The strategic alliance

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Table of Contents

Introduction and background of strategic alliance
Advantages and drawbacks of strategic alliance
Improved accessibility to target markets
Drawbacks of strategic alliance
Conclusion
References

Introduction and background of strategic alliance

A global perspective is necessary for businesses since it assists in the process of identifying the prevailing threats and opportunities in the contemporary marketing arena. In spite of the fact that it is necessary to safeguard a business against global competition, it is vital to note that firms should seek ways and means of penetrating into international marketplace.

For example, Barnes and Nobles bookstore entered into strategic alliance with Starbucks way back in 1993. The rationale behind the partnership was to put in place in-house coffee shops, an alliance that would benefit both parties. As a matter of fact, there are myriad of opportunities that are usually created when businesses penetrate into the global market.

At this point, it is often of great importance for a firm to choose the most appropriate entry mode. While there are a host of entry modes that can be chosen by a business organization, it is worth noting that both economic merits and demerits of the chosen alternative should be assessed thoroughly.

One of the most viable ways through which a firm can integrate its activities in the international platform is by creating strategic alliances. The term strategic alliance has been approached and described from different perspectives by various economic scholars. According to Inkpen (2003, p.84), whenever there is a formal agreement between two or more like minded firms to collaborate for the purpose of attaining common goals and objectives, it is referred to as a global strategic alliance.

This kind of partnership is mostly common among international firms that are aiming at winning the market share by customer value creation or through competitive advantage. For instance, the Beijing University Founder Group and Advanced Micro Devices (AMD) of China formed a strategic alliance in a bid to improve its market share. AMD deals with computer sale to the founder group. The university is deemed to benefit from subsidized pricing.

In yet another definition of strategic alliance, Beverland and Bretherton (2001, p.89) posit that it may also refer to myriad of well established economic partnership between potential and actual competitors in the marketplace. This paper offers a succinct discussion of the advantages and disadvantages of strategic alliance as an entry mode into international market using specific key illustrations of firms that have adopted this mode.

There are various reasons why firms would opt to ally with other business entities. In the case of an alliance, the partnering firms are in a vantage position to shoulder the burden of costs that are both fixed and varied alongside the incoming risks during the process of developing new products or services. In addition, alliances allow the integration of complementary assets and skills which may not be easily developed by either of the firm.

Furthermore, better technological standards for any given firm in an industry may be improved through a alliance. Nonetheless, it is worth noting that firms forming an alliance should be extra cautious since such partnerships may end up being a liability to a business organization.

It is also worth noting that joint ventures, licensing of technology as well as a collaborative effort may all be considered under strategic alliance. In the case of a collaborative effort, two firms often come together to form an alliance by pulling their efforts together for the sake of common benefit to both partners.

When the production or service methods of a firm is licensed by another firm, it results into a form of strategic alliance called licensing technology. However, when two or more firms agree on a common platform of producing goods and services, it leads into a strategic alliance referred to as a joint venture. The latter form of strategic alliance is definitely the most common entry mode into a global marketplace.

Needless to say, strategic alliances in the modern business world has gained prominence in the sense that a synergetic effect of solving common challenges, pooling resources together as well the sharing costs and risks are indeed necessary for positive and sustained business growth. Furthermore, it is also evident that most international businesses are also developing dynamic strategies and perspective on how to manage their establishments.

This has been accelerated by the fast rate at which the practice of strategic alliance is taking shape. For example, PaperExchange.com deals with the manufacture of paper related products and is located in Boston, United States of America. The firm has grown by leaps and bounds from 12 employees in 1998 up to more than two hundred and fifty members today (Reeves et al. 2002, p.14).

The company has subsidiary locations in over 80 countries across the world. It does not own or sell any products by itself but provides an e-commerce marketplace where buyers and sellers can reach out to each other. Some of the products handled by the industry include tissue paper, fine paper, newsprint, paperboard and containerboard. Buyers and sellers are able to negotiate pricing of products directly through this site.

As part of its expansion plans, there are a total of four industries through which PaperExchange.com shares a strategic alliance. These include internet providers who deal with electronic commerce, quality certifications and assurance, transportation logistics and suppliers, consumers and manufacturers of paper products.

Under the e-commerce segment, it has formed their strategic alliances with the following firms: Noosh, Inc., Impresse, Inc., and VerticalNet, Inc. There are other five alliances within the paper product segment namely Port Townsend, Inc., Bowater, Inc., Staples, Inc., Asia Pulp and Paper Company , Ltd and International Paper, Inc (Reeves et al. 2002, p.15).

While the concept of strategic alliance is highly welcome and readily embraced by most modern firms, it should be approached with caution bearing in mind that there are underlying advantages and disadvantages which may be reaped by a firm.

Advantages and drawbacks of strategic alliance

One of the most outstanding benefit or merit of strategic alliance is that it provides a state-of-the-art globalization of businesses. As a matter of fact, several factors such as well enhanced systems of transport and communication as well as the development of international network (internet) has been of great importance to firms opting for strategic alliance.

For instance, Weyerhaeuer, Georgia-Pacific and international Paper have also formed a strong strategic alliance to pursue their business interests. They are all forest product companies located in the U.S. running a business to business global marketing platform since year 2000.

