Strategic Alliances: An Entrepreneurial Approach to Globalization - Essay Example

INTRODUCTION With the development of countries and growing infrastructure, there is a need for increased energy resources. In order to cater that, energy industry must develop in every way possible. Energy industry is an industry which needs the management of knowledge in order to survive and grow in the competitive environment. This industry is not only facing challenges from competitors but also from the need of growth due to continuous increase in the population and infrastructure. Energy industry must develop in such a way that it does not cause damage to the environment to comply with the social responsibilities. To manage the need for knowledge many companies in United Kingdom and other countries are trying to adopt different techniques. Acquisitions, mergers, and alliances are three different types of strategies adopted by the energy industry in order to cater the need of innovation in the industry and to join forces to handle other competitors in the business. MERGERS, ACQUISITIONS, AND ALLIANCES STRATEGIC ALLIANCES Strategic alliance is cooperation between companies to achieve benefits from mutual efforts, which may not be possible by individual efforts. Strategic alliance, unlike a joint venture, does not create a separate entity. Both companies maintain their individual identity and only work on a mutual project from which both companies can benefit. Strategic alliance is mostly done for the transfer of knowledge, specialization of economy, shared risk or expenses. (Michael Y. Yoshino, 1995) MERGER Merger is a term which means combining of two companies as one. Merger can be done between two or more companies in order to achieve combined advantages. In a merger, one new company is formed after combining the older companies. There are many benefits achieved by merger similar to the strategic alliance. One new entity is formed after merger which may work as one team and can combine forces to out power the other competitors. (Glenlake, 2005) ACQUISITION Acquisition means one company acquires other company. Acquisition is also known as takeover as assets and properties are owned by the acquiring company. There are two types of acquisitions; one is friendly acquisition when both companies join forces for better interest of the companies. Second type of acquisition is unfriendly when the target firm does not want to be acquired; this type of acquisition is mostly known as take over. Both entities involved in the process continue to exist. Only difference is the controlling power which is enjoyed by the acquirer. Target Company is controlled by the acquiring company. There is little difference between merger and acquisition. In todays environment, the concept of these terms is blurred individually and are considered single concept, which is not the case. (atrick Brandt, 2010) ADVANTAGES OF STRATEGIC ALLIANCE Companies can benefit from each other in terms of technological knowledge, expertise, and market knowledge. If the company forming a strategic alliance is from another country, then it can benefit from other company in terms of marketing, management, distribution and market penetration strategy. Innovation and research cost can be reduced in order to achieve greater benefits. Companies forming a strategic alliance can beat a mutual competitor with joint strengths in the industry. Knowledge sharing is the most attractive benefit which can be gained when forming a strategic alliance. Strategic alliance can be very beneficial in industries like energy industry as the cooperation cost is low and companies can transfer knowledge easily. However strategic alliance can be difficult to handle for companies related to management and marketing. As there is no separate entity created in the process of strategic alliance, the cost for working on mutual projects remain under control without requiring a lot of liquidity as in the case or acquisition. DISADVANTAGES OF STRATEGIC ALLIANCE In strategic alliance, it is difficult to deal with conflicting practices of the firms. It also takes time to build trust among the managers and a lot of time is wasted to smooth out the communication among departments. Mistrust can endanger the strategic alliance due to sharing of sensitive information and technology. Strategic alliance also leads to clash of cultures of the firms and egos of the people handling them. Ethical standards, company values, strategies and objectives can become a reason for conflict and it can be difficult to balance them properly. Problem of free rider can make one firm reduce efforts in the strategic alliance. Many problems are faced by the companies in strategic alliance, due to the absence of proper hierarchy and administration. Companies may become too dependent on each other, and it might get hard to separate the forces. After depending on each other for innovation, it becomes difficult when the projects come to an end. ADVANTAGES OF MERGER Mergers can benefit companies in achieving economies of scale reducing cost passing the price reduction benefit to the consumer. Merger can also help local firm to combine forces in order to deal with the competition given by international firms in the local market. In the energy industry merger may help in reducing research and development cost and help companies which are struggling to survive in the industry. Mergers are less costly to do in comparison to acquisitions. Merger does not require cash to take place. (William, 2008) DISADVANTAGES OF MERGER Merger reduces control over the important decisions of the organization. Due to increased size of the firm, fixed cost can be increased, and the firm might face diseconomies of scale in the longer run. It may become difficult to handle the work force and motivation levels my fall. Control over the knowledge can also be reduced. (Pettinger, 