The Importance of Strategic Alliances in Business - Literature review Example

IMPORTANCE OF STRATEGIC ALLIANCES INTRODUCTION Companies in the modern world yearn to grow and expand their influence as much as possible. Many companies are popularly referred to as Multi-national corporations and are the result of such global ambitions of a few companies. These companies were successful in devising global strategies and have employed their resources to implement them. However, despite the extent of its economic clout and influence, the resources of the organization are a quantifiable attribute, which are limited. Besides, companies aspiring to expand into new lands cannot aim to gain a foothold without local support and help. Consider the example of a company in the Unites States that intends to shift its manufacturing operations to a factory located in China owing to the lower manufacturing costs in the latter country. In order to set up such operations, the company would have to secure resources such as labor, material and additional resources including electricity, water and government support in order to be able to conduct operations successfully. Despite having intense knowledge on beginning operations, the company would be at a disadvantage owing to issues related to language, culture and local legislation to name a few. Without local support and help, the company would be in no position to engage local manpower and educate them on the production process (Michael Y. Yoshino, U. Srinivasa Rangan, 1995). There would be no provision to pay the taxes and understand the laws of the land for compliance unless there was local assistance. One of the solutions in this regard is to set up a subsidiary and employ local people to do the above-mentioned duties. However, a question now arises when the company is in a market which is dominated by local manufacturers. In such a situation, it would be difficult for the company to establish itself without harnessing local resources including competitors. Strategic alliances are business relationships that are born out of such necessities that enable companies and enterprises to gain a competitive advantage through the forger of partnerships with a partner thereby providing access to the latter’s resources, capital, labor and most importantly, the markets (John J. Wild, Kenneth L. Wild and Jerry Han, 2004). Strategic alliances have for long been deemed as instruments that provide mutual benefits allowing all participants to grow and expand quickly by using complementary resources and capabilities for the benefit of the alliance and the companies involved as a result. Alliances have been a common and popular trend with fast growing enterprises that have traditionally relied on partners to extend their operational and technical capabilities. One of the major reasons attributed for favoring such alliances is the ease with which such new companies have an opportunity to learn the technology and understand the market dynamics and production parameters easily without having to spend much time trying to discover on their own (Kotelnikov, Vadim, 2001). As such, such alliances are seen as mediums that enable companies to save substantial amount of time and help cut down costs. Such an arrangement provides a cushion to the involved companies to concentrate their efforts on their core business without worrying too much about other parameters critical for the success of the business (Fred A. Kuglin & Jeff Hook, 2002). STRATEGIC ALLIANCES: POPULARITY Apart from working towards earning higher turnovers and profits, companies constantly pursue various options in an effort to improve and optimize various business processes such as marketing, distribution and production. In the presence of other market players, who are better places in any of these domains, a strategic alliance becomes a lucrative option for the company to benefit from. For example, it would seem obvious to team up with a company that has a better brand reputation and is bigger and better known within the market than the company in question. Businesses are also on the constant lookout for improving themselves on other aspects such as geographical expansion, reduction of operational and transportation costs, minimization of manufacturing costs. Improving the supply chain is another important consideration for enterprises in an effort to cut down costs and transform them into profits. Such an improved supply and procurement process aids in cutting down costs in different activities such as procurement, distribution and storage (Tim underhill, 1996). A constant effort to bring in synergies into all such aspects necessitates the search of a suitable partner, whose alliance would be beneficial and in tune with the vested interests of the company. The past three decades have seen some of the biggest economies in the world open up to foreign businesses and competition (Shiva Ramu, 1997). Additionally, companies that have experienced alliances acknowledge that apart from creating alliances, it is extremely essential to sustain them for long period of time through a proper planning, monitoring and implementation mechanism (Sue Cartwright and Cary L. Cooper, 2005). FACTORS THAT NURTURE ALLIANCES Companies from developed nations such as the