Describe three alliance governance mechanisms and evaluate their pros and cons. ¦ Alliances can…

Describe three alliance governance mechanisms and evaluate their pros and cons.

■ Alliances can be governed by the following mechanisms: contractual agreements for non-equity alliances, equity alliances, and joint ventures.

■ There are pros and cons of each alliance governance mechanism, shown in detail in Exhibit 9.2 with highlights as follows:

• Non-equity alliance’s pros: flexible, fast, easy to get in and out; cons: weak ties, lack of trust/ commitment.

• Equity alliance’s pros: stronger ties, potential for trust/commitment, window into new technology (option value); cons: less flexible, slower, can entail significant investment.

• Joint venture pros: strongest tie, trust/commitment most likely, may be required by institutional setting; cons: potentially long negotiations and significant investments, long-term solution, managers may have two reporting lines (two bosses).

 

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