Bayer AG: Developing Vertical And Horizontal Strategic Alliances

Develop a Vertical strategic alliance. For this you need to identify a company, analyse its position within Europe and also its global operations; look at the values and the culture and argue why you have chosen this specific company and not others. Indicate the benefits or strategic goals that you seek to achieve through this alliance. Identify possible risks

Development of Vertical Strategic Alliance

Bayer AG is a German Multinational company that deals with Pharmaceutical as well as Life Science Company. The primary areas of the Bayer Company include consumer healthcare products, human as well as veterinary pharmaceuticals, biotechnical products, agricultural chemicals and high value polymers. The motto of the Bayer AG is “Science for a better life.” When it comes to the pharmaceuticals division of the Bayer Company, the department chiefly focuses on prescription products, especially for cardiology and women’s healthcare. Along with that, it also deals with specialty therapeutic in areas like ophthalmology, homology and oncology (Cui 2013). Apart from that, the pharmaceutical department of Bayer also markets contrast- diagnostic imaging equipments together with the medical equipment manufacturing companies. The Company got highly popular when it launched Aspirin, the best known product of Bayer pharmaceuticals. In this report, current position of the Bayer Company in Europe along with its cultural values has been analyzed to develop three strategic alliances, namely, Vertical strategic alliance, horizontal strategic alliance as well as diagonal strategic alliance of the company. Along with that, the strategic goals as well as the possible risks associated with each of the mentioned alliances will be developed. In order to enhance its overall revenues as well as to deal with the identified potential risks associated with the three strategic alliances, recommendations will also be provided in this report.

Development of Vertical strategic Alliance

Vertical strategic alliances can be defined as the partnership between a firm and its supplier or distributors.  Generally firms undergoes vertical alliance in order to produce their products a well a services.

Position of Bayer Pharmaceuticals in Europe

In 2016 Bayer achieved sales of approximately €17.8 billion in the Europe, Middle East, and Africa region (AG 2018). The company is a reputed brand in Europe and in other parts of the world. In the year 2017, the total number of employees of Bayer pharmaceutical is as high as 59,500 employees (Belderbos, Gilsing and Lokshin 2012). Along with commendable work force strength as well as a good number of major production facilities, Bayer Pharmaceutical has a strong presence both in Europe as well as in Middle East and Africa. Considering the fact that the company is highly dependent on its suppliers as well as distributors, Bayer Pharmaceutical is chosen to be one of the best pharmaceutical companies in Europe to undergo Vertical Alliance.

Culture and Value of Bayer pharmaceuticals

Position of Bayer Pharmaceuticals in Europe

Being a highly reputed company, the management of Bayer pharmaceuticals ensures that all the stakeholders of the company are strictly abiding by the Ethical principles that includes human dignity and human rights, sustainable development, social responsibility, fair competition and others.  Bayer considers the adherence to sustainability standards with the supply chain is crucial for both value creation as well as minimization of risks. For this, the company has developed Supplier Code of conduct that is based on the principles of U.N. Global Compact and our Human Rights Position. For developing vertical alliance, the management of the Bayer Company has collaborated with popular suppliers available in all the 14 countries both though online as well as offline strategies (AG 2018).  

Strategic Goals of vertical alliance of Bayer pharmaceuticals

• Firstly, Bayer pharmaceuticals will be able to strengthen its relationship with the suppliers and distributors the exchange of commercial intelligence and business know-how (Browne et al. 2014).
• Secondly, the company will be able its network, which in turn will help the company to offer medicines to the consumers at a much lower price. This in turn will enhance competitive advantage as well as consumer loyalty of the company.
• Thirdly, vertical alliance with the suppliers will ensure that all the suppliers are actively involved in the process of product designing as well as in distribution arrangement

Possible Risks of Vertical Alliance

Some of the major risks associated with vertical alliance are as follows:

• Vertical alliance is highly dependent on the trust between the company and the suppliers. Therefore, there prevails a risk of loss of revenue of the company, in case of occurrence of internal conflicts between the partners (Cui 2013).
• Choosing the right supplier or distributor group can be considered as another major challenge for the Bayer pharmaceutical company. This is because, present partner of the Bayer Pharmaceuticals may turn to be a major competitor in the future (Chen and Hao 2013).
• Uneven vertical alliance that includes more power in the hand of one of the partners and less in the hand of other, may resulting in imposing force on one partner by the other.

Strategic alliance can be defined as the agreement between two companies for pooling their resources for achievement of a common business goal. Unlike joint venture Strategic alliance does not necessarily means joint venture or creation of a new entity. Strategic alliance can be of different types: - vertical alliance, horizontal alliance, diagonal alliance (Lin and Darnall 2015).

Horizontal alliance - This can be defined as the alliance between the companies operating in the same business area. In other words it can be said that competitors often join hands for enhancing their competitiveness against the other partners (Lin  andDarnall 2015). Strategic alliance can provide competitive advantage to both the companies such as the negotiation if the cost of the raw materials for the larger volumes, the logistics costs can also be negotiated and research and development costs can also be negotiated. The two companies can share a common marketing or servicing network.

Bayer pharmaceuticals is a global company with a successful areas in the therapeutic areas. Bayer has been an idea company or alliance as it excels in global experiences, capacities and the long standing experiences in the marketing and sales. Bayer can offer the full drug discovery and the development of the infrastructure for a great project. The employees of the Bayer are driven by the passion for the scientific researches that makes the company suitable for forming strategic alliances with other companies.

