Strategic International Alliances - Term Paper Example

Strategic Alliances Strategic International Alliances Global Strategic Partnership Table of Contents Introduction 3 Concepts Related To Strategic Alliances/ Strategic International Alliances /Global Strategic Partnership 4 Reasons behind the Creation of Strategic Alliances 6 Risks and Problems Associated With Strategic Alliances 8 Examples of Successful Strategic Alliances 9 Conclusion 11 Works Cited 12 Introduction There has been major alteration in the world economy since past few years. There is high complexity, uncertainty as well as discontinuity in the business environment. It is because of the altering market conditions, strengthened global market competition along with short product life cycles that compel firms to re-evaluate the conventional methods as well as strategies of conducting business. Managers are identifying the fact that in spite of strong and resourceful firms, it is becoming difficult for them to maintain competitive advantage in most of the national markets and they are also not capable of making use of the wide range of technologies which is needed for the creation, production, development as well as marketing of new products. Therefore, international strategic alliances have become a significant method to rationalize operations in order to overcome the problems and to assist firms to recover and to administer competitive position in global markets. It further assists in attaining global marketing success because strategic alliances offer marketers a good solution that lack in terms of distribution to enter into global markets (Kauser & Shaw, “The Influence of Behavioural and Organisational Characteristics on the Success of International Strategic Alliances”). The main objective of this paper is to identify the concept of strategic alliances/ strategic international alliances / global strategic partnership, the reason for their creation, the reason behind their success and the reasons why a few of the strategic alliances fail. Concepts Related To Strategic Alliances/ Strategic International Alliances /Global Strategic Partnership Strategic alliances can be identified as the association between parties to take part in agreed upon objectives or to meet the requirements of the business while continuing to be self-regulating organization. Such collaboration generally takes place between mergers & acquisitions and organic growth. A strategic alliance can be defined as conformity between firms to conduct business in a way which is more than normal company-to-company dealings, however cannot be characterized as merger or full partnership. These alliances may be either in the form of unofficial handshake consent to official consents where the period of contract tends to be longer and the parties may as well exchange equity and put in capital so that it can create a joint venture corporation. In other words, it can be stated that strategic alliances are generally partnerships related to two or in excess of two corporations or business units that work in a collaborate way in order to attain deliberately imperative goals, which tend to be beneficial for all. It is to be mentioned that there is huge potential for strategic alliances. If the strategic alliances are executed in a correct approach then in such circumstances, the operation as well as the competitiveness of the organization can be improved to a great extent. It has been identified that the main purposes of the firms who generally go for strategic alliances is to make joint alliances and for promotional purposes (Narula & Hagedoorn, “Innovating through Strategic Alliances: Moving towards International Partnerships and Contractual Agreements”). Global strategic partnership tends to take place when a company wants to enter into similar business or new markets. It is generally a process where the government tends to forbid imports for the purpose of shielding the domestic industry. Normally, alliances are created among two or more than two corporations. Each of the corporation is generally based in the home country and the alliances are formed for a specified period of time. By means of creation of the alliances their main objective is to share the ownership related to newly created venture and thus to enhance competitive advantage in their combined territories. It is to be remembered that global strategic alliances are quite flexible in comparison to the acquisition in relation to the level of control which is enjoyed by each party. According to the resources the corporations can design an equity or non-equity partnership. In case of equity partnership, the corporation can hold a marginal, mainstream or equivalent stake. However, the case of non-equity partnership tends to be different. In case of non-equity partnership, the greater stake is generally held with the partner of the host country and it also holds a majority interest as well (Narula & Hagedoorn, “Innovating through Strategic Alliances: Moving towards International Partnerships and Contractual Agreements”). There has been augmentation in the strategic alliances in terms of its significance as one of the methods of conducting business across national boundaries. It has received greater attention in both media as well as academic circles. Although there has been rise in international strategic alliance activity in the current years, it has been noted that significant amount of strategic alliances tend to fail. Discontent with the association as well as alliance failure have been fuelled by distinct factors such as poor perceived performance, rigidity along with conflict, opportunism, mismatched goals, meager communication, control and ownership arrangements. It is because of these facts that managers and academics tend to possess a limited comprehension of the methods of making