Some of the Advantages of strategic alliances:
This is a major objective for many strategic alliances. The reason for this is that many breakthroughs and major technological innovations are based on interdisciplinary and/or inter-industrial advances. Because of this, it is increasingly difficult for a single firm to possess the necessary resources or capabilities to conduct their own effective R&D efforts. This is also perpetuated by shorter product life cycles and the need for many companies to stay competitive through innovation. Some industries that have become centers for extensive cooperative agreements are:
There is a growing perception that global battles between corporations be fought between teams of players aligned in strategic partnershipsStrategic alliances will become key tools for companies if they want to remain competitive in this globalized environment, particularly in industries that have dominant leaders, such as cell phone manufactures, where smaller companies need to ally in order to remain competitive.
As industries converge and the traditional lines between different industrial sectors blur, strategic alliances are sometimes the only way to develop the complex skills necessary in the time frame required. Alliances become a way of shaping competition by decreasing competitive intensity, excluding potential entrants, and isolating players, and building complex value chains that can act as barriers.
Economies of scale and reduction of risk
Pooling resources can contribute greatly to economies of scale, and smaller companies especially can benefit greatly from strategic alliances in terms of cost reduction because of increased economies of scale. In terms on risk reduction, in strategic alliances no one firm bears the full risk, and cost of, a joint activity. This is extremely advantageous to businesses involved in high risk / cost activities such as R&D. This is also advantageous to smaller organizations which are more affected by risky activities.
Alliance as an alternative to merger
Some industry sectors have constraints to cross-border mergers and acquisitions, strategic alliances prove to be an excellent alternative to bypass these constraints. Alliances often lead to full-scale integration if restrictions are lifted by one or both countries.
1.1 international competitiveness and Company Internationalization
Risks of competitive collaboration
Some strategic alliances involve firms that are in fierce competition outside the specific scope of the alliance. This creates the risk that one or both partners will try to use the alliance to create an advantage over the other. The benefits of this alliance may cause unbalance between the parties, there are several factors that may cause this asymmetry:
-The partnership may be forged to exchange resources and capabilities such as technology. This may cause one partner to obtain the desired technology and abandon the other partner, effectively appropriating all the benefits of the alliance.
-Using investment initiative to erode the other partners competitive position. This is a situation where one partner makes and keeps control of critical resources. This creates the threat that the stronger partner may strip the other of the necessary infrastructure.
-Strengths gained by learning from one company can be used against the other. As companies learn from the other, usually by task sharing, their capabilities become strengthened, sometimes this strength exceeds the scope of the venture and a company can use it to gain a competitive advantage against the company they may be working with.
-Firms may use alliances to acquire its partner. One firm may target a firm and ally with them to use the knowledge gained and trust built in the alliance to take over the other.
-Difficult to find a good partner
-Risk of unequal partnership
-Loss of control
-Relationship management across borders
Choosing a Partner for International Strategic Alliances:
-Strategic compatibility: The partners need to have same general goal and understanding in forming a joint venture. The differences in strategy produces more conflicts of interest in the later partnership
-Complementary skills and resources: Another important criterion is that the partners need to contribute more than just money to the venture. Each partner must contribute some skills and resources that complement for another.
-Relative company size: Different size of companies may cause domination of one firm or unequal agreement, which is not favourable for long-term running.
-Financial capability: The partners can generate sufficient financial resources to maintain the venture’s efforts, which is also important for long-term partnership
Some more like compatibility between operating policies, trust and commitment, compatible management styles, mutual dependency, communications barriers and avoid anchor partners are also important for partner selection but less important than the first four.