Strategic Alliances with Potential Competitors - Essay Example

What Kind of companies stand to gain the most from entering in to strategic alliances with potential competitors? Why? Introduction: Strategic alliances with competitors are an effective tool for overcoming the potential barriers from competitors in the targeted business. Through avoiding unhealthy competition, it also allows exchanging the valuable resources in the most effective way and beneficial for both of the aligned firms. It also facilitates to get greater access in the valuable resources of a competitor by sharing the resources with them. In the competitive market environment, strategic alliances are essential for getting competitive strength in the industry through managing and balancing the competition in the most effective way. Strategic alliance refers to the joint decision of two firms to share a part of their resources and abilities mutually among them to acquire competitive strength in the market. In the business world, strategic alliance between firms is an increasing trend. Sometimes through these strategic alliances, firms may get monopolistic competitive position, which is not beneficial for the economy. The strategic alliance option is highly adoptive in technology based industries for which there involve huge cost for research and development and high risk of failure. Thus sharing of the technological resources facilitated through strategic alliance will helps firms to share the risk also. In industries, where cost of doing business are high, also adopt strategic alliance as a tool for reducing the operating cost by economies of scale in operation. In the period of global competition, the industries realize that through sharing of valuable resources between their competitors would contribute to their better market performance. The successful industries use higher level strategic alliance to improve their operational efficiency. (Strategic Alliance 2009). Definition of Strategic alliance: “Strategic alliances are agreements between companies (partners) to reach objectives of a common interest. Alliances are among the various options which companies can use to achieve their goals; they are based on cooperation between companies. The description “strategic” limits the field to alliances that are important to the partners and have broad horizons.” (Pellicelli 2003). The advantages of strategic alliance are as follows Strategic alliance provides capability to access the technologies and other facilities of competitors. It allows the business firms to progress rapidly by using the valuable resources of competitors. Through the alliance, new ideas about advanced products can be generated as it supports innovation. It helps to diminish the impact of risk of failure of the project by sharing it with similar firm. Through the alliance, the resources are distributed separately and thus it better enhances cash flow. Disadvantages of strategic alliance: Through the strategic alliance, firms get monopolistic competitive position. The rivalry existing between firms may affect the sharing of resources in the strategic alliance and thus it will leads to failure of the alliance. By sharing the resources, firms are taking higher risk and in case of failure of the alliance it will be disadvantages for the firm. Strategic alliance allocates the future profits. The profit sharing with competitors is also not beneficial for the firm as it affect their future financing opportunities. (The Advantages and Disadvantages of Partnering and Alliance) Importance of competitors’ strategic alliance: The important power of strategic alliance is as follows: Strategic alliance plays a very important role in our economy. It provides to the business owner to suggest lot of services. Strategic alliance creates more profit. The important powers of strategic alliance are it is related with the growth investment; it reduces the budgetary costs. The main strength of strategic alliance is it can enter into the marketplace very promptly. Technological advancement can be achieved without research costs. (The Importance of Developing a Plan for Strategic Alliance 2008). Gaining new capabilities: Through the strategic alliance a firm can access certain resources which it may not get otherwise. It may be the knowledge, technology, expertise, or market. It is an opportunity to obtain a new market or new customers. As soon as it gets expertise in the field, then it can make use of it for its own purpose. When a firm makes strategic alliance with the potential rivals the competition can be avoided that may happen in a future period. Easier entry into a new market: Entry into a new market and finding customers is a relatively difficult task. Cost, governmental regulations, unfamiliar customer and market condition etc, will make the marketer’s job tough. It will be a risky and complicated task. An example is, when Lays was introduced in the Indian market Sharing the risk: When two firms enter into strategic alliance, both will get some kind of mutual benefit. And if some fault occurs they can share the risk both financially and operationally. Overcoming the political hurdles: For a multinational company, it has to market the product in the extremely different political and social environment. Regulations, government policies etc will be further obstacles in the path of the company. But when it makes alliance with a local company, the routes will be clear to the multinational company. Collective strength: Strategic alliance will be suitable for small and medium size firms. When small and medium size firms are in the same business, they come together and form a cluster. These groups can achieve more when they come together through sharing the resource and they can even compete with the big competitors. (Five potential benefits of strategic alliance). A strategic alliance with a potential competitor will help the company to meet the competitors in the following ways: They have to meet the rivals in three levels; globally, host country level and home country level. A strategy in a global level helps the company to meet the global customers. If the company forms strategic alliance with a company in another country, the strategy will help them to form a multi country strategy. At the same time they will continue to operate in its home country. It will help them to ensure the loyal target customers. The strategic intent is to focus on the home country only. (Irwin 1995). Examples of global companies who did strategic alliances with their potential competitors: Better examples of strategic competitive alliances can be seen in various fields such as automobile industry, hi-tech industries and software