international strategic alliances successful. Although the researchers make greater efforts to comprehend the ingredients for successful strategic alliances, the results are generally far from decisive. It can be observed that most of the issues in administering alliances initiate from a lack of attention to relationship issues. If the managers are capable of comprehending the factors which is linked with the success of the alliances then in such circumstances they would be capable of creating more effectual international partnerships in the near future (Akter, “Strategic International Alliances”). Despite significant quantity of research related to international strategic alliances, most of the studies have tried to pay due attention upon reasons behind alliance development, choice of partners and nature of leading co-operation. Although there is no doubt that most of the factors may lead to success or failure of such coalitions, there are many literatures that endorse the concept that alliance performance can be comprehended in a better way by evaluating the behavioral characteristics. It can be stated that the procedure related to control has been considered as a crucial organizational method for the success of the alliances. The researchers have conducted research related to control via ownership and has also focused upon control-conflict associations. Nonetheless, most of the research related to strategic alliance control has had a constraint perspective of the control concept and there is quite a few empirical research related to control as a key success factor for the success of alliance success (Elmuti & Kathawala, “An Overview of Strategic Alliance”). Reasons behind the Creation of Strategic Alliances There are numerous implications behind the generation of strategic alliances. The main reasons have been related to making growth plans and the purpose to enter into new markets. It has been recognized that growth strategies and entering new markets are among the topmost reasons behind the creation of strategic alliances. Formation of alliances with any existing company in the marketplace tends to be one of the best options for the business houses. It is a well known fact that partnering with an international company assists the companies in expanding into unknown territories quite easily and with fewer complexities. The other reason for strategic alliances has been to gain new technology or best quality or cheapest cost. It has been recognized that it is not possible for all the companies to offer the technologies that they want so that they can compete effectively in the marketplace. Therefore, in order to attain these objectives, most of the companies team up with other companies possessing adequate resources to offer technology or who can pool their resources so that they can offer the required technology in a collaborative way. Partnership tends to offer benefit to both the partners. Strategic partnership has also been created to outsource business functions that might comprise marketing, sales, accounting as well as any other method to that company which can outperform the operation at relatively cheap rates. In fact, most of the companies are forming alliances in order to gain best quality or technology or the inexpensive labor or manufacture cost. For instance, BP Amoco PLC planned to subcontract its accounting roles to PricewaterhouseCoopers LLP (Elmuti & Kathawala, “An Overview of Strategic Alliance”). A few of the companies may identify the fact that the financial risks associated with any product or production technique is quite huge for a single company to undertake. When such circumstances take place, two or more companies attempt to spread the risks among them by coming together. It has been noted that most of the not-for-profit organizations face constraints in terms of resource and skills. Consequently, it is because of this reasons they find strategic alliances as one of the best ways to serve their customers better and to attain global marketing success (Doz, “The Evolution of Cooperation in Strategic Alliances: Initial Processes or Learning Conditions). They might as well form partnership with others requiring assistance and offer what is required for all. Most of the strategic alliances are created in order to attain competitive advantage. Alliances tend to be appealing to generally the small business houses since they offer tools as required by businesses to be competitive. For most of the small companies, one of the possible ways to stay competitive and thus endure in today’s technologically superior business world is to create an alliance with other company or companies. Small business houses recognize the reciprocated advantages that they get by creating strategic alliances in areas such as production, marketing, outsourcing, distribution, research and development (Elmuti & Kathawala, “An Overview of Strategic Alliance”). Risks and Problems Associated With Strategic Alliances Most of the strategic alliances in business have not been capable of bringing the results envisaged by the participants in most of the cases. A number of the studies have focused upon the components of their success instead of paying attention towards the reasons behind their failure. Both the risks and the problems need to be analyzed in a proper way so that it becomes easier to identify the reasons behind failure of most of the strategic alliances. One of the significant issues faced by the corporation in case of alliances is related to cultural conflicts. These cultural related issues contain egos, distinct attitudes, languages and prejudices that can introduce rigidness in the flourishing operation of the business (Elmuti & Kathawala, “An Overview of Strategic Alliance”). Lack of clear goals and objectives might also lead to failure of strategic alliances. Since most of the