Generic Success Factors in Strategic Business Alliances - Literature review Example

Introduction

Globalisation has enabled firms to form alliances with an aim of attaining competitive advantages in the modern markets. A firm can secure a strong competitive positioning besides achieving its trading goals by forming an alliance (Drayton and Budinich, 2010: 56). Internet technology has linked global businesses together forming one huge community and business organizations are adopting a similar trend. In order for organizations and business enterprises to compete favorably with the rest of the world cooperation is one of the best strategies. Firms are nowadays focused to engage in international trade to increase their volume of sales and improve performance according to Draulans and Volberda (2001: 151). The relationships that business enterprises form to engage others in trade include alliances, licensing, mergers, franchising, acquisitions, and joint ventures. Furthermore, there are some unconventional strategies common to modern business set ups such as subcontracting, buyouts, and lobbying among others. The relationship that occurs between different firms enables them to cooperate and work for a common goal and are mostly called hybrids aimed at achieving excellent results. Inter-firm alliances facilitate achievement of various goals by the firms that come together whenever firms come together and work towards success. This paper aims at considering how to succeed in ensuring that inter-firm partnership work in the context of alliances, generic success factors in this relationship, and ways of securing successful relationships. Addressing these issues is very important due to the increase in formation of alliances as businesses try to expand. There are several problems faced by businesses that come together such as communication issues, shred management, misunderstanding of the employees, and regulation issues especially if the companies coming together are in different geographical regions. The paper aims at addressing such issues to enable alliances to be more focused on the core activities of their agreement made by the partners. Alliances have many opportunities such as shared expenses, innovative employees, improved management, share marketing costs, and other benefits that accrue to businesses when they operate as a single entity. Such issues contributed a lot to the choice of this topic to bring some light to business entities needing to form alliances.

Literature Review on Strategic Alliances

Strategic alliances can work very well if the firms that decide to come together have similar goals of achieving success in their operations. The relationship has many benefits to the businesses involved since it leads to reduced cost of exploitation, enable sharing of resources, and the risks involved. The greatest challenge is that some firms that opt for alliances fail to meet their objectives and sometimes may close down (Bower, 2001: 93). It is critical that partnership finds a feasible way for businesses to achieve success. Alliances can work if the management focuses on improving the performance of the companies coming together and ensuring that every activity is productive. The businesses forming an alliance must make sure that all disagreements and conflict of interest are addressed early enough to avoid misunderstanding in future. Another important aspect for the success of the alliances is the ability of the firms to manage the strategic alliance including its primary management to ensure that it last for a long time. Once an alliance is formed, the management must monitor its performance by considering every factor that has some effect on the new relation as well as the parent enterprises. The management and stakeholders have a significant role in ensuring that operations are profitable and any issues that occur during business activities are addressed immediately as Teerikangas (2012: 600) asserts. Strategic alliances are formed when firms come together to complement each other's resources, obtain financial benefits, and provide organizational learning for the good of the firms.

A strategic alliance can be defined as a cooperation that exists between two or more companies aimed at sharing resources, competitive advantage, and achieving other strategic goals by the enterprises involved (Teece 1992: 3). There are several activities involved by firms that form alliances such as conventional production, cooperation in research activities, a centralized procurement, technological development, and shared marketing responsibilities. This has the effect of lowering the overall cost of production by the firms and raising their profit margins. According to Beamish and Killing (1997: 7), managing an alliance requires input from all the merging companies to ensure that none of them work towards own interest since any form of imperfectness lead to failure. Mergers must engage in exchanging ideas, skills, and resources, in addition, to have a common interest in research and development (Pollot and Gullat 1998: 340). This ensures that potential weaknesses are weeded out and possible synergies are harnessed. Corporate transactions must aim at ensuring that all enterprises benefit and initial goals of its formation are achieved. According to Hitt et al. (2004: 174), a strategic alliance must ensure cooperation in resource acquisition by the firms involved for it to succeed. The aim is to improve competition with other existing companies besides increasing the performance of the corporate body. An alliance can also be perceived as a social network or a cooperative relationship that involves voluntary organization of some firms.

