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Dyadic Analysis in Inter-Corporate Alliance:Merits and Risks
Chubu University
Takafumi MORIOA

1Agenda• The purposes of this paper• Pattern Classification in Inter-Corporatealliance• Classification of Economic merits• Merits and Risks in Inter-Corporate alliance• Conclusion

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The purposes of this paper• The new four patterns of Inter-corporate
alliances are presented and the relationshipbetween their patterns and the concepts ofeconomies makes clear.
• Merits and risks by the difference ofalliance –patterns makes clear.
• The concepts of economies are examinedin connection with Inter-corporate alliances.
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Typical classifications of Inter-Corporate Alliance• There is one of the typical classifications of Intercorporate alliance focused on the verticalrelationship and the horizontal relationship, in otherwords ,the vertical alliance and the horizontalalliance.
• The vertical alliance has defined a relationship towhich successive stages in production anddistribution are placed under the interaction of thefirms.
• The horizontal alliance has defined a relationship ofthe same industrial firms.
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Thinking tools for classification ofinter-corporate alliance

5Business Layer• On the Inter-corporate alliance, the focusedcorporate is supposed to consists of two
business-layers; application and infrastructure.
• Application is direct business for producing
goods and services.
• Infrastructure is business to promote activities
of applications.

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The four patterns of inter-corporate alliance• The four patterns of inter-alliance are Horizontal
alliance, Cross-industry alliance, Vertical alliance,and Infrastructure-application alliance.

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Horizontal alliancegoods andservices

Application

Application

the same sort ofinfrastructure

the same sort ofinfrastructure

Horizontal alliance means the interactions ofapplications underlying the same infrastructures.
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Cross-industry alliancegoods andservices

Application

Application

the difference
sort ofinfrastructure

the difference
sort ofinfrastructure

Cross-industry alliance means the interactions ofapplications underlying the different infrastructures.
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Vertical allianceApplication

Application

Application

Infrastructure

Infrastructure

Infrastructure

goods andservices

Vertical alliance means supply-chain activity.

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Infrastructure-application alliancegoods andservicesApplication

Infrastructure

Infrastructure-application alliance means hierarchicalactivity between application-player and infrastructureplayer.
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Fundamental thinking about the relationship between
the economy concepts and the patterns of Intercorporate alliance• In this paper , the relationship between economy
concepts and the patterns of Inter-corporate
alliances is strong .
• The traditional economy concepts are examined;
economies of scale and economies of scope.

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Traditional definition:
economies of scale and economies of scope• There are traditionally two concepts ofeconomies: economies of scale andeconomies of scope.
• Traditional definition– Economies of scale have defined factors thatcause the average cost of producing acommodity to fall as output of the commodity
rise.
– Economies of scope have defined factors thatmake it cheaper to produce a range of related
products than to produce each of theindividual products on their own.
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Internal effects and External effects• Internal effects mean influence and effectbetween one player and the other playerthat constitute alliance.
• External effects mean influence and effectbetween a customer and a player.

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Explanation of two economy concepts
in this paper• Economies of scale is internal andexternal effects ( merits and risks) that
increases activity -scale by alliance.
• Economies of scope is internal andexternal effects ( merits and risks) thatcause combinations or connections of thedifferent products, business and activities
by dyadic corporate-alliance.
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Economies of coupling and Network Externalities:
Economies of coupling• There are two pre-concepts in relation toeconomies of scope; Economies of coupling andNetwork Externalities• Economies of coupling defines plural firms arecoupling, and the connection of information andknow-how of them cause synergistic effects(Miyazawa 1988)• Miyazawa doesn’t distinguish the vertical alliancefrom the cross-industry alliance that this paper
does .
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Economies of coupling and Network Externalities:
Network Externalities• The concept of Network Externalities is a part of external
effects on economies of scope of the infrastructureapplication alliance.
• The traditional definition : Network Externalities are theeffects on a user of a product or service of others using thesame or compatible products and services. The benefits of auser are increasing as increasing the number of other user.
• Network Externalities may effect on the small scale as awhole.
• For example, a small number of users can be increasing thebenefits by accessing the infrastructure of the infrastructure application alliance.
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CASE-STUDY

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Four cases and the patterns ofInter-corporate alliances• Horizontal alliance → Star Alliance• Cross-industry alliance →(CVS Convenience Store)and Bankｓ• vertical alliance → KFCJ (Kentucky Fried ChickenJapan Ltd)• Infrastructure-application alliance → Sony Bank

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Star Alliance:
Economies of scale on the horizontal alliance

Airplanes

goods andservices

Facilities in airport
Flight reservation serviceetc.