strategic alliances of the present times are created because of wrong reasons it might lead to significant problem in the near future. For the purpose of fighting industry competitors, most of the competitors enter into alliances (Mowery & Et. Al., “Strategic Alliances and Interfirm Knowledge Transfer”). It is often stated by the corporate management that such actions will prevent competitors from focusing upon their company. However, such actions will lead to the identification of the fact that problems exists among the partnering companies. It can be stated that such alliances will generally lead to more problems for the companies’ thereby increasing competition. One of the well known facts is that the actions which are taken by the subordinates might not be in parallel with the top management and thus might prove to be quite disruptive. This is more evident in cases where the companies tend to remain competitors irrespective of their strategic alliances. The other issue that may arise between the companies in case of trade alliances is related to distinct attitude among the companies. One of the companies may be incapable of delivering its goods and services on time, or might produce such goods and services which might lead to disbelieve among the two companies. Examples of Successful Strategic Alliances There are many illustrations of successful alliances. One of them has been United Sugars Corporation and Pillsbury Company. It was noted that these two corporations partnered collaboratively so that it can enlarge a current market segment for any one company, and thus offer scope of new market segment for the other company. The other instance of winning strategic alliance has been Star Energy Service, LLC which was an alliance between Runestone Electric Association, Todd Wadena Electric Cooperative and Agralite Cooperative. The main reason behind the creation of the partnership among the three companies was that they wanted to create more effectual delivery of engineering services. The alliance was made in order to fulfill the common needs among the three companies which they were able to meet via cost sharing and economies of scale (Martin & Stiefelmeyer, “Strategic Alliances and Cooperatives Aiding in Rural Development in North America”). The various reasons that could have assisted these companies in creating successful strategic association might have been related to strong dedication of the top management of all the companies involved. It is to be mentioned that for an alliance to be tactical, it must possess a crucial influence upon a company’s overall strategic plans. Furthermore, these plans must be managed, controlled, formulated with the full dedication of senior management. If the top management is not committed then the alliances might not attain the resources that they want. The other reasons that might have led to the success of such strategic alliances may be related to effective and strong management team in the company. Furthermore, it has been anticipated that for the strategic alliances to be thriving it is quite significant that its performances need to be examined and monitored on a regular basis against the short-term as well as long-term goals and objectives of the organization. Planning also plays a significant role in the success of the strategic alliances among the partners of two companies (Holmberg & Cummings, “Building Successful Strategic Alliances”). Conclusion In a fast emerging world of risks facing the new millennium, and of all the developments sweeping across the business landscape, few factors will possess a significant influence on companies into the next decade in comparison to strategic alliances. It can be concluded that strategic alliances can be considered as a noteworthy tool for attaining competitive advantage. Furthermore, the concept related to strategic alliances is quite alluring for the organizations because of the cost savings attained while executing the operations. Most of the companies form strategic alliances so that they can gain best technology or cheapest labor for production. However, it is recognized that the companies get inclined towards strategic alliances without evaluating their options which at times leads to the failure of the strategic alliances. Therefore, it is quite imperative for the companies to go into strategic alliances by considering the fact that whether an alliance is the best option for their need. The purposes behind the formation of such alliances must be clearly identified by the companies, which can in turn lead towards attainment of desired objectives from the intended alliance and also lead to global marketing success. Works Cited Akter, Farhana. “Strategic International Alliances”. April 16, 2012. Breaking News, 2012. Doz, Yves L. “The Evolution of Cooperation in Strategic Alliances: Initial Processes or Learning Conditions.” Strategic Management Journal 17 (1996): 55-58. Elmuti, Dean. & Kathawala, Yunus. “An Overview of Strategic Alliance.” Management Decision 39.3 (2001): 205-217. Holmberg, Stevan. R. & Cummings, Jeffrey. L. “Building Successful Strategic Alliances.” Long Range Planning 42 (2009):164-193. Kauser, Saleema. & Shaw, Vivienne. “The Influence of Behavioural and Organisational Characteristics on the Success of International Strategic Alliances.” International Marketing Review 21.1 (2004): 17-52. Mowery, David C. & Et. Al. “Strategic Alliances and Interfirm Knowledge Transfer.” Strategic Management Journal 17 (1996): 77-91. Martin, Larry & Stiefelmeyer, Kate. “Strategic Alliances and Cooperatives Aiding in Rural Development in North America”. April 16, 2012. Strategic Alliances, 2012. Narula, Rajneesh & Hagedoorn, John. “Innovating Through Strategic Alliances: Moving Towards International Partnerships and Contractual Agreements.” Technovation 19 (1999): 283–294. Read More