Posted at 01.02.2019
Both strategic alliances and internal trends are two completely different but quite typical strategies that are generally implemented across the world in order for companies to grow and achieve their goals. The variations between both strategies and why would companies choose to check out either Proper alliance or Internal development are topics discussed in this article. Could it be really better for the business to grow only, or would they favour somebody from the same industry with the same objectives? In this article, I will start off by defining this is of strategic alliance, what exactly are the several types of strategic alliance, and some theories behind strategic alliances are briefly mentioned. From then on, the variations between Strategic alliance and Internal development are mentioned, this is done by evaluation of the advantages and disadvantages of each method. The dialogue continues by detailing the steps a business must follow in each road in order to accomplish a successful strategic alliance/ inside development. Furthermore, we will need a deeper look at the internal development of BskyB company over the past few years and the research study of Starbucks and TATA drinks on the other side and exactly how they does the tactical alliance between them. The situation studies for these businesses that were successful in their makes an attempt were described, how both companies were able to succeed in their endeavors. The results didn't generally support the debate of companies using proper alliance rather than inside development; instead it was found that the best solution really depends on the company itself. By speaking about all the above matters and questions, and studying different data. We will be able to answer fully the question, why do companies follow strategic alliance, could it be really better than interior development or not?
Strategic alliance is a long-term set up between two or more organizations to achieve the goals and economic gain of all parties while remaining an independent organization. It is different from having normal deals between several companies, however even though most of the records and alliances that made an appearance in the past include only two companies, it doesn't indicate that more company can't come with an alliance together. For example, the alliance that happened between Apple, Sony, Motorola, Philips, AT & T and Matsushita, to create general magic firm but it comes lacking a merger or a complete collaboration (Wheelan and Hungar, 2000, p125). This form of cooperation lies between M&A and organic growth.
In this essay I will make an effort to discuss the meaning of tactical alliance, the reasons behind companies seeking it, is it better than internal growth? And what are the steps behind an effective proper alliance. Also some of the theories related to mergers and acquisition will be pointed out. All of this will be reviewed in details with relevant types of companies that merged together to discover the best of all parties involved. Furthermore I will speak about the difficulties and/or opportunities behind a tactical alliance between organizations and the internal growth of the business.
A strategic alliance is a cooperation which is designed for a synergy where all the companions can take advantage of the alliance more than individual efforts.
Strategic alliances can be split into different stages, starting from informal collaboration to Mergers between organizations. We are able to see how an alliance can be categorized in the below spectrumTypes of Strategic Alliances
Source: www. compasspartnership. com
According to the above mentioned spectrum, we can easily see that on the still left hand side of the spectrum we can see that the company will have higher self-reliance, but as we go on through the spectrum we can see that the business has better integration, that is the companies gets more involved with the other person activities to satisfy their goals.
There a wide range of theories related to the subject of mergers and acquisitions, wither it was Economical theory, Strategy, fund, Managerial or even organizational. If the organization decides to check out with the economic theory, Organizations will merge to gain competitive benefit over their competitors through cost reduction or increased market electricity, then if they want to follow the strategy theory then the firms will choose to follow the road of Porter's five pushes model, which is a framework for the evaluation of the industry and the strategy of business development, It requires into consideration the threat of new entrants, threat of substitutes, buying electric power, supplier power and finally the level of competition on the market. The company can also take into consideration the resource centered view behind strategic alliance, Inside the new overall economy, any business can gain competitive benefits, by getting an access to the resources of another partner, wither it was capital, labor, technology or different marketplaces, while others will look for expansion, reduced amount of costs and other source chain synergies which leads us to the fund theory. This will likely enhance the company more resources and potential that will permit all the members to grow bigger than before, it will also be considerably faster for the firms to grow so they can extend the functional and technological resources. During this process the business helps you to save time because it won't have to develop its resources from the ground upwards. Therefore the company will give attention to improvement and the core of the business enterprise.
Advantages of inside development change from different things, wither it was costs, time or even labor. Internal development is defined as the growth in a business that occurs by expanding the number of products locations. Internal development builds on the business own functions and resources. Companies can form internally in 6 steps.
The design and development of new products
Implementing new marketing programs for exporting
Opening new branches in different locations so that it can be easier for customers to reach them (for example, the expansion of Dominos Pizza, which happened by building new branches to serve as much people as it can be)
Research and development of new products
Devote the business enterprise for new technology that will improve the efficiency and efficiency of the company.
