Alliance Structure
Once a partner has been selected, the alliance should be structured so that the firm’s risks of giving too much away to the partner are reduced to an acceptable level. First, alloances can be designed to make it difficult, if not immpossible, to transfer technology not meant to be transferred. The design, development, manufacture, and service of aproduct manufactured by an alliance can be structured so as to wall off sensitive technologies to prevent their leakage to the orther participant. In an allianc between General Electric and Snecma to build commercial aircraft engines, for example, GE reduced the risk of excess transfer by walling off certain sections of the production process. The modularization effectively cut off the transfer of what GE regarded as key competieive technology, while permitting Snecma access t final assembly. Similarly, in the alliance between Boeing and the Japanese to build the 767, Boeing walled off research, design, and marketing funtions considered central to its competitive position, while allowing the Japanese to share in production technology. Boeing also walled off new technologies not required for 767 production.
Second, contractual safeguards can be written into an alliance agreement to guard against the risk of opportunism by a partner. ( Opportunism includes the theft of technology or markets. ) For example, TRW. Inc., has three strategic alliance with large Japanese auto component suppliers to produce seat belts, engine valves, and steering gears for sale to Japanese-owned auto assembly plants in the United States. TRW has clauses in each of its alliance contracts that bar the Japanese firms from competing with TRW to supply U.S. owned auto companies are entering into the alliance merely to gain access to the North American market to compete with TRW in its home market.
Third, both parties to an alliance can agree in advance to swap skills and technologies that the other covets, thereby ensuring a chance for equitable gain. Cross-licensing agreements are one way to achieve this goal. Fourth, the risk of an alliance partner’s opportunism can be reduced if the firm extracts a significant credible commitment from its partner in advance. The long-term alliance between Xerox and Fuji to build photocopiers for the Asian market perhaps best illustrates this. Rather than enter into an informal agreement or a licensing arrangement ( which Fuji Photo initially wanted ), Xerox insisted that Fuji invest in a 50/50 joint venture to serve Japan and east Asia. This venture constited such a significant investment in people, equipment, and facilities that Fuji was committed from the outset to making the alliance work in order to earn a return on its investment. By agreeing to the alliance. Given this commitment, Xerox felt secure in transferring its photocopier technology to Fuji.