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Chapter 11: Making Alliances & Acquisitions Work
Chapter 11
Making Alliances & Acquisitions Work
Learning Objectives
After studying this chapter, students will be able to accomplish the following objectives:
1. Define alliances and acquisitions.
2. Articulate how institutions and resources influence alliances and acquisitions.
3. Describe how alliances are formed.
4. Outline how alliances are dissolved.
5. Discuss how alliances perform.
6. Explain why firms make acquisitions.
7. Describe what performance problems firms tend to encounter with acquisitions.
8. Articulate what you can do to make global alliances and acquisitions successful.
Chapter Overview
The chapter begins by defining and differentiating strategic alliances, contractual alliances,
equity-based alliances, strategic investments, cross-shareholding agreements, acquisitions, and
mergers. Then, the chapter evaluates alliances and acquisitions based on the institution- and
resource-based views. The institution-based view suggests that as rules of the game, institutions
influence how a firm chooses between alliances and acquisitions in terms of its strategy. The
resource-based view argues that, although a number of firms may be governed by the same set of
rules, some firms excel more than others because of the differences in firm-specific capabilities
that make alliances and acquisitions work. The subsequent sections use the metaphors of
marriage and divorce to discuss how alliances form, dissolve, and perform. Finally, the chapter
looks specifically at acquisitions—the three potential motivators for why they take place, their
overall performance, and why they rarely succeed.
Opening Case Discussion Guide
Etihad Airways’ Alliance Network
Founded in 2003 and based in Abu Dhabi, Etihad Airways is both inspired by Emirates Airlines
and a direct competitor of Emirates, which is based in Dubai, a fellow emirate in the United Arab
Emirates (UAE). Etihad imitates the highly successful Emirates by (1) equipping itself with
modern long-haul jets (such as Airbus A380 and Boeing 777 Extended Range [ER]) and (2)
2
Chapter 11: Making Alliances & Acquisitions Work
leveraging the enviable location of the Abu Dhabi International Airport, which is only an hour
away by car from Dubai’s storied airport.
One area that Etihad has decisively deviated from its role model Emirates is an interest in
weaving an alliance network. In an industry with three major multipartner networks—One
World, Sky Team, and Star Alliance—airlines are no strangers to alliances. But Etihad’s alliances
are not what people think. Its talks to join these three mega networks did not go anywhere,
because none of them was interested in admitting an ambitious new member determined to eat
their lunch. Instead, Etihad has built its own alliance network consisting of eight smaller airlines.
Etihad CEO James Hogan has argued that his multi-billion dollar investments in airlines that
serve smaller markets made economic sense by increasing Etihad’s passenger tally and securing
economies of scale when competing with Emirates. But can Etihad turn such an alliance network
profitable? The most challenging member is Alitalia, which lost €1.1 billion ($1.5 billion) in five
years, and Etihad spent €560 million to breathe some new life into it. Indeed, no other airline in
the world is doing what Etihad is doing at this scale. Does Etihad, despite its deep pockets, have
what it takes to turn around a whole bunch of also-rans?
Lesson Plan for Lecture
Brief Outline and Suggested PowerPoint Slides
Learning Objectives PowerPoint Slides
Learning Objectives Overview 2–3: Learning Objectives
LO1
Define alliances and acquisitions.
4: Alliances
5 Alliances and Acquisitions
6: Exhibit 11.1: The Variety of Strategic
Alliances
7: Acquisitions and Mergers
8: Exhibit 11.2: The Variety of Cross-
Border Mergers and Acquisitions
LO2
Articulate how institutions and resources
influence alliances and acquisitions.
9: Exhibit 11.3: Institutions, Resources,
Alliances, and Acquisitions
10: Institutions, Alliances, and Acquisitions
11: Exhibit 11.4: Strategic Alliances:
Advantages and Disadvantages
12–13: Resources and Alliances
14–15: Resources and Acquisitions
3
Chapter 11: Making Alliances & Acquisitions Work
LO3
Describe how alliances are formed.
16: Forming Alliances: Stage One
17: Forming Alliances: Stage Two and
Three
18: Exhibit 11.6: Alliance Formation
LO4
Outline how alliances are dissolved.
19: Exhibit 11.7: Alliance Dissolution
LO5
Discuss how alliances perform.
20: Factors that Influence the Performance
of Alliances
LO6
Explain why firms make acquisitions.
21: Exhibit 11.8: Motives for Acquisitions
LO7
Describe what performance problems
firms tend to encounter with acquisitions.
22: Exhibit 11.9: Symptoms of Acquisition
Failures
LO8
Articulate what you can do to make
global alliances and acquisitions
successful.
23: Perspectives that Determine the
Success and Failure of Alliances and
Acquisitions
24: Exhibit 11.11: Implications for Action
Key Terms 25: Key Terms
Summary 26–27: Summary