Training the employees to allow them to gain new skills and get used to the new technology in hand
Even though these steps may well not look simple, nonetheless they are considered to get low risk and cost rather than getting the company look for alternatives such as acquisition and joint ventures
Internal progress / development can have different advantages of the business, these advantages are as I said earlier, it is less risky to increase internally rather than needing to dominate another business, in addition it costs less money as the company can finance it through internal funds, it can also increase electric power of the brand name of the business enterprise and increase its runs of customers. By offering different products that are suitable for people of all ages. If you opt to proceed through with inside development u can meticulously monitor the costs, time and staffing.
However internal expansion can have some disadvantages, including the growth the business enterprise seeks for my be based upon the development of the overall market, and yes it is harder to build market talk about if the business is already a leader and finally this can affect the talk about holder as the growth will be relatively slower than mergers and acquisitions.
The cons would seem to be isolation from the outside world, lack of public coverage (for the changing times that things go right so when they go wrong), insufficient regulatory accountability and oversight (Bernie Madoff and Robert Maxwell being basic examples), and generally, the whole idea of glasnost might not apply, and in certain instances, and depending about how much online gain or damage might be at stake, may not have to be applied-or therefore the thinking might go, from way on up high.
Sky is a UK company, that sorts an integral part of the lives greater than 10 millions household in the united kingdom, it's considered as one of the high quality television set in HD. Its technology is simple but it handles to put viewers in charge.
One of the normal examples of companies who tried to develop their business using interior development methods is Sky Tv set. During the period between your years 2004 - 2011, Sky managed to earn a two billion in revenue using inner development (see graph below). sky-org-growth1. gif
According to the above chart, we can easily see that Sky were able to increase its quantity of customers by 2 million in the course of 7 years, which was the main concentrate on (Sky reach 10 million people in the united kingdom. BSkyB achieved that aim sooner than expected, that is certainly one key reason they have been able to enjoy consistent growth in income and profits, regardless of the recent economical downturn. (riley, 2011)
In order for Sky to build up internally, they used the Ansoff matrix as their guide for reaching their aims. The Ansoff matrix is a marketing tool that helps the business determine its product and market progress strategy. It is made of four different boxes, shown in the graph below. Ansoff Matrix. jpg
Source: www. Marketing-equity. com
Sky strategy centered mainly on two of the four bins, that happen to be market penetration and product development, it tried to penetrate the marketplace by increasing the talk about of TV users, as for the development of product the business used development that lead to the success of Sky HD services.
If companies want to follow a successful strategic alliance, they must follow some steps to achieve it, these steps are shown below:
The company must have a clear strategic purpose.
Look for somebody who has the same goals and capabilities as your company
Assign duties and tasks to each party that allows each party to provide out its best.
Find incentivies for the assistance.
Reduce the conflict between partners who were once competitors in the same market.
Share the information each company possess for the best result
Exchange employees - whatever the form of the alliance, personal contact and site sessions are crucial for preserving communication and trust
Operate with permanent objectives.
Develop multiple joint projects
Be versatile - alliances are open-ended and strong relationships that need to advance in pace using their environment and in search of new opportunities
To ensure the greatest probability of success, organizations contemplating building an alliance need to build up a disciplined, structured and systemic strategic alliance process. (see figure 1):
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Source: BCG analysis
In the majority of the startups, it is hard to the cooperating with stronger and better known companies that can help the company get in competition in the market faster and reduce the financing needed than others
The features of strategic alliance are a great deal, but most importantly the firms will have a relative advantage in size and ability to access know the market faster, or an alliance can work between companies with different products, services or even skills, this is will benefit the companies in various ways depending on what each company hold. for case, an alliance between a startup with an edge in development and production with a corporation with proven marketing skills). If the companies form jv formally, by establishing another legal entity for it (AKA as Joint venture) it is comparable in nature to a incomplete acquisition in thought for shares. It is because the business deal creates an entity that combines the relative benefits of both celebrations and ties their futures collectively, at least with regards to the field involved.
There are much more advantages in Tactical alliance, such as better usage of attractive county markets, this can also imply that the partners may take advantage of the counterpart local market knowledge. Proper alliance can also fill the gaps in experience or understanding of local market, this will gain them technological knowledge & most essentially the allies can incorporate their energies in order they can defeat a mutual rival.
There are extensive types of successful tactical alliances, for example:
Xerox & Fuji Film (1962-present): the most successful US-Japanese joint venture
Siemens & Corning (1973-1999)
Microsoft & Intel (1981-present): an alliance that reshaped the micro-computer industry by building a dominating standard for hardware and software
Starbucks & Tata group (2012 - present)
As for the down sides of tactical alliances, most of all if a company decides to check out through with it, then the managers must consider the fact that they will lose control to some extent over their business, as they now have new equal associates who will definitely want to have a part in the process of decision making. This is difficult for many business owners as they don't really want to reduce the power they have in the business, many alliances fail for this reason reason, this happened in numerous companies in the past and is still taking place now.