2012) ADVANTAGES OF ACQUISITION In acquisition, all same benefits are experienced like merger except for the process of acquisition. Better control is enjoyed in case of acquisition. Decisions regarding strategies and objectives can be easily controlled by the acquiring firm. Technological knowledge can be easily transferred. DISADVANTAGES OF ACQUISITION In acquisition, a firm must have the liquidity to acquire another firm. Acquisition cost may be high, and it might reduce the feasibility of acquiring the target firm. Running cost of an acquired business can be high. Acquirer might have to pay two people instead of one for doing the same work for two companies. Company might have to face debts due to Target Company having unreasonable debts. Market saturation may occur after a certain time as the customer base remains the same so the complete advantages may not be enjoyed and cause disappointment to the acquirer. In the energy industry acquisition can prove to be a costly solution in order to grow as there is high asset and infrastructure cost involved. Energy industry is highly dependent on the knowledge factor, and strategic alliance proves to be the most attractive way to grow in market. However, in the energy industry other aspects cannot be utilized like shared distribution channels, shared risk and shared resources as these will lead to problems in the future. KNOWLEDGE MANAGEMENT/ENVIRONMENT Knowledge is the information gained by different means. Knowledge can be gained by experience or education. There are two kinds of knowledge. One is tacit, and other is explicit. TACIT KNOWLEDGE Tacit knowledge is the information which cannot be transferred to others in writing, documentation or verbal form. This is the kind of knowledge learned and understood by people on their own and is not easily possible to transfer. This form of knowledge is not expressed type and mostly stays within people or teams. This information is only shared when people tacit information in the form of experience with others. (Busch, 2008) EXPLICIT KNOWLEDGE This form of knowledge can be easily transferred to people via different mediums. It can also be saved, documented and distributed easily. This form of knowledge is systematic and formal due to which it can be shared easily. (Rossitza Setchi, 2010) SECI Model helps in explaining how these two types can be converted into other types of knowledge. There are 4 sections of this model which are mentioned below (Nonaka, 2000): Socialization: It is the method of converting tacit knowledge into tacit knowledge with the help of socializing. People share experience and know-how about different things with each other. Externalization: It is a method of creating explicit knowledge out of tacit knowledge. It is usually done in the form of creating instruction manuals. This way knowledge can be converted into documents and can be distributed. Combination: This form of knowledge involves converting explicit knowledge into explicit knowledge by converting more complex forms and models. Internalization: This method is known to convert explicit knowledge into tacit knowledge. Example of this can be in the form of online portal; where knowledge is given in the explicit form and is then understood by people and so it is converted into tacit form of knowledge. An organization can easily utilize these ways in order to manage the knowledge in the system and as well as to gain knowledge. It is very important for companies to manage their knowledge to remain competitive in this fast growing environment. How organizations share information and why do they share Sharing knowledge is an important part of any organization, and it can help organizations to have a competitive advantage over other firms. Knowledge is an asset which needs to be managed effectively for staying in the market on a permanent basis. If the organization does not manage its knowledge, then there are chances that it will soon go out of business in this highly competitive environment. This is especially true for industries like energy industry where there is a need of constant improvement and need for innovation. There are factors like culture, incentives, trust, which will influence the knowledge system of an organization. A company must not only support internal sharing of knowledge but also must share knowledge with other companies, in order to gain valuable information to remain in the market. This is done by different methods like merger, acquisition and strategic alliance. However, strategic alliance is considered more favorable when it comes to the energy industry as it helps to share knowledge without putting any financial burden on the company. Other industries have also realized the importance of knowledge management and knowledge sharing. Schlumberger, which is a gas extraction and exploration company, has realized the importance of the knowledge management system. Sharing information among different companies in the energy industry is especially important as it helps them combine forces in the research and development projects. This will reduce research cost and will help generate better ideas for creating better alternative energy options for consumers which are not costly. CORPORATE SOCIAL RESPONSIBILITY CSR and Its Origin CSR also known as Corporate Social Responsibility is a term used to define the responsibilities that a corporate has towards its stakeholders. Stake holders of the corporate are consumers, employees, communities and the general public who might get affected by its actions and decisions in different matters. Corporate social responsibility includes environmental factor. CSR is a self-controlling mechanism to avoid any damage to the society in achieving corporate goals. (Radu, 2007) CSR is generally integrated in the system and it ensures that its actions are in compliance with ethics, international