Application

Application

Application

Application

The samesort ofinfrastructure

The samesort ofinfrastructure

The samesort ofinfrastructure

The samesort ofinfrastructure

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STAR ALLIANCE• A group of five world-class airlines got together, and Star
Alliance established in 1997.
• Star Alliance provides customers with airline networks,
lounge access, check-in services, ticketing and dozens ofother services to improve the travel experience forcustomers and efficiencies for the carriers.
• By 2006 the alliance had grown to 17 members and threesmaller, regional members with two other international
carriers in China scheduled to join in 2007.
• Member Airlines: AIR Canada,Air NewZealand,ANA,
Asiana Airlines,Austrian,bmi,LOT Polish Airlines,Lufthansa,
Scandinavian Airlines, Singapore Airlines,South African
Airways,Spanair,SWISS,TAP Portugal, THAI,United, US
Airways,Regional Members
21Merits and Risks of Star alliance• Internal merit– The equipments that use in the airplane; many pieces of paper
cup ,blankets are standardized and can be procured in theworldwide.
• External merits– The common mirage highly increases the attractions of the miragesystem.
– The flight schedule of another member is coordinated in the caseof the cancellation.
• Internal risk
– The critical mass of passengers is needed by the width of flightnetwork.
• External risk
– As Star Alliance is a big group of air flight companies , it makes
flight choices of passengers less.
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CVS (Convenience Store) and Bank
:Economies of scope on Cross-industry allianceStore Network
Distribution Network

goods andservices

ATMApplication

Procurement
Replenishment
Application

Branch Network

the different
sort ofinfrastructure
Bankthe different
sort ofinfrastructure
CVS

Application

ATMBranch Network

the difference
sort ofinfrastructure
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Convenience stores and Banks
・As going on the Japanese financial big bang,
the other industries adding the banking industry
provide a wide of financial services.
・The Customers of Banks (Bank of MitsubishiTokyo UFJ. etc.) withdraw their own accountwith ATM (automatic teller machine) located inthe convenience stores (Lawson conveniencestores etc) .
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Merits and Risks of the alliance between Convenience stores and Banks•

Internal merit– The rate of operation both in the space of convenience store and banking
information system is increasing.
– Without the constraint of payable money ,the activity of customerʼspurchasing can be increasing.

•External merit– A customer withdraws his/her account in a convenience store and buys
something more. The effect on one stop shopping becomes strong.

•Internal risk
– The salesclerk of the convenience store need to both sale goods andservices and manage enough and many sorts of money.

•External risk
– The customer may confuse the brand image of convenience store(convenient) and bank (safety).

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Supply-chain of KFCJ (Kentucky Fried Chicken Japan Ltd)
:Economies of scope on the vertical alliance

fattendissection

stock anddistribution

cooking andselling

Application

Application

Application

Application

Infrastructure

Infrastructure

Infrastructure

Infrastructure

Firm

Factory

Stockyardand Truck

Direct management
stores and FC stores

Contract
Firm

AuthorizedDistributor

Direct management
store and FC store

Factory

goods andservices

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Kentucky Fried Chicken Japan Ltd.
• Kentucky Fried Chicken Japan Ltd. is a fast
food franchiser and main food is friedchicken.
・ Kentucky Fried Chicken Japan Ltd. hasinstituted and managed the supply –chain;Contract Firm-Authorized Factory-DistributorDirect management stores and FC stores.

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Merits and Risks of the vertical alliance(Kentucky Fried Chicken Japan Ltd.)• Internal merit– The supply chain to supply chicken stably makes the business activity
smoothly and effectually.
– The unification of information systems over the supply chain makes aprospect of the demand and supply more accurate.

