Chapter 7 (Global alliances)

Strategic alliance: two or more businesses form a partnership for a project, business venture or for the long term to create a new business, is a strategy of collaboration between businesses for mutual benefit, should bring income to alliance partners that would not otherwise occur.

Businesses in a strategic alliance share customers, resources, staff and operations. The aim for alliance partners is to create synergy in the alliance, to create a competitive advantage greater than they could have on their own.

Small or new businesses form strategic alliances to benefit from access to the established channels of distribution, marketing and brand reputation of a larger established business. Established businesses enter alliances to increase their capability for geographic expansion, cost reduction and manufacturing. Strategic alliances are often formed between businesses that are based in different regions of the world.

Advantages:

  • quick access to a new market
  • reduction of competition by forming an alliance with competitors
  • larger market share
  • increased sales and income
  • gaining new expertise and technology
  • access to research and development for business development
  • increase in the range of products and services
  • the opportunity to share operating costs and working capital
  • access to established distribution channels
  • gaining greater knowledge of customs and culture in other countries and regions
  • the opportunity to build greater global brand awareness

Disadvantages:

  • may take on the weaknesses of the partner (e.g.: a lack of management expertise, unmotivated staff or high costs)
  • less efficient communication in a larger multinational business
  • increased conflict over decisions and allocation of business resources
  • making the alliance work takes time and energy away from the core business activity
  • loss of control over product quality, operating costs, employees and so on
  • opportunistic behavior by any participant

Types of strategic alliances

  1. Outsourcing
  2. Acquisition
    • Hostile acquisition
    • Friendly acquisition
  3. Mergers
    • Horizontal merger
    • Vertical merger
    • Conglomerate merger
  4. Joint venture
  5. Franchising

 

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