Formation of alliances requires a structure that helps in developing principles and standards that help in fostering efficiency in management as Faulkner et al. (2012: 600) argue. Additionally, organizations can enjoy the benefits of intra and inter-organizational learning and collaborative activities, which occur when resources are shared (Drayton and Budinich 2010: 57). The external environment has a significant influence on organizational performance especially on its performance, strategies, activities, and other issues. Businesses that come together to form alliances need to share business environments and competitors to ensure that they increase profitability (Parmigiani and Rivera-Santos, 2011: 1108). Alliances between potential competitors have higher chances of surviving, gaining more market power, and improving their performance. Any firms that decide to form alliances must aim at capitalizing on the strengths and weaknesses to reinforce the position of each other. Strategic partnerships facilitate a learning process, which benefits both firms by promoting teamwork and enjoy the benefits that accrue to it. The success of strategic alliances is facilitated by operating beyond the national borders and serving a huge customer base as portrayed. Smaller companies working together with large ones benefit a lot by accessing a vast customer base and acquiring management and marketing skills. The relationship enables the bigger corporation to have an opportunity to do well in a market from the grass root level. Benefits that accrue to companies, which come together to form alliances, good management, shared responsibilities, and other activities are crucial to ensure the success of strategic alliances Buono et al. (1985, 477). Whenever firms decide to operate as one major business, they command a large market, share costs, and enhance the employees' innovative skills.

Generic Success Factors in Alliances

Whenever corporate organizations decide to form an alliance, they must ensure cooperation among the merging firms to avoid conflicts. One of the factors to ensure success for unions is well-defined goals and aims. According to Whipple and Franekl (2000: 21), the merging firms should have clearly defined targets and objectives for their venture. Whenever an enterprise decides to join an alliance, it should have some assurance that it will benefit from the joint activities of its operations. This helps in motivating the enterprises to take part in all the activities since they are assured of gaining something. Any alliance that does not meet its targets and goals is likely to fail and result in massive losses. Considering the objectives of business organizations that are forming alliance may help in deciding whether to join or opt out from the venture (Borys and Jemison 1989: 249). Another important factor for the success of unions is the organizational culture and tradition. However, interest companies should consider the traditions and culture of the location of some businesses. For instance, a firm that produces pork cannot form an alliance with on located in a country or region whose traditions does not allow people to eat pork. If this happens both companies may lose the trust of their customers and incur massive losses since cultural norms of the consumers may limit their association with the new enterprise.

The alliance formed must respect the cultural dynamics of the region it operates to avoid conflicts and possible closure. The new venture must adopt a culture of openness, hard work, management, and collaboration in all the business processes (Parmigiani and Rivera-Santos 2011: 1110). In addition, a good relationship should be established within the community or the country of operation to ensure that the new formation adheres to the local norms and requirements. Handling of clients, distributors, investors and other stakeholders must be in such a way that it facilitates unity and trust in the alliance formed. Protecting the image of the new formation is a key consideration since it helps in creating a culture of responsibility and trust. Everybody involved must adhere to the alliance regulations, contract of formation, and come up with a new culture that defines the new venture. However, the weaknesses of individual ventures must be dealt with and not allowed to interfere with the newly formed alliance. The firms may benefit a lot from integrating strategic resources from the merged enterprises to enable it improve its competitive advantage a Whipple and Frankel (2000: 22) argue. One way of achieving success is ensuring that the cultural values of the alliance are strengthened, which facilitates the formation of a cooperative and competitive environment. Another factor that can guarantee success of alliances is creation of an environment full of trust and open communication among the firms that constitute the alliance. The world has been connected through effective communications especially the internet and the social media. This can allow effective communications among different enterprises in associations from any part of the globe. In fact, one of the causes of the collapse of alliances is poor communication and lack of confidence among the management and stakeholders.

Lack of efficiency has been blamed on poor communication among alliance partners especially when one party fails to receive a reply from the partners (Draulans et al., 2001: 153). The alliance partners must listen and reason with one another and come up with a decision that benefits everybody in the alliance. Failure to include communication in the partners may reduce trust, which causes trouble to the alliance. The interest of each partner is paramount in any alliance to ensure its success.

Each of the members forming the partnership may be having its interest some of which may be quite competitive. Striking a balance between such interests may help in coordinating the groups and resolve any existing issues. Before entering, any alliance, and signing the deal, an interested corporation must perform an in-depth research of the parties such as the capital, technology use, supply chain management, and customer relations among others. The alliance should be formed based on common interest of everybody regardless of the size of each business enterprise (Barringer and Harrison, 2000: 367). Once these factors are considered it is possible to have a strong alliance that serves the merging enterprises equally and ensures their success. In strategic partnerships, the enterprises involved retain their autonomy but acquire new chances of expanding their market base. Strategic alliances have the capability of developing efficient processes that enable them expand into newer markets and compete better than single firms compete. They can also create more processes that are more efficient and increase their profitability base. For instance, Skyline Alliance Company aims at increasing its annual turnover thus its main goal is ensuring maximum profit every year (Peter-Mears, 2016). The company’s success is attributed to the nature and coordination of the activities carried out by the two enterprises. The companies, in this case, have different interests, yet they manage to operate jointly and succeed in achieving the set goals. Strategic alliances make it possible for firms to seal the gaps that exist between the current resources and the expectations of the companies in future, as Teerikangas (2012: 599) argues. Through proper communication, enterprises know whether the alliance is meeting its goals or not. Some enterprises that are expanding very fast such as Tech titans Amazon, Cisco, Netflix, Mozilla, Microsoft, Google, and Intel are dependent on strategic alliances to ensure that they have great support for their strategies (Weinberger, 2012). These partnerships explain the importance of serving the interest of each member of an alliance a factor that may not be relevant to other formations such as the joint ventures.