Bayer pharmaceuticals has alliance with Compugen Ltd. in the field of cancer immunotherapy. It has also collaborated with Merck & co. in the area of the soluble guanylatecyclase (SGC) in the drug development(Pharmaceuticals | Bayer - Forms of collaboration, 2018). The broad spectrum of the licensing agreements may range from multiple assets to single assets.. Bayer's has also collaborated with the Cubist pharmaceuticals Inc, compugen, Oncomed pharmaceuticals limited and many more (Bayer, 2018).

Culture and Value of Bayer Pharmaceuticals

Bayer pharmaceuticals possess expertise in the field of legal, regulatory and the financial aspects. In a word in can be said that they are big enough to deliver, but small enough to care about every projects

For a successful strategic alliance it is required to define the expected outcomes from the relationships with all the parties in the horizontal alliance. Secondly it is necessary to identify the results that would cause the alliance to be more beneficial for the business. It is necessary to protect the company’s intellectual property rights via the legal agreements and the restrictions.

Some of the disadvantages of horizontal alliance can be that such partnerships can be informal. Most of the horizontal alliances cannot be successful due to the cross-cultural issues and incompatibility (Shi et al. 2013). Language barrier, different cultures tend to approach the business differently. Secondly is the lack of trust. It has been found that risk sharing is the main tool in the formation of a partnership. Lack of mutual commitment leads to failure. Absence of any clear objectives can lead to the end of a partnership (Crescenzi et al. 2012). It has to be noted that the core principle of an alliance is the sharing of the same objective. Furthermore the other reasons involve the lack of coordination between the management teas, disparities and differences in the operational procedures and the attitudes of the partners (Nielsen and Gudergan 2012).

Diagonal alliance is a kind of strategic alliance that is formed between partners from different industries (Nielsen and Gudergan 2012).Bayer pharmaceutical also collaborate with the industry and the health care professionals. Bayer pharmaceuticals collaborate in the clinical trials. Patients can be truly benefitted from the huge amount of medical knowledge as the internal researchers of the Bayer pharmaceutical work in collaboration with the external researchers and the health care professionals to give a new dimension to the research. The physicians and the other health care professionals conduct the clinical trials at the study centers in accordance with the study protocols approved by the health organizations and the authorities.

Bayer pharmaceuticals are of the concept that strong partnerships between organizations enable the innovative ability of both the organizations. Bayer pharmaceuticals should obtain licenses for developing alliance with small molecule and biologic therapists. The early stage projects then shall be jointly developed with the partners together.

One of the important example of diagonal alliance of the Bayer's pharmaceuticals is its alliances in the academic field such as the collaboration with the German Cancer research center in Heidelberg, Broad Institute in Cambridge, USA (Bayer 2018).Bayer pharmaceuticals have also been into a strategic research alliance with the University of Oxford related to the area of the gynecological therapy, with a focus on endometriosis and uterine fibroids.

Strategic Goals of Vertical Alliance

The core motto of the Bayers pharmaceuticals is to cater to the human. Bayer has long been trying to engage with the partners on eye level at all the stages of the alliance. Bayer is also aware of the fact that there is no one size- fits - all solution for all the collaborative projects and gives importance to individual projects.

Diagonal alliance can be useful if a company wants to enter a new field. Diagonal alliance are mainly made for improving the current operations, changing the competitive environment (Crescenzi et al. 2012).

Some of the essential strategies for a successful diagonal alliance with partners from different fields are the identification of the potential partners, research on the potential partners, contacting with the selected alliance prospects for discussing the opportunities for working together (Yang et al. 2014).

The two important risks identified are the Relational risks and the Performance risk. Relational risks include the seeking of the self-interest by the economic actors or the opportunistic behavior (Lin et al. 2012). Performance risk refers to the probability that the strategic goals will not be achieved. The sources of the risks can be the environmental factors as well as the internal factors such as the machines and the logistic system (AG 2018).

Conclusion and recommendation:

From the above discussion it can be concluded that Bayer pharmaceuticals can enhance its overall revenue as well as consumer loyalty with the help of the three discussed elevation, while vertical elevation will help the company to reduce the price of the products offered to the consumers, horizontal alliance will help the company to obtain competitive advantages over the local as well as global competitors (Communications 2018). Diagonal alliance on the other hand will help Bayer pharmaceutical to create and exploit new or interdisciplinary markets by achieving synergies.

In order to eradicate the risks associated with the three above mentioned strategies, the company needs to follow the bellow mentioned recommendation:

1. In order to prevent conflict with the partners, Bayer’s pharmaceutical should select potential business partners that have strategies as well as tactics similar to that of the company (Communications 2018).
2. The management of Bayer must ensure creating joint objectives and goals where both the parties have opportunities and hence are expecting benefits.
3. To prevent uneven alliance, the mentioned company should define all the roles and responsibilities of both the partners when it comes to strategic alliances (Belderbos, Gilsing and Lokshin 2012). This can be created by assessing the strengths and weaknesses of the company. Assessment of strengths and weaknesses are crucial to set up realistic expectation of the partners from each other.
4. A good communication process must be developed in order to ensure clear communication between the partner companies (Lahiri and Narayanan 2013). This will help Bayer Pharmaceutical to avoid disappointment resulting from misunderstanding

Reference list:

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AG, B., 2018. Bayer's Products from A to Z. [online] Bayer.com. Available at: https://www.bayer.com/en/products-from-a-to-z.aspx [Accessed 7 Jun. 2018].

AG, B., 2018. Profile of Pharmaceuticals at Bayer. [online] Bayer.com. Available at: https://www.bayer.com/en/pharmaceuticals-division.aspx [Accessed 7 Jun. 2018].

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