United states and the EU now see emerging markets such as China and India as the next biggest markets, which are tightly bound with local cultures and beliefs despite their acceptance to external competition. Apart from external companies that were looking at gaining an entry into these untapped markets, the local enterprises, which were dominating their native market until then despite the inferior quality of their products owing to the closed nature of the economy are now forced to look towards upgrading their infrastructure in order to offer quality products at competitive prices. Such a situation provides a mutually beneficial situation to both the local and foreign companies (Alan M. Rugman & Richard M. Hodgetts, 2001). With an increase in competition, companies that are especially midsize in market capitalization tend to increasingly turn towards a proactive approach towards forging a partnership with an external entity and re-align themselves towards the market through mutually agreed frameworks. A Strategic alliance is therefore an association between two or more business organizations for a specific period of time that facilitates the companies to provide identical or the same set of products and services thereby preventing them from being in competition with each other and enabling to share the benefits of the business operations thereafter (Stephen I. Glover, Craig M. Wasserman, 2003). All operations by each of the companies involved within this strategic alliance is governed by a strict set of rules and regulations that are agreed upon by the all the participating entities. An alliance is cooperation among groups with common or overlapping interests that are believed to generate better results from collective operations. One of the major drivers for the emergence of Strategic alliances is the rise and presence of competitive markets that force the companies to innovate with their external environment apart from structuring and monitoring their internal processes (Gerry Johnson and Kevan Scholes, 2003). As competitive markets are known to keep improving with what one can derive from it, an alliance is seen as a means of staying ahead in active competition within the market. PREPARING FOR AN ALLIANCE We witness numerous alliances every day. Consider the popular case of the Star alliance of airlines, which was formed primarily by Air Canada, Scandinavian Airlines, Thai airways, United airlines and Lufthansa in 1997. The alliance was formed with a view to penetrating untapped markets by the inclusion of smaller airlines, which has proved successful in generating revenue and employment to great volumes. The prime reason behind forming an alliance is the realization on the part of the interested company that it requires to achieve a specific target, which it finds itself unable to do so without external help. It is this basic need that drives individual companies to assess the targets that they would like to achieve. Prior to entering into an alliance, considerable thought and planning is made in an effort to assess the structure, reliability and strength of the strategic relationship in a thorough manner. Assessment of the existing competition in the market is also given due consideration as it helps determine the market perception to such alliances (Porter, Michael E., 1998). Specifics on how the partnership will be managed by the individual participants in a coordinated manner are also worked out during the initial planning process. Potential strategic partners also list the desired outcomes out of the relationship and document every single detail of all such agreements with a legal framework (Keith W. Glaister, Rumy Husan & Peter J. Buckley, 2004). The details on how the benefits will be shares between the collaborating partners are also outlines and documented accordingly. Partners also spend a substantial time of the planning process in identifying potential bottlenecks and other related issues that exist or may arise in the near future and work out mutually agreed strategies in order to tackle them while ensuring they do not affect the strategic relationship. Companies also assess the conduct, culture, trust and the environment in which the personnel of the involved companies are supposed to interact as part of the business process (Marketing Minefield, 2007). As such, it can be seen that the planning a strategic alliance comprises an elaborate approach that aims to iron out every possible issue and earmarks every individual parameter affecting the relationship during the tenure of the alliance. GAINS & RISE IN POPULARITY As has been mentioned before, with increasingly open markets and with more economies opening up to foreign companies and competition, business enterprises have been looking to strategic alliances as an approach to thrive in a highly competitive environment. However, it is important to understand that the benefits of alliances have been more than what have been discussed so far. By tying up with a strategic partner, companies find themselves in a better position to provide a wider product range. The number of services offered by companies also increases many fold (Marketing cues, 2006). Companies can look to channeling their money and resources to innovation instead of spending them on