Strategic Alliances

Strategic Alliances

Strategic alliances are partnerships between two or more firms that decide they can better pursue their mutual goals by combining their resources such as financial, managerial and technological. Strategic alliance caused by the need for organizations to respond to the globalization of markets. There are some motivation, possible risks and reasons for failure of the strategic alliance will be discussed at below.

First of all, the motivation for companies to form strategic alliance will be discussed. Firstly, by using strategic alliance, it enables the firm can easily enter into a foreign market. By having partnership with local firm, local firm can provide knowledge of markets, customer preferences, distribution networks and suppliers about their country. Sometimes, the foreign firms are not allow to enter into certain market alone due to some restriction by the local market. Thus, strategic alliance is required. It may help the firm enters into that market easily as the local firm know the needs, wants and demand of the market well. For example, a strategic alliance between British Airways and American Airlines was created in 1993 that designed to give the two airlines increased access to North American and European markets, respectively.

Secondly, strategic alliance enables the companies involved to share risks and costs. In some industry such as pharmaceutical industry, it is a well-known facts that the leading companies must invest a lot of money and funds in research and development (R&D) to discover new drug that can bring in a lot of revenue in the future. However, there is no guarantee that the money invested in R&D which can amount to billions of dollars can result in successful discovery of new marketable drug. For example, Pfizer, a leading drug company share the risks and costs in R&D by forming strategic alliance with the other drug companies such as GlaxoSmithKline to achieve risk-sharing which will benefit both companies.

Although strategic alliance brings benefits to the firms, however, it possess some possible risks. Firstly, the loss of competitive edge is one of the potential risk of engaging in strategic alliance. The form of governance chose for multinational firm alliances greatly influences their success, particularly in technologically intense fields such as pharmaceutical, computers and so on. The example is strategic alliance between IBM and Microsoft. According to the agreement, the latter company took the responsibility of supplying microprocessors to IBM. However, the perceived strategic alliance resulted in IBM’s core competency to be taken by Microsoft, and dramatic decrease in IBM market share.

Next, loss of autonomy for a company is another serious shortcoming that is often associated with strategic alliance. Companies that are forming strategic alliances often have to compromise a specific proportion of their power in terms of decision making. The firms not just share risks and profits, they also share control, thereby limiting what each can do. This can be further explained by