• External merit– The franchiser can easily reply the references of the franchisees that
confirm the additional supply.

• Internal risk
– By the institution of the authorized factory ,the factory not to fulfill thestandard can’t be taken part in the supply chain.
– As it is hard to take part in the supply chain newly for the reason ofadding specific relational investment, the change of the members is very
hard.

• External risk
– As the products under the brand of KFCJ depend on the suppliers ,thesuppliers ｅｆｆｅｃｆ on the brand image strongly.

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Sony Bank: Economies of scope on the infrastructure-application alliancegoods andservices

SONY BANK

Application

Infrastructure

Sumitomo –Mitsui BANK branches, Postal
Savigs branches, Convenience stores (am/pm)

29Sony Bank
• Sony Bank is established in April 2, 2001.
• Sony Bank is a member of Sony Financial Holdings that isJapan’s first financial holding company to hold both
insurance and banking business under one umbrella.
• The shareholders of Sony Bank are Sony FinancialHoldings Inc. (Number of shares owned 440,000 shares,88%) and Sumitomo-Mitsui Banking Corporation (Numberof shares owned 60,000 shares, 12%).
• Sony Bank has no real branch.
・The customers of Sony Bank withdraw their own accountwith ATM in the other banks (Sumitomo-Mitsui Banking
Corporation branches and Postal savings branches, etc).
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Merits and Risks of the infrastructure-application allianceon Sony Bank
• Internal merit– Sony Bank can make a banking business withthe use of ATM in the Sumitomo –Mitsui BANK branches, Postal
Savigs branches, Convenience stores (am/pm).
– The ATM network limited the domain of Sony banking business.

• External merit– A customer who uses ATM in the Post office is served with otherpostal services.

• Internal risk
– Sony Bank tend to research and development the banking
services considering the application.

• External risk
– The customers of Sony Bank are limited with the location of theapplications.
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Summary of Case Studies

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Merits of economy concept
Economy concept

Internal merit

External merit

Economies of scale on
the horizontal alliancethe average cost ofeasy access to purchaseproducing a commodity to fall and use
per unit and critical-mass

Economies of scope on
Cross-industry alliancecomplementation

increase of one stop

assimilation

shopping

Economies of scope on
the vertical alliancethe constant supply ,improvements across thesupply chains andeasy proposal across thesupply chainsdifferentiation
Economies of scope on
the infrastructureapplication alliancewhole business formation,
the limit of business domain

promoting users’convenience

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Risks of economy concept
Economy concept

Internal risk

External risk

Economies of scale on
the horizontal alliancemaking flexibility low on therate of operationa choice range reduce

Economies of scope on
Cross-industry alliancecomplexity of coordinationand judgments withbrand image confuse bycombination

activities
Economies of scope on
the vertical alliancedifficulty of changing

brand image limited by themembershipalliance partner

Economies of scope on
the infrastructureapplication alliancedeveloping constrains
underlying partner’s
standard

minority opposition without
uses of government andinfrastructure
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The relationship between economy
concept and alliance
Pattern of Alliance

Effect-principles of
economy concept

Horizontal alliance
Cross-industry alliance
Vertical allianceeconomies of scaleeconomies of scope

Infrastructure-application
alliance
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Conclusion• Inter-corporate alliance can be classified

into four patterns by its alliance-form.
• From the view points of Inter-corporate
alliance, the concepts of economies areexamined.
• The merits and the risks of four intercorporate alliances are divided into
internal and external effects, and fourconcepts of economies are proposedcorresponding to four alliance-forms.
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Morioka, Takafumi., and Negoro Tatsuyuki. (2000). Four Patterns of Inter-Corporate Alliance andEffects and Risks of Each Pattern, Information and Communication Studies of The Faculty ofInformation and Communication Bunkyo University.,24:1-47
Negoro, Tatsuyuki., and Sakatsume, Hiroshi. (1999). Development and Kaizen of KFC SupplyProcess. IE Review ., 40(1):54-62.
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