promotion. Combining sales and marketing activities has allowed previously competing brands to be sold side by side as a common offering, thereby helping companies spend little in this department (Strategic Alliance, 2008). Owing to the available of a larger manpower that can work with partners, companies tend to look less towards employing new and inexperienced people thereby helping conserve time and money on training new staff. Partners have used alliances to identify common goals and this has helped companies to mutually distribute the list of required responsibilities, thereby enabling individual companies to concentrate on their assigned set of tasks (Edwin Richard Rigsbee, 1999). Such an approach has also provided them to perform their duties with added efficiency. Consider the long running partnership between IBM and Motorola. The collaborative approach between these large firms has enabled them to share a common pool of customer. Both have now transformed from offering competing products to developing common products that have been the result of a joint mechanism. The IBM Motorola alliance has made significant inroads in the RFID (Radio frequency identification) by launching comprehensive solutions that have required a combined effort. Such an alliance has enabled highly talented personnel from both companies to work together to produce RFID readers that have established core competencies in customer service. Within this alliance, both parties mutually agreed to develop separate parts of the final product with IBM developing the software and Motorola coming up with the electronics needed to run the RFID software to perform as a reader. Numerous other products have emerged from the partnership ever since that included high performance wireless LANs and RFID based inventory management systems (Motorola, 2009). Industry has sought the help of academia whenever a dearth of innovation has been felt by the former. A good example in this instance was the strategic alliance that was formed between Indiana University and Sony that was created to provide the dual benefits of continued innovation and benefit of the students and the staff of the university. Under this alliance, efforts were directed towards advance towards new frontiers in high definition broadcast and media technology that aims to answer questions in areas such as Virtual reality and 3 dimensional modeling (IU, 2007). As can be seen from the above examples, strategic alliances not only enable companies to consolidate their position within markets but also serve as connecting platforms between the industry and academia that nurtures industry oriented research that has proved beneficial for markets and the public in the long run. Though strategic alliances pit individual groups of alliances against one another, the overall impact of strategic alliances have proven to be far more beneficial than in situations where such alliances never existed. Thus, it can be seen that strategic alliances work a long way in supporting healthy competition within a market irrespective of the geographical location of the business activity. REFERENCES 1. Michael Y. Yoshino, U. Srinivasa Rangan., 1995. Strategic Alliances. Harvard business press. 2. Fred A. Kuglin, Jeff Hook., 2002. Building, Leading, and Managing Strategic Alliances. New York: AMACOM. 3. Shiva Ramu., 1997. Strategic Alliances. New Delhi: Response Books. 4. Stephen I. Glover, Craig M. Wasserman., 2003. Partnerships, Joint Ventures & Strategic Alliances. London: Law Journal Press. 5. Keith W. Glaister, Rumy Husan, Peter J. Buckley., 2004. Strategic Business Alliances. London: Edward Algar Publishing. 6. Edwin Richard Rigsbee., 1999. Developing Strategic Alliances. New York: Thomson Crisp Learning. 7. IU., 2007. IU and Sony Electronics announce strategic alliance for HD production projects. URL: http://newsinfo.iu.edu/news/page/normal/6981.html 8. Marketing cues., 2006. 24 reasons to form online strategic alliances. URL: http://www.marketingcues.com/articles/strategicAlliance2.htm 9. Strategic Alliance., 2008. Strategic Alliance Marketing Ideas For Joint Ventures for USA - Canada Market Dominance. URL: http://www.strategic-alliance.com/strategic-alliance.htm 10. Motorola., 2009. Alliances: IBM. URL: http://www.symbol.com/alliances/ibm 11. Marketing Minefield., 2007. Types of Strategic Alliances. URL: http://www.marketingminefield.co.uk/traditional-marketing/strategic-alliances/types.html 12. Porter, Michael E. (1998), Competitive Advantage. London: Free Press. 13. Kotelnikov, Vadim (2001), Strategic Alliances: Why and how to build them, url: http://www.1000ventures.com/business_guide/strategic_alliances_main.html 14. Tim underhill (1996), Strategic Alliances: Managing the Supply Chain. London: PennWell. 15. Alan M. Rugman & Richard M. Hodgetts (2001), International Business: A Strategic Management Approach. London: Routledge. 16. Gerry Johnson and Kevan Scholes (2003), Exploring Corporate Strategy. New York: Prentice Hall. 17. John J. Wild, Kenneth L. Wild and Jerry Han (2004), International Business – An Integrated Approach. London: Routledge. 18. Sue Cartwright and Cary L. Cooper (2005), Managing mergers, acquisitions and strategic alliances : integrating people and cultures. New York: Prentice. Read More