Most countries do embrace the concept of strategic alliance but based on the legal provisions that have already been put in place. In addition, the goals and needs of the partnering firms is usually a major determinant prior to the formation of a strategic alliance. The following are some of the inherent advantages of strategic alliance: Gaining capabilities

In most cases, a business enterprise may not have all the human expertise, technology, skills, knowledge and competences it requires at its disposal. As a result, the need to share unique and the much needed capabilities is often of great essence to any firm wishing to expand to international market. On the other hand, a firm may find it necessary to share its outstanding capabilities so that it can gain in terms of economic well being. It is imperative to note that no single firm can secure all the much needed capabilities that it may require.

Therefore, a strategic alliance provides an ambient environment through which partnering firms can meet set goals and objectives. The newly acquired competences from the strategic alliance plan can also be used by a firm for long term gains towards meeting the needs of consumers and remaining relevant in the market.

A case example is the Apple which also entered into a formidable strategic alliance with AT&T, Phillips, Motorola, and Sonny sometimes back as part of a strategy to sell its computing technology to the mobile telephony firms and improve on market share.

Improved accessibility to target markets

When a single firm decides to introduce a new product or service into the market, it may not be an easy task. The situation gets even trickier when a global market has to be accessed. It is worth noting that cost related advantages may not be in favour of a firm which undertakes such developments single handedly.

Some of the obstacles that the management of a firm may face include operating complexity, untenable government regulations as well as stiff market completion (Shenkar & Luo 2004, p.259). In addition, lack of proper assessment of the marketplace, direct financial losses and reduced opportunity costs may also befall a single firm entering a foreign market.

It is against this background that when an appropriate strategic alliance is chosen, it would assist in minimizing some of the risks and challenges. For example, accessibility to the market can be improved when a firm opts to license a service or product in the name of the alliance partner as part and parcel of broadening the market for the given product (Pansiri 2005, p.1109).

Financial risk sharing

The financial risks associated with running an international enterprise can be reduced if strategic alliance is adopted. For instance, firms will usually end up sharing any risks associated with financial losses incurred in a strategic alliance partnership. Hence, no single firm will fully shoulder the burden of such risks in case of an eventuality (Harper 2001, p.30).

Eradicating the political obstacle

Strict legal regulations coupled with inhospitable political environment might indeed hinder the marketing success of a new product being introduced into a new market. The best solution for this hindrance is the formation of strategic alliance which will take care of new products of a foreign firm which will be introduced through a partnering firm already located in a foreign country.

Attaining competitive advantage and synergy

both competitive advantage and synergy will be readily generated in a strategic alliance business setting. Through joint efforts, each firm in an alliance will be in a position to gain these two elements in a much easier way. For instance, it is quite cumbersome to create a distinct image of a new brand in the market and also convince consumers on the same.

The process may be time consuming and costly. Hence, a firm with a well known brand in the market may be used to usher in a new product into the market. For instance, Microsoft and Nokia entered a strategic alliance whereby more advanced and market compliant products are to be manufactured. This will indeed boost their competitive advantage and synergy in the market.

Drawbacks of strategic alliance

Inability to overcome cultural and language barriers

There are myriad of cultural setbacks that a foreign firm may find it difficult to address while expanding its business portfolio. For example, the alliance between International Business Machine (IBM) and i-flex solutions faced a lot of cultural setbacks as the firms attempted to penetrate new markets.

Handing operating practices that are diverse or conflicting in nature

Two or more partnering firms may not have common practices and therefore it may take long to harmonize individual operations.

Cost disadvantages, lack of trust and harmony

There are myriad of coordination costs incurred an also consumes time before trust within the alliance is built and also during the process of communication. Lack of formidable trust between partners especially when cooperating in competitively sensitive businesses is a serious setback in most strategic alliances which may also lead to lack of harmony in company cultures and egos

Conflicting standards of ethics, corporate values, strategies and objectives

Since organizations forming a strategic alliance are usually from diverse backgrounds in terms of objectives or products and services being offered, it is definite that conflicts are likely to arise from time to time

Over-reliance

One or both of the partnering firms in strategic alliance may develop dependency syndrome on the much needed capabilities over a long period of time.

Conclusion

In summing up, it is imperative to reiterate that strategic alliance is one of the most dominant and viable entry mode into a global marketplace. As already discussed, merits such as gained capabilities, low operating costs, minimized risks and easy access to the market are usually accrued by firms engaging in strategic alliance.

In addition, the essay has addressed some case studies firms that have partnered in strategic alliance. A case example is Apple Computers with Sony Mobile. Finally, it is also worth noting that any form of strategic alliance should be approached with caution since it may lead to liabilities if not properly checked.

References

Beverland, M & Bretherton, P 2001, ‘The uncertain search for opportunities: determinants of strategic alliances, Qualitative Market Research: An International Journal, Vol. 4 No. 2, pp. 88-89.

Harper, P 2001, ‘Four steps to making strategic alliances work for your firm’, Journal for Quality & Participation, vol. 24 no. 4, pp. 28-37.

Inkpen, AC 2003, Strategic Alliances, in A. Rugman and T.Brewer, The Oxford Handbook of international Business: Oxford University Press, Oxford.

Pansiri, J 2005, ‘The influence of managers characteristics and perceptions in strategic alliance practice’. Management Decision, no. 43 vol. 9, pp. 1097-1113.

Reeves, BJ et al.2002, ‘The Paper Industry: Strategic Alliances, Joint Ventures, and Electronic Commerce Are Reshaping Our Business Models’ Southern Business Review pp. 9-17.

Shenkar, O & Luo, Y 2004, International Business, Wiley, New York. Woodcock, PC, Beamish, DW & Makino, SM 1994, ‘Ownership-based Entery Mode Strategies and International Performance’, Journal of international Business Studies, vol. 25, no. 2, pp. 253-273.

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