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Long Range Planning

36/6 December 2003



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Charles Baden-Fuller Editorial

Marketing and Strategy
The bridge between marketing and strategy is under-explored despite the obvious linkages that exist between the fields. Successful strategy requires a deep appreciation of customer needs and wants, and how to leverage resources to fulfil opportunities. Yet too often strategists do not pay enough attention to a real understanding of the consumer and marketers pay too little attention to the need to create sustainable business models. Our opening piece by Bernd Wirtz and Nikolai Lihotzky fills a gap. They show us the wide variety of business models that are being used in the internet economy and then match marketing strategies to each of these business models. There are simple and valuable take home messages here.

Alliance Strategies
We are lucky to have three complementary pieces on alliance strategies. They all examine different aspects of international cooperation and its effectiveness. It is worth looking at the pieces in some detail, and they delve into the finer questions of what makes alliances work well. Leo Sleuwaegen, Krijn Schep, Gijs den Hartog and Harry Commandeur examine how stock markets value different kinds of international alliances. Richard Butler and Jas Gill look at international alliances from another angle and ask what makes them unstable and likely to fail. They use two cases to delve into the issue of trust and trust-worthy behaviour. Our third piece by Marta Vidal Suarez and Esteban Garcia-Canal looks at another part of the jigsaw: the value creation in global (multi-partner and multi-country alliances). These are a special case of the international alliance, being more complex and more ambitious. They find that value is created by filling obvious gaps and exploiting complementarities and that in this arena issues of country of origin (typically important in the simpler alliance game) are less important here.

Forthcoming Special Issues
I am delighted to announce a special issue on Peripheral Vision that will appear very shortly edited by George Day and Paul Schoemaker, two professors from Wharton. It addresses the question: How should we sense and act on weak signals? For both individuals and organisations, the dilemma is that our attention is a limited resource, the more we focus on the periphery the less attention we have for the core, but we ignore the periphery at our peril. In looking how to resolve this dilemma, the special issue has contributions from leading academics such as Day, Schoemaker, Winter, Bob Johansen, C.K. Prahalad and practitioners such as John Seely-Brown (Xerox), Anil Menon (IBM), Larry Houston (P&G) and Stephan Haeckel (IBM).

Welcome for New Editorial Assistant
I am pleased to welcome Alessandra Marsh as the new Editorial Assistant. Alessanda was born in Italy, worked for many years with Il Mulino the renowned Italian Academic publishers and came to the UK some years ago with her family.

Marketing and Strategy

B.W. Wirtz and N. Lihotzky Customer Retention Management in the B2C Electronic Business Wirtz@uni-wh.de

Businesses competing in the internet economy are turning their attention and resources towards increasing the retention of their customers. The unique marketplace in which such businesses operate gives rise to a particular set of hurdles regarding customer retention. For example, the intense market transparency on the internet lowers the barriers to customers switching their business to another provider. For the businesses that do retain their customers the benefits are great: with customer acquisition costs high, retention offers a relative saving; moreover businesses can take advantage of cross-selling opportunities or bundled services to loyal customers. This paper addresses the question of how retention can be achieved and which strategy is appropriate for which business model. The authors based their analysis on theoretical reasoning and interviews with B2C executives. They found that trust building and convenience are most appropriate for commerce business models while the establishment of communities and the offer of free services appear to be particularly successful for content, context and connection providers. Tailoring, or individualisation, was universally acceptable across all the business models. Offering technical integration is most suitable for context and connection businesses while contractual agreements were employed to good effect by content and connectionbusinesses. The authors conclude that internet companies in the business-to-consumer market appear to be doing the right things to retain customers but that further research is necessary to assess the relevance to the business-to-business market.

Alliance Strategies

L. Sleuwaegen, K. Schep, G. den Hartog and H. Commandeur Value creation and the alliance experiences of Dutch companies Leo.sleuwaegen@econ.kuleuven.ac.be

Investors tend to react strongly to the news of a company’s alliance resulting in a positive or a negative effect on the share price. Yet little study has been done to date on the effect of international strategic alliances on a company’s worth. International strategic alliances by their very nature require the combination of two or more diverse organisations. This study sets out to provide a better understanding of the effect of partner diversity. The authors focus on their study of 105 alliances made by Dutch companies with foreign partners between 1985 and 1992. The results not only support past assumptions regarding the effects of international strategic alliances on partnering companies, but also provide an insight into the link between value creation and the diversity of partners. It points to three main impacts: the costly and uncertain search for suitable partners; the more distant a partner is in terms of culture and institutions the higher the risks to manage the alliance; and the country of origin of the partner reflects the competitive position, and the type of growth option acquired. For managers, the study points to some important risks that should be monitored during the decision making process of such an alliance. For example, partnering companies should develop the essential skills, including understanding each other’s strategic objectives and organisational culture, and not focus solely on operational or financial targets. Such an audit will enhance co-operation. The paper also advocates credible contingency plans for exiting the alliance to improve the value of the deal to investors.

R.J. Butler and J. Gill Managing Instability in Cross-Cultural Alliances j.gill@rhul.ac.uk

Cross-cultural alliances and the global reach that they can offer would appear to be the strategic answer to companies’ international ambitions. Yet many alliances are doomed to failure. What starts off as an attempt to tap new markets or meet regulatory conditions can end up being wound up or reorganised in a form unrecognisable from the original goals.
This paper addresses the dynamics underlying alliance instability and how these vary for partners from different national cultures. The authors take a case study approach and explore, through interviews, two Japanese joint ventures with local partners in the UK and Malaysia. Tensions between the various partners were a characteristic feature of both joint ventures and could have led to a partner leaving the alliance. The study found that key factors affecting the stability of alliances are trust, conflict and dependence. The relative importance of these three factors and interactions between them - the meaning of trust and indicators of trustworthy behaviour, performance objectives and timescales, attitudes to competition - varied with partner nationality. For the British, financial and strategic dependence were of central importance for joint venture stability while the Japanese placed greater weight on trust and personal relationships. For the Chinese Malaysian participants, both trust and financial dependence were important. Managing instability within cross-cultural alliances therefore requires sensitivity to and awareness of the different perceptions and expectations of partners from each national culture to avoid the tensions that can lead to instability.

M.V. Suarez and E. Garcia-Canal Complementarity and Leverage as Drivers of the Stock Market Reaction
to Global Alliance Formation egarcia@correo.uniovi.es

Companies are increasingly using global alliances to accelerate their global expansion and the news of such deals can have an impact on their share prices. In order to increase shareholder wealth, the alliance has to be seen as creating value for the company. It will only do this if the alliance improves the company’s competitive advantage. This paper says that a positive stock market reaction, in the form of abnormal returns, to the news of a global alliance depends on the degree to which partners fill the gaps in their international networks. It argues that contrary to the assumption of previous research, the drivers of
abnormal returns have little to do with the partners’ region of origin and everything to do with the degree to which the resources brought together by the alliance are complementary and to what extent these are leveraged. In order to test the impact of complementarity and leverage on the stock market response to such deals, the authors studied a sample of 72 global alliances created by 23 Spanish companies. Taking into account the market value of each company adjusted to inflation, the wealth effects of these alliances ranged from gains of 160 million to losses of 75 million. The data confirmed the main prediction of the theoretical model. The paper concludes with some messages for managers seeking to enter global alliances, and refers to the case study of the tie-up between Banco Santander and Royal Bank of Scotland.

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Long Range Planning - International Journal of Strategic Management
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