Forming Strategic Alliances Business Essay

During the globalization, professionals are met with an instant changing competitive landscaping. In order to conquer this difficulty, firms make an effort to make alliances. Making tactical alliances is the relevant choice for professionals to search for ways for how to be competitive effectively and create the successful future.

Recently, collaboration between companies became stylish. Strategic alliances is a cooperative contracts between companies. It entails all types of companies such as large, medium and small. In proper alliances, partner companies get together for common goals without losing their tactical autonomy.

Representation of the alliance:

Goals and interests

Goals and interests

specific to A


specific to B

Source: Dussauge and Bern (1999), Cooperative Strategy, ch. 1, p. 3

The Benefits of Strategic Alliances

There are several benefits of forming alliances:

It may aid admittance into a foreign market

Many firms who want to enter overseas market, they need local partner who'll understand business conditions and who has good relationships with local government and organizations. For example, in 2004 Warner Brothers moved into into a joint venture with two Chinese partners to produce and distribute motion pictures in China. Through the partnership with local organizations, Warner Brothers succeeded to disperse any films it produces

It allows firms to talk about cost and hazards for developing services or process

For example, an alliance between Boeing and Mitsubishi share 8billion U. S Dollars among the partners for creating a new plane such as "7E7".

It stimulates to build up skills and property which are difficult to do alone

For example, in 2003 Microsoft and Toshiba proven an alliance for creating a new microprocessor for entertainment for automobiles. Microsoft helped bring its software engineering skills and Toshiba its hardware executive skills.

It helps companies to determine technological standards

For example, in 1999 Hand Computer developed an alliance with Sony under which Sony agreed to certificate and use Palm's operating-system in Sony PDAs. The motivation was to establish Palm's operating system as the industry standard for PDAs against Windows-based operating-system from Microsoft.

The Negatives of Strategic Alliances

Establishing alliances can be dangerous. Unless a firm is careful, it can give away more than it gets. This means that, if the spouse reckless of handling its know-how, it could be leaked to other spouse.

Main drivers of creation of alliances:

The recent and fast growth in the number of tactical alliances can be described by various changes in the international business environment. Globalization of trade and acceleration of scientific progress seem to be to be major driving a vehicle forces which may have led companies to enter significant amounts of cooperative contracts.

Strategic Alliance motorists:


Technical changeDisenchantment with M & A

Source: Tayeb, M. H. (2001), International Business Partnership, ch. 2, p. 35.


The Globalization is the procedure which includes the objectives relating to the need to establish a sizable global presence, to get knowledge and size, ensure competitive defence and deal with regulatory and politics barriers to new market entrance.

One of the primary motorists of globalization is the fact that customer needs and personal preferences across the world are quickly converging. This makes organizations to create so-called "global" products suited to all consumers, irrespective of their nationality.

International alliances can offer a powerful way to globalize more rapidly and therefore boost a company's competitiveness. While making international acquisitions is both costly and risky; establishing a network of wholly international subsidiaries is long, expensive and unsafe; licensing provides little control. Global alliances can allow the spouse companies to pool resources produce global product and send out it worldwide: British Telecom, MCI and AT&T for World Lovers; Alliance of Sambuca and Nemiroff; Alliance of Philips and Whirlpool.

Technical Change:

The cost and difficulty of new technology are increasing extremely rapidly. Between 1970 and 1990, R&D expenditures rose 3 x as fast as shelling out for fixed possessions (Collins and Doorley, 1991).

With the increase in the variety and complexity of technology know-how, the number of possible inventions predicated on this expertise is growing wider. As the range of choices proposed by new research has been increasing immensely, individual R&D programs are growing a lot more expensive and the chance of achieving officially successful and commercially profitable results have grown to be increasingly more uncertain. That is why cooperation can be regarded as unavoidable in many high-tech companies: by dividing in the R&D work between your partner businesses, it allows them to talk about costs, pool their experience, and explore a lot more avenues (Dussauge, Hart and Ramanantsoa, 1992). For example:

The Peugeot/Renault JV, Alliance of PRV V6 Engine

The disenchantment that has implemented many mergers and acquisitions seems to be one of the reason why behind the recent development of tactical alliances. Alliances make it possible to stay away from the culture and organizational impact to arrive the wake of your merger by proceeding detail by detail, and by steadily adapting the content and framework of the contract.

Formation of Strategic Alliances

Formation process:

Source: Schaan, J (2007), Instances in Alliance Management, ch. 1, p. 7

Strategy development

The rationale for a proper alliance must be tightly in a strategic knowledge of a company's current capacities and those it'll need to be successful in the future. First of all, managers need to establish the tactical goals of their company's and then examine their resources and capabilities to see if they are capable of performing on their own.

The process starts off by developing a sensible appraisal of what resources are required to meet a company's long-term proper objectives. The goals are for increasing competitive benefits. The administrator must declare that what features the organization has and looking for. With this starting, managers begin to establish their requirements for rating collaboration opportunities if this is an option they choose.

Before making the mind to visit for the alliance, the actual costs involved need to be considered such as technology transfer, coordination and management costs, which is high indeed. (Tayeb, H. M 2001).

