Forming Strategic Alliances with Foreign Companies - Research Paper Example

? Forming Strategic Alliances with Foreign Companies In the development of companies, there are opportunitiesany of them may like to get at the time of their operation so that they can increase their profit margins. Some achievements are sometimes not attainable in some companies because a company may lack the capacity in terms of capital, technology, management and the knowledge of the venture it seeks to explore. In many instances, some companies target larger markets and they try to establish a way to break into them without losing their value. Many of these instances are not manageable by local companies that want to establish their business in the global market. This challenge means that these local companies focus on the alternatives they have so that they can establish their businesses at the world level. In many cases, local companies forge strategic alliances with foreign companies that are already established in the international business so that they can present their products in the global market with ease (Henry, 2008). These local companies have perceptions that the venture into which they enter are beneficial and they will facilitate the individual company to make higher sales than they did with local markets. However, there are many risks that are associated with strategic alliances that companies that forge them need to understand and learn the ways to manage them so that they will not fail in business (Oxley, 2013). An analysis of strategic alliances will exposes the factors that drive domestic companies to desire to forge them as well as show the risks and disadvantages associated with these ventures that may cause the partners to fail. Richter and Pahl (2009) observe that in forging strategic alliances, there are things that drive domestic companies to want to come into partnership. They argue that in most cases, the domestic companies that forge strategic alliances analyses their capabilities to determine whether they are possibly going to enhance exploration of a wider market to increase their sales. When a company’s management discovers that that it has some limitations that may make it difficult to enter a global market, it find one or more companies with which they can pursue the opportunity of striking the world market. The domestic company involved does such things because they have the perceptions that entering the world market will increase their sale, it will supplement the capital it needs and that it will fasten the process of adaptation to the environment of the market. The above factors cause a domestic company to respond to its situation by establishing joint ventures that will enhance their business operations in the international markets. Many advantages drive domestic companies to forge strategic alliances that will help them to exploit both the domestic and international markets. Domestic companies perceive a situation in which strategic alliances enhances the entry into the international market. This perception is because the company spends less amount of money to transport products and services as well as to enhance customers to the market. In having a company that is exposed to the international market environment, a domestic company is able to establish customers using those of its partner in the strategic alliance. These customers ensure that the domestic company has footage in the international market and therefore, it increases the changes of increasing its sales (Heidtmann, 2011). Domestic companies forge strategic alliances in order to exploit international market because there is a shared risk in the investment. Sharing of risks in a business venture ensures that one company does not lose it all to the venture that it has entered and therefore, it is able to sustain its operation in the market for a long time. In many instances, the companies that forge strategic alliances invest a lot of money to establish business operation in the international market through advertisement, transports of products and human resources. Failure of a venture would affect one of domestic companies if there exists no strategic alliance but when it is forged, the risk of losing the investment is shared among the partners (Davies 2001). Domestic companies are encouraged to forge strategic alliances by the limited knowledge and expertise they could be having if they were to operate at the international market. When two or more domestic companies join together with similar or international companies, they enhance the sharing of knowledge and expertise through bringing together experts from their companies. These will help the companies to establish a group of people that have advanced knowledge and expertise that will be required by the companies if they have to operate at the international level (Richter & Pahl, 2009). International companies that operate as a result of strategic alliances are strongly established in the market because the effort of the different partners contributes to the operation of the company. This synergy helps the domestic markets to hit the international market in a way that it will pose a competitive advantage to the competitors and therefore, the company is able to realise high productivity. In most of these cases of combined effort in production and marketing, the company realises a cost effective way of operation which gives the individual partners a cost reduction strategy. This cost reduction happens because the partners in a strategic alliances have spend less money in the business venture so that it realises high benefits and therefore, it is able to reduce the price of the final product. This cost reduction as an automatic effect on the competitive advantage of the partners in the strategic alliances against others that could be supplying similar products to the similar market (Tallman, 2007). With all these perceptions of the management teams of domestic companies, it is easy to forge strategic alliances that will lead them to work together so that they can win the approval of the customers. However, there are situations that may befall the partners that threaten their operation of their business at the international level. The risks that characterise the operations the partners need to be well managed so that they may not contribute to the fall of the company. These risks that domestic companies experience affect the relationship between the partners and the performance of the partnership so that the partners do not realise their original goal (Heidtmann, 2011). In a strategic alliance, partners lose their control of quality of the products because the producing company has to regulate production according to a newly formulated management team that may have different goal from those of the first company. In this respect, the quality of the product may not be a priority to the new team and therefore, it will be difficult to control it (Das, 2011). Communication failure is risk that partners in a strategic alliance are likely to face as they establish their business at the international level. This is because the channel of communication may become long so that by the time the information reached the target, it will be too late to respond. This lateness in response may frustrate the sustenance of the alliance between the partners (Tallman, 2007). Davies (2001) observes that the risks of a strategic alliance may also include partners’ failure to give products and services, financial difficulties, loss of operational control, inefficient management, leakage of alliance’s information, activities that may be out of the scope of the original agreement, unwillingness of the partners to supply the needed resources in the venture among others. These risks need to be managed so that the partners will be able to realise the value of forging the alliance to conquer the international market. There are numerous perceived incentives that drive partners in strategic alliances to come into a joint venture. However, although there are possible benefits in entering the world market as an alliance; partners need to establish their business operations with a focus on the potential risks that need to be controlled to reduce the probability of failure. References Das, T. K. (2011). Strategic alliances in a globalizing world. Charlotte, N.C: Information Age Pub. Davies, W. (2001). Partner risk: Managing the downside of strategic alliances. West Lafayette, Ind: Purdue University Press. Heidtmann, D. (2011). International strategic alliances and cultural diversity: German companies getting involved in. S.l.: Diplomica Verlag Gmbh. Henry, A. (2008). Understanding strategic management. Oxford: Oxford University Press. Oxley, J. E. (2013). Governance of international strategic alliances: Technology and transaction costs. London: Taylor and Francis. Richter, A., & Pahl, N. (2009). International Strategic Alliances and Cross-Border Mergers & Acquisitions. Mu?nchen: GRIN Verlag GmbH. Tallman, S. B. (2007). A new generation in international strategic management. Cheltenham, UK: Edward Elgar. Read More