Ch. 9 Alliances

Chapter 9 of our text introduces us to the concept of alliances, a vehicle that "enable[s] participants to share in investments and rewards while reducing the risk and uncertainty that each firm would otherwise face on its own" (pg.296). Through joint investment, knowledge sharing, complementary resources, and effective management, the participants in this partnership can achieve competitive advantages that they wouldn't be able to achieve on their own. The chapter highlights the different forms of alliances based on their level of financial commitment. For example, an alliance can be either an equity alliance (high financial commitment) or nonequity alliance (lower degree of financial commitment).

A nonequity alliance can be described as "an alliance that involves neither the assumption of equity interest nor the creation of separate organizations" (pg.302). Some examples  of Starbucks' nonequity alliances, as highlighted in our text, include: Barnes & Nobles (bookstore cafés), United Airlines (in-flight coffee service), Dreyer's (coffee ice cream), and Pepsi (Frappuccino ready-to-drink coffee) (pg. 302). 

Another example of one of Starbucks' successful partnerships is its alliance with Target, which allows Starbucks to operate its cafés in Target stores. The twelve year partnership has been so successful that in 2012, the two corporations made plans to extend Starbucks cafés into over 130 Canadian Target locations (set to open in 2013). From the Canadian Publication Globe and Mail, "'Our goal is to bring the true Target brand shopping experience to our Canadian guests, so expanding our relationship with Starbucks as we enter the Canadian marketplace is a natural fit,' said John Morioka, the senior vice-president of merchandising at Target Canada." Starbucks manages other partnerships in Canada, including alliances with grocery stores Safeway and Longos.

As we can see from the examples above, Starbucks grows its business by seeking alliances that create competitive advantage and allow it to expand its brand, products, and international presence.

However, as our text makes clear, not all alliances end in success. Some are dissolved when one or both of the firms discover that they are not receiving sufficient benefit from the partnership, or the alliance doesn't work out because of other inconsistencies.

Starbucks' partnership with Kraft is an example of an alliance that stopped working out. Starbucks decided to break from Kraft in 2010, deciding that it could more effectively market and distribute its packaged coffee itself, cutting out the middle man. It claimed Kraft did not do a good enough job marketing its products. Kraft says it has increased Starbucks packaged coffee sales from $50 million to $500 million annually. The two firms continue to argue it out in court over how much Kraft should be compensated and who breached their partnership contract. If you are interested in more details about the conflict between Kraft and Starbucks, the following two articles provide some interesting details about Kraft's issues with Starbucks and vice versa. Starbucks now oversees its own packaged coffee distribution:

-"Starbucks and Kraft escalate battle over marketing pact" William Neuman, The New York Times 12/6/10
-"Starbucks, Kraft Start Arbitration in Dispute over Coffee Distribution" Melissa Allison, The Seattle Times, 6/11/12