industries. Example 1: Strategic alliance between Toyota and General Motors in the Automobile industry: Toyota is a Japan based well functioning automobile firm. In the 1980s the demand for compact cars increased tremendously and it led to greater competition in the compact car industry. Toyota adopted competitive alliance strategy for getting successful entry in the overseas compact car market. For this purpose it entered into a contract with General Motors. Through the strategic alliances with General Motors, Toyota gained maximum efficiency in production with world class production standards. It helped Toyota to improve its market position and profitability. When considering the own capability of Toyota in the automobile field, it can be seen that it was not able to secure such a great position with its own resources only. The production of world class standardised products becomes possible only through the technical support and product expertise of General Motors. (Vision & Philosophy 2009). Example 2: Partnership between Xerox and Fuji Xerox in the high-tech industries: Xerox and Fuji Xerox are companies involved in the production and manufacturing of copiers and laser printers based in Japan. In order to avoid keen competition from the market rival firm Canon Limited, Xerox got into strategic alliance with Fuji Xerox and decided to collectively compete in the industry. Their constellation led to the production and marketing of advanced products. The market penetration became effortless through their competitive alliance strategy. Through constellation of the business operations between them they gained competitive strength in the industry. The revenue growth of the two companies in the American industry after the constellation highly improved. Through this alliances, Fuji Xerox attained opportunity to utilise the patents acquired by Xerox in the technological field. A virtual monopoly is created in the market of copiers through extensive sales and service network earned by the constellation of Xerox and Fuji Xerox. (Gomes-Casseres 1997). Example 3: Competitive alliances between Dell and sun Micro Systems in the information technology industry: Dell and Sun Microsystems are two prominent companies in the IT industry. In order to attain competitive advantages in the industry through sharing of technological resource, Dell and Sun Micro systems entered into distribution agreement. Through this strategic alliance Dell greatly facilitated to expand its business through developing more standardised products. Sun Micro systems facilitated through opportunity for expanding its Solaris’ customer base. In the field of system certification, the collaboration strategy greatly supported. The exchange of technological resources helped them mutually to get maximum customer satisfaction with wider choice. It helped Dell to get competitive position in the software industry. (Dell and Sun Microsystems Announce Solaris 10 distribution agreement 2007). From the discussion on the strategic alliances, it is clear that competitive strategic alliances are best suited to the technology-based industries. The reason for this is that through grouping with potential competitors, sharing of valuable resources and technology becomes possible in the most effective way. In the technological industries, research and development is an integral factor for sustaining in the industry. For this greater financial investment is required. The technology is continually changing and thus the newly invented technologies are not capable of producing long term return. The invention of further advanced technologies will result in the existing ones becoming obsolete. Thus, in order to get maximum benefit from the technological innovation maximum exploitation is required. Strategic alliances with potential competitors facilitated to share the valuable resources for something beneficial for the company. Strategic alliances helped the technological companies to share the huge research and development cost. It also helped the companies to generate further advanced products through sharing of valuable information resources. The risk sharing is another major benefit of strategic alliance. Technology involves higher risk of failure and thus strategic alliances help to moderate the risk from failure by sharing with other firms. Example 4: Strategic alliance between Apple Computers and IBM: The joint venture strategy adopted by Apple Corporation with their potential competitor IBM in order to develop new advanced operating system. Apples achieved the position of world’s fastest desk top processor with the support of IBM’s leading technological innovation. IBM attained the competitive ability to offer most superior processor design. Through the strategic alliance, Apple achieved greater accessibility to the innovative technologies developed by IBM. By combining it with their innovative leadership, they are developing highly advanced processors and marketing it successfully. (Apple and IBM introduce the power PC G5 processor 2009). Example 5: Canon- Kodak Kodak and Canon are both domestic names in photography. They get in to strategic alliance for getting competitive strength in the industry. Kodak introduces digital system with the support of Canon having an important effect on descriptions and information among the people and it cause business growth in their life and work. Their business is increase day by day and gets access to global market. While Canons wide choices of products are video equipment, medical equipment, copying machines cameras etc. Canons business is also spread all over the world like Japan, America, Europe, Asia, and Oceania. The two companies have so many distinctive characteristics. Through their strategic alliances the sharing of these resources becomes possible. Kodak supposes that design and development linked to customer service and support are their benefits. (The global economy: in search of green shoots 2008). Conclusion: The Strategic alliances with competitors have to be carried out in the most effective way in order to ensure successful business results on a long term basis. The selection of the strategic business and technological partners is the critical factor that determines the success of the alliance strategy followed by the firm. As the strategic alliance leads to sharing of control over the resources with other firms in the industry and thus the effectiveness of the alliance has to be ensured by the parties involved in the contract. They have to be mutually supportive in nature. Through this, satisfactory return can be ensured by both the parties involved in the alliance contract. 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