Discuss the advantages and disadvantages of strategic alliances. Find examples of strategic alliances both working and not working for parties involved and explain why?
Strategic alliances can contribute to the success of a business and are beneficial when maintained with efficient management. As defined in Global Business Today the term ‘strategic alliances’ refers to a “cooperative agreement between potential or actual competitors for the benefit of all companies concerned” (Hill, et al., 2011). The overall concept of a strategic alliance is that it is a relationship between two companies which allows them to create more value than they can on their own. Strategic alliances are becoming increasingly important to the overall strategy of companies as they can generate significant competitive advantage when they are used effectively. Strategic alliances can occur through the form of formal joint ventures or short term contractual agreements where companies agree to cooperate on particular tasks such as developing a new product. Strategic alliances can also be informal, for example a company may just seek to use the expertise of a similar company or government agency to strengthen the businesses own capacities. These alliances can occur with counterpart companies, government agencies, publishers, association management companies, universities, or other for-profit entities. (Hynes & Diane, 2008)
In recent years the changes to economic conditions and fierce competition has resulted in increasing cooperation amongst companies. In the current economy markets are constantly changing, making it increasingly difficult for one company to stay current on all technologies, resources, competencies, and information needed to be successful in those markets. Strategic alliances provide an option for companies to access new markets, expand geographic reach, obtain new technology, and complement skills and core competencies relatively fast. Strategic alliances are now considered a key source of competitive advantage for companies and have allowed them to cope with increasing organizational and technological complexities that have emerged in the global market.
Although the formality of strategic alliances can vary, they usually have a formation process which involves five steps. These are strategy development, partner assessment, contract negotiation, alliance operation and alliance termination. The development process starts with the company establishing which areas of the business will improve with a strategic alliance. Once these areas are identified the analysis of potential partners can occur. An ideal partner should represent a company whose cultures and core strengths are complementary to the business seeking the alliance. After details of the strategic alliance have been established an agreement or contract can be developed. It is recommended that the strategic alliance agreement be committed to a formal paper contractual agreement. It is also important to regularly review the mutual goals and performance of the alliance. Regular meetings with alliance partners are an effective way to ensure these reviews are completed and also to evaluate the status of the alliance (Holmberg, 2009).
There are several common objectives which make a strategic alliance appealing for a business. Along with the many advantages which will be discussed below, some of the objectives a business may try to achieve from a strategic alliance are to distribute products or services to a set of customers, to jointly develop products and services for the local market or to work with local or regional counterparts to drive a common agenda. These objectives are particularly relevant for businesses seeking to establish an alliance with an off shore company as an offshore company could offer local contacts, language capabilities and knowledge of the cultures, protocols and business styles of that particular environment. Another objective for entering a...
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