Managers need to take into consideration of, if the firm comes with an experience on building alliance. If this is first alliance, a firm should look carefully at its internal policies and routines and evaluate to what degree they will help or hinder an alliance. For example, when a company has problems on managing its inner communication, then you will see pressure on the alliance relationship. It is advisable to modify internal routines as necessary before producing a third party.

The process of strategy development is really as following:

Strategy Development:

Source: Schaan, J (2007), Conditions in Alliance Management, ch. 1, p. 7

Selecting the right partner

It should come as no real surprise that deciding on the best partner is a major determinant of how successful an alliance will ultimately be. Inexperienced companies should not hurry up to "execute a deal"-choosing partner.

Poor spouse selection ranks high among the reason why for alliance failure. It invariably will take longer than anticipated to find the appropriate partner. Managers should hang out and resources to extensively analyze the potential opportunity. Depending on the scope and complexity of the alliance, it takes from almost a year to a couple of years to find the best partner.

Small companies looking for alliance associates are often tempted to consider shortcuts as they find themselves facing time and financial pressures. They may succumb to the temptation to partner with any company, whether or not it matches their proper needs. This is actually the problem that companies make, because a spouse must fit a company's strategic needs.

Small companies typically keen on building collaboration with large companies. The reputation and image of the top company could cause the small firm to disregard its own strategic objectives.

After the tactical objectives were defined, managers should determine how many partners to tackle. The search process starts off by formalizing spouse profile screening conditions, developing a set of prospects, rating the list contrary to the criteria and then focusing on a manageable quantity of the best prospects.

Complementary property and functions is the key characteristic of partners for evaluation the strategic fit. Having equivalent strategic investments is wii basis for a partnership because the probability of competitive issue can be high over the long term.

It is necessary to evaluate companions according to their strategic, cultural and functional fit.

Concerning to tactical fit, professionals should take into the balance of need between the partners. In case the needs of other partner are to get more income, then this will not be long-term alliances.

The dynamics and sturdiness of the tactical fit is also a critical consideration. It is important that the long-term targets of the partner are not incompatible and that the supposed benefits can be sustained.

During analyzing tactical fit, firms need to choose a partner that has a potential strategic network. In high-tech market sectors, almost all of the companies have cooperative network with one another.

As it said above, building an alliance with large organizations is dangerous. Companies should choose a partner who's almost the same size. Research indicates that choosing significant size of spouse can reduce successful collaborative activity. It could lead Merger and Acquisition.

Cultural fit is core of choosing spouse. It can influence business reasoning, competitive behavior, time orientation, and decision making. It straight impacts the power of companions to interact to meet their common targets. Research of KPMG demonstrates, the reason of 70 percent70 % of proper alliances inability is cultural contradiction among the list of partners.

Culture of companies has profound effect on organization's operational routines such as management and organizational framework, decision-making methods and employment plans.


The major part of long-term cooperation is made at the negotiation stage. Negotiation should be as first of all as a means of building the linkages that will support effective cooperation between the spouse companies.

The negotiation process is perfect way for growing some unique insights into the way the other party does business.

In negotiation process, several areas require particular attention such as: collecting negotiation team, negotiation preparations, the procedure of negotiation itself and forming a negotiation contract.

Negotiation can be nerve-racking and managers need to be sure that his associates can have contribution. Besides, legal and taxes professionals have a very important role to experience in adding a partnership together, but through the negotiation it is advisable to avoid them to attend the process.

Well planning can make the negotiation process easy and soft. Advanced preparation also needs to help examine bargaining electricity, understand the concessions to be produced and forecast conditions that might come up.

Good discussions are seen as a credibility and an available stream of information between the partners.

The contract should be well written and set out the reason, term, duration, guarantees, obligations.


Making the right decision about strategy, partner and structure is merely the beginning. The true work begins when companies use their alliance. While the chosen composition and scope of any alliance will significantly affect the kind of implementation required, the material covered in this section presents ideas for creating earning conditions that can be applied to all.

The main problems of developing strategic alliances

There are different problems of creating tactical alliances.

As it is apparent that strategic alliances generally are maintained by several parents makes them inherently risky. The issues in creating alliances stem from one cause: you can find several father or mother. The owners of parent or guardian firms are powerful. They can and can disagree on just about nothing (Getting rid of, 1982). Such as for example Queensland Nutrients alliance, owners of both parts parent or guardian companies were disagree. Amcon Organization wanted to develop to Queensland, but the CEO of Victoria Heavy Market sectors didn't want to. Because of this Amcon renegotiated the alliance contract.

Organizational culture, a company's ways of doing things, refers to basic assumptions and values that are talk about by customers of a business. These operate unconsciously and specify an organization's view and its environment.

Organizational culture can cause problems where companies with distinctive cultures merge or form a strategic alliance. Employees from the parent or guardian firms have a tendency to use their home-company culture. In such a connection, Datta and Rasheed (1993) described that, too little cultural sensitivity can simply lead to misunderstandings in tactical alliances.

Main Problems of Forming Strategic Alliances

Unsuccessful rate of alliances are high. The success of an alliance seems to be a function of three main factors:

Partner selection

Alliance structure

Managing alliances

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