities
Why Strategic Alliances Fail
• Lack of Material/Concrete Objectives
• Change of complementary Needs
• Lack of commitment
• Poor relationship
• Lack of Shared Risks
• Cultural Differences
• Poor Communication
• Sometimes they are initiated out of laziness or
lack of internal strategy
Major challenges to the successful
implementation of strategic alliances
• Overcoming reluctance to give up autonomy
• Achieving operating momentum
• Dealing with the need to maintain focus on the
external environment
• Avoiding unnecessary politicking
• Maintaining organizational energy to continue
cooperation over time
• Increasing one’s willingness to learn
• Keeping particular individual from becoming
bottlenecks in the strategic alliance
Your Turn: Think of Your Projects
• What type of alliances might be appropriate
• What would be their objectives? Functions?
• How would you go about finding a partner?
• What criteria would you put in place for evaluating
the outcome?
Concluding Points
• There are multiple dimensions, perspectives and functions of
partnering and they change over time
• The form, technology and partners of alliances must be viewed in terms of the innovation process and goals
• Alliances can be an efficient mechanism to access a broad variety of knowledge resources, but you have to work hard at making them a “success” – requires more than technical or functional expertise
• The networks formed begin to blur the character of the firms and its operating limits
• Importance of Managing the Network: Individual technical alliances are self-reproducing. There is an expanding network of interactions
• From a strategic point of view you should determine whether it makes sense to negotiate a relational or transactional partnership
• National networks are expanded by international linkages. Corporate policies can confuse government policies
• The U.S. Policy system does not adequately address growing internationalization of innovation as reflected by growing technical and innovation networks.