How to Secure Successful Relationships

Successful alliance relationship may require firms to be very keen especially when selecting the enterprise to collaborate with in trade. A business should find an appropriate partner that has well-matching goals; purpose and necessary competences, to enable them complement one another in their daily operations (Zollo and Meier, 2008: 55). For instance, the collaboration of Procter & Gamble and Coca-Cola that occurred in 2011 made the former to lower the risks associated with failure, which is very important for a company while the latter increased profit through accessing a larger market (Coca-Cola, Kraft and Procter & Gamble (2011). In case, all the partners have a goal of expanding their venture and ensure that they command a large market together. Whenever two or more independent enterprises decide to meet and control the market cooperation is mandatory and any enterprise wanting this kind of merging must make a good selection (Zollo and Meier, 2008: 55). The partners must be ready to be coordinated to ensure that the principal aim of the alliance is achieved.

Another way of maintaining an excellent alliance is through allocation of activities, management work, and other issues enabling the partners to specialize in their best abilities. This enables the enterprise to have a better focus on the aims and results of the expectations by all the firms interested in the alliance Gulati (1998: 294). Creation of incentives for the collaborating groups will reduce variations in enterprise culture for the new body. The structure of the alliance must aim at minimizing conflicts among the partnering entities by expounding objectives of each member. In addition, it may help in reducing stiff competition existing in the market, which will make sure that the collaborating firms have a peaceful coexistence. Each of the member firms must aim at complementing one another to fill the gap created by different experiences a common phenomenon in many joint ventures (Sim and Ali, 2000: 374). One partner should be able to obtain resources that it lacks from the other to strengthen its resource base. An alliance whose resources are incapable of complementing each other may fail at one point in its operations. Any alliance must ensure trust and dedication by all members in addition to selecting an excellent learning mechanism (Drayton and Budinich, 2010: 57). This allows the partners to share knowledge and skills that may help in developing strong ties.

Another way is setting unique alliance strategies to help in having a successful relationship in an alliance between and among firms. A well-planned strategy and engagement raises the chances for success of the partnering firms. For instance, business such as Microsoft, and Intel, which rely mainly on strategic partnerships as a way of giving support and facilitating growth of their ventures (Weinberger, 2012). The companies in partnerships must come out with proper guidelines on various activities such as management, marketing, product promotion, leadership, and corporate social responsibility. Providing guidance on the best practices to involve in the alliance and reduce possible conflicts.

Other important ways of ensuring the success of strategic alliances include flexibility of the new organization, cooperation by all stakeholders, and ability to counter cultural differences that may exist. An alliance that does not allow changes in some of its organs faces trouble especially if some of the member firms decide to pull out (Jemison and Sitkin, 1986: 146). As a manager, I believe that an alliance can succeed if everybody involved plays his or her role in a manner that helps to achieve the goals that led to its formation. For instance, employs must be explained clearly the reason for forming the alliance and why they need to work as a team with the new management. Profitability is one of the main agendas of any business enterprise and organizations that come together have to work and achieve this as a team.

Conclusion

Collaboration between different enterprises has become common in the modern era facilitated by firms. Formation of strategic alliances offers a competitive advantage to firms that engage in them. This has been facilitated by advancement in technology facilitating social interactions and online marketing. It is very easy for companies to form strategic alliances via the internet and hold meetings through teleconferencing. Due to the interconnectedness of the modern economy, firms are forming cooperation’s to accomplish global agendas. Alliances are common business partnerships, requiring trustworthiness besides and honest between the parties involved in such relationships. The relationships formed aim at adding value to the business entities involved in addition to achieving the set goals. Strategic alliances aim at bridging the gap between the current resources and the future expectations of the venture. However, some collaborations fail especially if they do not adhere to their original goals and work hard to strengthen the ties. Communication is essential for both parties to enable them sustain their partnership. The firms involved can also follow ensure that they find appropriate partners, identify prospective partnering risks, and deal with issues such as and reducing conflict among the collaborating entities in a strategic alliance. In addition, there must be clear definition of expectations all the partners involved.