Strategic Alliance

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UNIT 11
Objectives

STRATEGIC ALLIANCES

Strategic Alliances

After reading this unit, you should be able to:
l l l l l l

understand the concept of strategic alliances; acquaint yourself with the worldwide trends in this area; explain the factors responsible for the rise of strategic alliances; develop an awareness of costs and benefits of alliance arrangements; explain the process of planning successful alliances; and discuss the issue of corporate responsibility of the alliance partners.

Structure
11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 Introduction Strategic Alliance Trends Factors Promoting the Rise of Strategic Alliances Types of Strategic Alliances Benefits of Strategic Alliances Costs and Risks of Strategic Alliances Factors Contributing to Successful Alliances Planning for a Successful Alliance Corporate Social Responsibility

11.10 Summary 11.11 Key Words 11.12 Self Assessment Questions 11.13 References and Further Readings

11.1

INTRODUCTION

Gallo, the world’s largest producer of wine, does not grow a single grape and likewise, Nike, the world’s largest producer of athletic foot-wear, does not manufacture a single shoe, Boeing, the giant aircraft manufacturer, makes little more than cockpits and wing bits (Quinn, 1995). “How is this possible?” These companies, like many other companies these days, have entered into strategic alliances with their suppliers to do much of their actual production and manufacturing for them. From software to steel, aerospace to apparel, the pace of strategic alliances worldwide is accelerating. Strategic alliances, broadly defined as arrangements in which two organizations conjoin to pursue common interests, are a rapidly growing phenomenon in the contemporary business environment. Alliances represent strategic responses to the powerful forces of deregulation, globalization, technological change, and time-tomarket concerns. These forces have made the business environment vastly more competitive, complex, and uncertain than ever before. Companies are turning to strategic alliances in order to manage their uncertainty and risk and specifically to access a wide range of competencies, technologies, and markets.

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Corporate Level Strategy

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). Strategic alliances can be as simple as two companies sharing their technological and/or marketing resources. In contrast, they can be highly complex, involving several companies, located in different countries. These firms may in turn be linked with other organizations in separate alliances. The result is a maze of intertwined companies, which may be competing with each other in several product areas while collaborating in some. These alliances also range from informal “handshake” agreements to formal agreements with lengthy contracts in which the parties may also exchange equity, or contribute capital to form a joint venture corporation. Much of the discussion in the literature on strategic alliances revolves around alliances between two companies, but there is an increasing trend towards multi-company alliances. For instance, a six-company strategic alliance was formed between Apple, Sony, Motorola, Philips, AT&T and Matsushita to form General Magic Corporation to develop Telescript communications software. In essence, strategic alliance, a form of corporate partnering, is the joining of two or more companies to exchange resources, share risks, or divide rewards from a joint enterprise. It can take any number of forms such as: a strong relationship with a major customer, a partnership with a source of distribution, a relationship with a supplier of innovation or product, or an alliance in pursuit of a common goal. Sometimes partners form a new jointly owned company. In other instances a firm purchases...
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