Furthermore we've the issue of trust, many alliances fail due to the lack of trust between companies, trust prevails when one company gets the confidence in the ability and ability of the other company, this can be a big reason behind failure, for example the cooperation between giant drug company called Eli Lilly and a little biotechnological company called Amylin Pharmaceuticals inc, the main cause of the alliance was so that the companies can develop a drug to combat off diabetes, however a low point in the partnership followed by a shouting match between your marketing chiefs, which resulted in a failure, the main reason behind this failing is shared distrust.
More importantly we've the issue of culture, if two cross border companies opt to undergo Strategic alliance, then they must take into consideration the different cultures between the companies, for example, if an alliance between a Japanese company and a US company occurs it is most probably that the Japanese company will assign the very best senior manager, nevertheless the US companies will choose to assign the young and forthcoming professional to the same alliance, even though both companies think they can be fully committing their finest resources, the counter-top parts will understand that the other is not dedicated just as, this will eventually create miscommunications and lack of trust. To avoid this issue the company will have to overcome the social barriers
Finally, occasionally of tactical alliances, one of the counter-top parts may be more dominant than the other this will most likely cause the other party in becoming too reliant on another organization for essential skills within the long-term
To summarize the cons of tactical alliances, we can say that tactical alliances were mainly criticised for having a high inability rate which is almost 60% (Dawes, 1994), they bring the chance of revealing experience to partners, profits need to be shared similarly among all the companions and finally we can say that there is less freedom of partners compared with doing it on your own.
One recent example about proper alliance, as mentioned previously, is the alliance between Starbucks and Tata group, Starbucks chose to enter a proper alliance with Tata group, so as it can get into the Indian market and create their name in India.
Starbuck announced that they will sign up for Tata global beverages in a 50 - 50 joint venture on January 31st, 2012, whereas both companions will spend a sum of $80 million first.
As a result of the jv Tata Starbucks ltd was made in January 2012. John Culver (president of Starbucks in china and Asia pacific) verified that Starbucks will join Tata group, so that Starbucks can sign up for the Indian market, which will be one of the major markets outside the US. Rama Bijapurkar, market research expert and author of Winning in the Indian Market, said: "If Starbucks come to India convinced that just because they bring a international label it'll walk over the neighborhood competition, they are going to maintain big trouble. "But there is an opportunity for them here, not least because there are really no nice places to meet in our big cities, outside the lobbies of five-star hotels. " The main goals behind the Joint venture in Tata's view, was to boost the number of Starbucks stores in India to surpass the amount of stores in china.
According to John culver within an interview he made, he thinks that now is the right time for starbucks to go into the marketplace in India, given the expansion the current economic climate is experiencing as well as the appearing middle income. He thinks they may have the perfect spouse in Tata global drinks, as they have like minded beliefs, that shares the same love, for providing high quality espresso for the individuals, that also stocks the passion to give back to the community where they conduct business.
So significantly the Joint venture is working out for the best of the two companies Tata Global Beverages Ltd. Starbucks Corp Indian spouse, gained the best operating profit in just two months above the 5 years. Profit from operation increased 14%, while net gain increase by 25% and the stock price increase by 3. 8%
In conclusion, we can answer fully the question of wither or not companies should pursue strategic alliance before internal development. In my personal judgment, I think that it really depends on the problem of the business, Internally and externally. In some circumstances it is better for the business to grow alone, just like dominos and BskyB have. - particularly if the business was concerned about exposing its central competences, believed that its existing resources and competences would be sufficient to meet up with the market opportunity, and it needed high levels of control over its development decisions. In other circumstances the organization may look for outdoors partners, to aid them in reaching their goals, exactly like Starbuck alliance with Tata, as starbcks wanted to increase its market in Asia, and India was an available market to allow them to achieve their targets. Strategic alliances and Internal development have many advantages, all of which help the business enterprise achieve its proper goals. So we can say that in order for us to choose which option to go with we would need to check out each case individually from the other. Look at all the factors that will impact the help the business achieve their goals
Furthermore We can conclude that tactical alliances is a robust tool that is employed to attain the business strategic goals. However in order for tactical alliance to be successful the business must follow a careful prepared process right from the start to the finish as described in the essay from tactical conception to alliance termination. The business must take its time to create a proper technique for an effective alliance, established clear guidelines of governance also to monitor the results at well-timed basis. So tactical alliance provides a powerful competitive edge in new marketplaces.