Question

Cross Border Alliances Collaborative agreements with foreign companies in the form of strategic alliances or joint ventures are widely used as a means of entering foreign markets. They are also used as a means of acquiring resources and capabilities by learning from foreign partners. They are used to put together powerful combinations of complementary resources and capabilities by accessing those resources and capabilities of a foreign partner.

The Case Study below provides an example of a strategic alliance that Walgreens participated in with Alliance Boots. What was this partnership designed to achieve and why would it make sense for a company like Walgreens?

Case:

Read the case below and answer the questions that follow. Walgreens pharmacy began in 1901 as a single store on the South Side of Chicago, and grew to become the largest chain of pharmacy retailers in America. Walgreens was an early pioneer of the “self-service” pharmacy and found success by moving quickly to build a vast domestic network of stores after the Second World War. This growth-focused strategy served Walgreens well up until the beginning of the 21st century, by which time it had nearly saturated the U.S. market. By 2014, 75 percent of Americans lived within five miles of a Walgreens. The company was also facing threats to its core business model. Walgreens relies heavily on pharmacy sales, which generally are paid for by someone other than the patient, usually the government or an insurance company. As the government and insurers started to make a more sustained effort to cut costs, Walgreens’s core profit center was at risk. To mitigate these threats, Walgreens looked to enter foreign markets.

Walgreens found an ideal international partner in Alliance Boots. Based in the UK, Alliance Boots had a global footprint with 3,300 stores across 10 countries. A partnership with Alliance Boots had several strategic advantages, allowing Walgreens to gain swift entry into foreign markets as well as complementary assets and expertise. First, it gave Walgreens access to new markets beyond the saturated United States for its retail pharmacies. Second, it provided Walgreens with a new revenue stream in wholesale drugs. Alliance Boots held a vast European distribution network for wholesale drug sales; Walgreens could leverage that network and expertise to build a similar model in the United States. Finally, a merger with Alliance Boots would strengthen Walgreens’s existing business by increasing the company’s market position and therefore bargaining power with drug companies. In light of these advantages, Walgreens moved quickly to partner with and later acquire Alliance Boots and merged both companies in 2014 to become Walgreens Boots Alliance. Walgreens Boots Alliance, Inc. is now one of the world’s largest drug purchasers, able to negotiate from a strong position with drug companies and other suppliers to realize economies of scale in its current businesses.

The market has thus far responded favorably to the merger. Walgreens Boots Alliance’s stock has more than doubled in value since the first news of the partnership in 2012. However, the company is still struggling to integrate and faces new risks such as currency fluctuation in its new combined position. Yet as the pharmaceutical industry continues to consolidate, Walgreens is in an undoubtedly stronger position to continue to grow in the future thanks to its strategic international acquisition.

Note: Developed with Katherine Coster.

Sources: Company 10-K Form, 2015, investor.walgreensbootsalliance.com/secfiling.cfm?filingID=1140361-15-38791&CIK=1618921; L. Capron and W. Mitchell, “When to Change a Winning Strategy,” Harvard Business Review, July 25, 2012, hbr.org/2012/07/when-to-change-a-winning-strat; T. Martin and R. Dezember, “Walgreen Spends $6.7 Billion on Alliance Boots Stake,” The Wall Street Journal, June 20, 2012.

1. What was the partnership with Alliance Boots designed to achieve and why would it make sense for a company like Walgreens?

2.. What are some of the challenges that Walgreens is now facing with the merged entity?

Answer 1

1)...Walgreens Boots Alliance, Inc. is an American holding company headquartered in Chicago, Illinois, that owns Walgreens, Boots, and a number of pharmaceutical manufacturing, wholesale, and distribution companies. The company was formed on December 31, 2014, after Walgreens purchased the 55% stake in UK and Switzerland-based Alliance Boots that it did not already own. The total price of the acquisition was $4.9 billion in cash and 144.3 million common shares with fair value of $10.7 billion. Walgreens had previously purchased 45% of the company for $4.0 billion and 83.4 million common shares in August 2012 with an option to purchase the remaining shares within three years. Walgreens became a subsidiary of the newly created company after the transactions were completed.

The company is organized into three divisions: Retail Pharmacy USA (Walgreens and Duane Reade), Retail Pharmacy International (Boots and other retail operations internationally), and Pharmaceutical Wholesale, incorporating Alliance Healthcare.[5] The new holding company began trading on the NASDAQ on December 31, 2014.The combined business has operations in over 25 countries. Walgreens had formerly operated solely within the United States and its territories, while Alliance Boots operated a more international business.In October 2019, Walgreens Boots Alliance published its fourth quarter earnings report. Fiscal year 2019 sales were $136.9 billion, up 5.8% from fiscal 2018, and net earnings decreased to $3.9 billion.

A partnership with Alliance Boots had several strategic advantages, allowing Walgreens to gain swift entry into foreign markets as well as complementary assets and expertise. It gave Walgreens access to new markets beyond the U.S. and it provided them with a new revenue stream in wholesale drugs. This entry strategy was designed so that Walgreens could strengthen their existing business by increasing the company’s market position and gain greater bargaining power with drug companies. Alliance Boots has a vast European distribution networks for wholesale drugs sales, this will allow Walgreens to enter new markets at scale more rapidly than retail. This makes sense for a company like Walgreens because it allows them to grow their business in existing markets and also opens up many opportunities for new markets, which gives them a strong foundation for a sustainable future. 3) Assume you are in charge of developing the strategy for an international company selling products in some 50 different countries around the world. One of the issues you face is whether to employ a multi-domestic strategy, a global strategy or a transnational strategy.

