IBM is the world’s largest computer company, with 300,000 employees and annual sales of

\($90\) billion. IBM is the company that had almost collapsed in the early 1990s. However, its comeback has been remarkable because of the strategic alliances and other actions taken by the company. IBM earned \($7.7\) billion in 1999, \($4\) per share. Its stock price increased from

\($45\) per share in 1991 to \($200\) in 1999 (\($100\) after a two-for-one split in mid-1997). More than 60 percent of worldwide sales come from foreign operations. IBM has two fundamental missions: First, it strives to lead in the creation, development, and manufacture of the industry’s advanced information technologies, including computer systems, software, networking systems, storage devices, and electronics. Second, it translates these advanced technologies into value for its customers through professional solutions for businesses worldwide.

To achieve these two missions, IBM has relied heavily on a variety of strategic alliances, along with mergers and acquisitions of other firms. In addition, IBM has not hesitated to sell some none-core and/or unprofitable businesses. For example, IBM sold its Global Network business to AT&T for \($5\) billion in 1999.

The rush of new technology, the expense of staying on the leading edge, the demands of customers, and worldwide competition have required IBM and other high-tech companies to form a wide range of alliances and partnerships. The costs of developing the 256-million-bit memory chip (in a three-way pact with Siemens and Toshiba) have exceeded a billion dollars.

Take the IBM PC as another example. Only about half of the machine and its components come from the company’s plants. The rest – including the monochrome monitor, the keyboard, some graphics printers, and a large share of the semiconductor chips – come from its partners in Japan, Singapore, and Korea. With these stakes, sharing costs, risk, and knowledge is essential.

In a decade, IBM has moved from a do-it-all-yourself, inwardly directed company to an enterprise that reaches out for new ideas and approaches that intertwine with its own talents and strengths. Today, IBM has more than 20,000 business partnerships worldwide and more than 500 equity alliances with agents, dealers, distributors, software firms, service companies, and manufacturers.

The quest to satisfy customers has blurred traditional competitive boundaries. Apple Computer is IBM’s partner in Taligent to develop object-oriented software and in Kaleida to create multimedia standards. Hewlett-Packard and IBM have developed and manufactured highspeed fiber-optic communications components. Wang and Mitsubishi sell IBM systems under their logos, and Digital Equipment is a partner in offering business recovery services. In March 1999, IBM agreed to sell Dell Computer Corp. \($16\) billion in parts over 7 years. This latest deal underscores IBM’s new strategic focus on selling high-tech components on the open market, rather than just using them inside IBM computers.

This strategy has been advanced by IBM’s CEO, Gerstner, who sees it as another way to derive profits from IBM’s technology prowess and to keep the company competitive. Alliances not only divide high development and production costs, but also reduce critical time-tomarket, pool scarce human skills, provide access to new markets and distribution channels, and fill product gaps.

Case Questions 1 What are the forms of strategic alliances used by IBM?
2 Why does a company as big as IBM have to depend on joint ventures so heavily for its global expansion?

3 How can these international strategic alliances enable IBM to achieve its objective of maximizing stockholder wealth?
4 What are the motives for strategic alliances in general?
5 The home page of IBM, www.ibm.com, covers the company’s news, products, services, support, annual financial reports, and many other areas of its business operations. Use this web page to find recent IBM acquisitions and divestitures.