standards and laws. This term and concept was originated in 1953 by Bowen in his writing “Social Responsibility of Businessmen”. This concept helped corporations understand what responsibilities they had beyond the legal frame and laws. The concept was further explained in 1960 about the responsibilities company had for the welfare of the society. (Esposito, 2009) STAKEHOLDER THEORY Stake holder theory connects corporate responsibility with the stakeholders. This theory suggests that everyone who has an interest in the corporate or can get affected by its actions is a stake holder. This theory suggests that there are people like employees, Suppliers, customer, government bodies, and communities etc who are stakeholder. Even the competitors are also considered stakeholders. Shareholder view suggests that corporate has only responsibilities towards shareholders only, and corporate is needed to increase the value for its shareholders. Stakeholder theory suggests that corporate is responsible in every way to other players of society regardless they have a financial stake in the organization or not. (Andrew L. Friedman, 2006) CRITICS ON CSR There are a lot of critical aspects of the CSR. According to critics Corporate Social Responsibility is just a theory to divert the mind of people from the actions of the organizations. Corporate Social Responsibility is used to manipulate government and other factors against the interest of the people who have little say about the environmental and social factors. Critics also say that there are many factors, which help organizations in increasing their profits, and CSR is also used to increase the value for shareholders. This means that Corporate Social Responsibility is used like a window dressing hiding the real actions of corporations and bypassing government controlling authorities. However, there are many organization, which suggest that bottom line can be increased, and Corporate Social Responsibility can be balanced together without causing harm to both of these. CRITICS AND GREEN WASH ARGUMENT According to critics, Corporate Social Responsibility is not fulfilled; instead the image of the company is green washed with the help of media. There are many examples of companies who are considered as leaders in Corporate Social Responsibility; yet, they are the reason for causing deterioration in the society in many ways. There are companies like Toyota and Alcoa which are on the top of the charts for Corporate Social Responsibility. Alcoa has aluminium smelting plant powered by hydro dam, which is going to inflict flood later in Western Europe. Toyota has its SUV, which are major sellers and are fuel guzzling cars; yet the organization is considered social responsible. Energy industry is also one of the industries which can strongly be held responsible for environmental destruction. If companies of the energy industry are not fulfilling their Corporate Social Responsibilities, then there can be a lot more damage to the society and environment than any other industry. Companies in the energy industry should take CSR in consideration. They must keep people, customer, environment and profit all in one consideration for the welfare of the society and stakeholders. Eon, Centrica, and RWE power are examples of the energy companies, which are investing in the renewable energy resources for the sustainability of the environment and planet. Though there might be hidden problems, which might come up later upon implementing the renewable strategies, but for now the corporate are trying to fulfil their Corporate Social Responsibilities. CONCLUSION It is very important for industry to cater not only the shareholders but also the stakeholders. The key to stay competitive and fulfil Corporate Social Responsibilities, is sharing information in the right way internally and as well as externally. Companies can take decisions to help them grow and do strategic alliances in order to stay competitive in the present market. This way they can achieve three goals by the same action. First is that they can continue to survive with the help of innovation. Second is that they can manage their knowledge system in a better way. Third is that they can be socially responsible and yet improve their bottom line. There are many companies, which went out of market because the company did not manage its information system and did not work on the research and development. Such a problem can be avoided with proper information sharing. References Andrew L. Friedman, S. M. (2006). Stakeholders : Theory and Practice: Theory and Practice. New york: Oxford University Press. atrick Brandt, M. G. (2010). Transitivity: Form, Meaning, Acquisition, and Processing. Amsterdam: John Benjamins Publishing Company. Busch, P. (2008). Tacit Knowledge in Organizational Learning. United: Gale Group. Esposito, M. (2009). Put Your Corporate Social Responsibility Act Together! Put Your Corporate Social Responsibility Act Together! Glenlake. (2005). Mergers and Acquisitions. London: Global Professional Publishing. Michael Y. Yoshino, U. S. (1995). Strategic Alliances: An Entrepreneurial Approach to Globalization. USA: Harvard Business Review Press. Nonaka, I. (2000). SECI, Ba and Leadership: a Unifed Model of Dynamic Knowledge Creation. Long Range Planning, 5-34. Pettinger, T. (2012, February 22). Pro and cons of mergers. Retrieved April 28, 2014, from economicshelp.org: http://www.economicshelp.org/blog/5009/economics/pros-and-cons-of-mergers/ Radu, M. (2007). The Dynamics of Corporate Social Responsibilities. Martinus Nijhoff. Rossitza Setchi, I. J. (2010). Knowledge-Based and Intelligent Information and Engineering Systems. New york: Springer. William, P. (2008, November 15). The Advantages and Disadvantages of Mergers. Retrieved April 28, 2014, from http://voices.yahoo.com/the-advantages-disadvantages-mergers-2171838.html Read More