2)...

Walgreens Boots Alliance's purpose is to help people across the world lead healthier, happier lives. As the largest retail pharmacy across the U.S. and Europe with more than 170 years of serving communities, we are constantly pushing the industry forward and making our purpose a reality. And that won’t ever change.

With our global technology partnerships and the combined talent of more than 440,000* people across 25 countries*, we’re able to provide seamless experiences for our customers and stay at the forefront of healthcare.

No doubt that Walgreens Boots Alliance—which owns the U.S.-based Walgreens and the UK-based Boots pharmacies—has seen recent challenges. Stefano Pessina, Walgreens’ executive vice chairman, CEO and largest individual shareholder, said Q2 was “the most difficult quarter we have had since the formation of Walgreens Boots Alliance.” He identified “market challenges and macro trends” as the reasons that the company fell short of Wall Street expectations—which caused the company’s stock to drop 15.3 percent in April.

That combination of market challenges and macro trends that Pessina cited is particularly troublesome for Walgreens, which faces consolidation among insurers and tougher drug reimbursement rates. A weak cold, cough, and flu season added to the challenges, the Wall Street Journal reported in a paywalled article about the company’s woes.

Some speculate that Walgreens Boots Alliance may merge its way out of trouble, with Amerisource Bergen and LabCorp both frequently mentioned as targets. Each make logical sense; Walgreens Boots Alliance already owns just over a quarter of Amerisource, while Labcorp is installing patient service centers in hundreds of Walgreens stores.

Pundits can pontificate on what might make sense—and why—but Walgreens Boots Alliance has said exactly how it intends to propel Walgreens into the future: through partnerships, not purchases. The company signaled last year that partnerships would “bring us scale beyond anything we could do ourselves,” Pessina said.

Here are five strategic partnerships poised to help Walgreens Boots Alliance transform healthcare delivery and revolutionize its retail operations.

Walgreens x Microsoft

In January, Walgreens Boots Alliance and Microsoft announced a multiyear strategic partnership focused on building healthcare solutions, improving health outcomes, and lowering the cost of care. The two companies also said they might explore joint innovation centers in select locations. “Digital health corners,” where healthcare-related hardware and devices were available, were piloted in other locations.

The goals are lofty, with a focus on personalized medicine, connected consumer-driven medicine and collaborations with payors, providers and pharmaceutical manufacturers. Walgreens Boots Alliance is a key link in the chain between patient, provider, insurer and pharmaceutical—and the data that those relationships generate. Leveraging that ensures Walgreens has a leading role in the transformation of healthcare.

Walgreens x Narvar

With more than 8,000 Walgreens locations already offering FedEx services, an expansion made sense. Logistics company Narvar is using those FedEx-enabled locations as a pickup option for those who buy online/pickup in store from any number of Narvar Concierge customers. (The Narvar Concierge alliance also includes select Nordstrom stores.) Shoppers also can use the Narvar Concierge to return unwanted items.

For consumers, it offers an easy pick-up place (thwarting porch pirates) and an easy return location—especially when Walgreens’ FedEx partnership makes any return shipping so convenient.

When the relationship was announced in April, a Walgreens spokesman notes that it would build on the service it offers customers. “As our customers redefine value and convenience, change the way they shop, and adopt new technologies, this is another way to leverage new and different platforms, and partnerships, to bring more services and solutions closer to our customers,” he says.

In other words, as RIS News notes, “For Walgreens, the offering builds upon its efforts to further transform its retail business to provide more of the products and services customers are looking for today.” It takes advantage of the large number of Walgreens’ locations—some 8,000 will offer the service—and gets customers through the door. Taken together, it strengthens Walgreens position as a retailer to visit.

Walgreens x Village MD

Walgreens’ relationship with Village MD will put primary care physician offices in a handful of locations. Unlike existing walk-in clinics—in which customers see a nurse practitioner or physician’s assistant for minor ailments—the Village MD clinics will be full-service, ranging from annual physicals to any other issue one would normally see a doctor about. Walgreens will shrink its retail space in favor of the physician offices.

The physician offices are another facet of Walgreens’ expansion of healthcare delivery. Some locations have LabCorp facilities, which can perform blood draws. Others have an Aspen Dental location or senior care facility in partnership with Humana. Adding these additional services would help expand Walgreens from a pharmacy retailer into a one-stop center able to serve a majority of healthcare needs.

Walgreens x Birchbox

While most of Walgreens’ new initiatives are decidedly focused on health and wellness, beauty isn’t overlooked. Enter the alliance with Birchbox, which performed an extreme makeover on select Walgreens beauty areas. The revamped spaces range from 400 to 1,000 square feet and look like mini Birchbox stores. Birchbox has curated skincare, makeup and haircare products that have proven popular with its subscription boxes.

As part of the deal, Walgreens Boots Alliance made an undisclosed investment in Birchbox. Skincare and beauty are both booming retail sectors and upping the cache through the Birchbox partnership could help put those select Walgreens on par with department store cosmetic counters.

Walgreens x Sprint

The Sprint Express option put a mini-Sprint store into a handful of Walgreens locations. There, customers could buy pre- and post-paid plans and products, select devices, sign up for service and pay bills. During the holiday season, Sprint used Walgreens stores as a pickup location for its buy online/pickup in store option.

The partnership makes sense for both parties, since Walgreens outpaces its rival CVS in terms of tech products sold.

These store-in-stores— as an option to combat porch pirates with online delivery—provides Walgreen with foot traffic. How easy is it to pick up laundry detergent, a bag of chips or aspirin while paying the phone bill?