In today’s ever changing environments strategic alliances have emerged as a driving force behind the success of many business ventures. Strategic alliances allow companies to expand their reach without having to maximise their risk or commit themselves beyond their core business. Throughout this paper I will be examining the driving forces behind strategic alliances looking predominately at the motivations behind the formation of a strategic alliance and the idea of a multi company alliance. Following this I will be analysing the key elements that make for a successful strategic alliance and how a successful alliances are measured. After which I will be establishing the risk that are pronounced when entering into such ventures, looking at past ventures and the issues that prevented them from becoming profitable.
What are strategic Alliances
A strategic alliance is “An agreement between firms to do business together in ways that go beyond normal company-to-company dealings, but fall short of a merger or a full partnership” (Wheelen and Hungar, 2000, p. 125). Strategic alliances allow companies to remain independent organisations. Its main function is to gain competitive edge over the competition and this is recognized by the agreement of each company to commit resources to achieve a common objective. It involves full collaboration of both companies whereas they see the venture more beneficial to the development of the organisation then one could achieve alone. Companies that can succeed with strategic alliances have the advantage of creating dominant position within their market share. To create a successful alliance sees organisations gain more control over its market and competitors.
In the beginning alliances where formed for a specific purpose to gain access to the best raw material at the lowest cost whilst enhancing technology and creating high levels of market penetration with the main focus being on the product. Following this came a new era of alliances one which aimed at consolidating a company or companies position. These alliances where built to be leaders of not only their sector but associated sectors and finally came the development of the geographic alliance this saw the break down of boarders and the increased importance of core competencies and anticipating one’s rivals with the need to stay innovative and competitive.
Driving forces of a strategic alliance
The driving forces behind the creation of strategic alliances vary from company to company. Each organisation enters into an agreement with a specific purpose or objective in mind. Although the main reasons behind the formation of a strategic alliance can be accommodated to the following; To gain access to companies resources, such as new technology etc. To accelerate opportunities into new markets, include global reach To reduce financial strain
To gain a more fierce competitive advantage.
Forming an alliance to expanded business entity can be accounted for as one of the top reasons behind the entrances into a strategic alliance according to the Coopers and Lybrands study on strategic alliances. The intensity of new competition and a growing need to obtain more market share may force a business to expand globally, Thus the appeal of a strategic alliance. Partnering with an offshore business not only lessens the financial stray on a business but it also decreases risk and uncertainty about new markets. F.J.Walker meat processing has seen the smooth sale into overseas markets with its business firmly allied with McDonald’s restaurants. This alliance built on a hand shake has seen the company expand into overseas markets and increase in its sales on average by 20% per year since 1992. It has seen F.J.Walker move into the Indonesian, Japanese, Korean and more recently Indian markets.
With the increase need for companies to provided the latest technological enhancements in products and...