ADVANTAGES AND DISADVANTAGES OF STRATEGIC ALLIANCE Essay

This essay has a total of 2174 words and 14 pages.

ADVANTAGES AND DISADVANTAGES OF STRATEGIC ALLIANCES AND JOINT VENTURES: DISCUSS WITH REFERENCE TO THE AUTO CAR INDUSTRY











STRATEGIC ANALYSIS





























Discuss the Advantages and Disadvantages of Strategic Alliances and Joint Ventures


Strategic alliances are partnerships whereby two or more firms choose to cooperate for
their mutual benefit by combining their resources- financial, managerial, and
technological as well as their competitive advantages. Alliances are often called
cooperative strategies. Cooperation between international firms can take many forms, such
as co-funding of research projects, sharing of production facilities and marketing of each
others products using existing distribution networks. For example in March 2000, General
Motors and Fiat formed a strategic alliance creating an important partnership in two of
the world’s largest automotive markets: Europe and Latin America. The alliance promises an
opportunity to make value for GM shareholders through significant synergies in such areas
as parts cost reduction, optimisation of activities regarding power-train modules,
efficiency in financial service operations, cross-sharing of automotive technologies,
common platforms and architectures. Each participant was motivated to promote its
self-interest but had determined that cooperation was the best way to achieve its goals.



The most common type of strategic alliance is a joint venture but there are other types of
alliances that have been formed depending on the company’s objective to form the
partnership.



A joint venture is when two or more companies join together to create an independent
company that is legally separate and distinct from its parents. An example of a joint
venture is the Nuumi Corporation, created between Toyota and General Motors, which gave GM
access to Toyota’s manufacturing expertise and provided Toyota with a manufacturing base
in the U.S. A joint venture as a separate legal entity must have its own set of managers
and bored of directors. It can be managed in any one of three ways. The founding members
may jointly share management, with each appointing key personnel who report back to
officers of the parent. One parent may assume primary responsibility. An independent team
of managers may be hired to run the joint venture. This third option is usually preferred
because independent managers are more likely to focus on what is best for the joint
venture.



Advantages of Strategic Alliances




Strategic alliances are known as a form of co-operation. They are business arrangements
whereby two or more firms choose to co-operate for their mutual Benefit. When firms enter
into strategic alliances they usually expect to benefit in one or more ways. They form an
alliance to gain from the other firm something which they are missing. Accordingly they
must bring something of benefit to the alliance. Researchers generally agree however that
only about forty percent of those alliances succeed. In order for them to succeed a lot of
commitment and energy is needed, as with any relationship. On entering into any alliance
an organisation should have a clear sense of strategic direction. They must also be able
to articulate these to others. Once a firm understands what it is it hopes to achieve, it
should then be able to establish a list of likely partners. They should then assess the
corporations on the list in terms of situations and see what they may have to offer.
Before implementing structure and process need to be in place in order for things to move
forward.


Strategic alliances are extremely complex relationships and present a challenge to those
involved in their management, however with careful planning and a lot of hard work they
can be extremely beneficial. International business may recycle four benefits from
strategic alliances, ease of market entry, shared risk, shared knowledge and expertise,
and synergy and competitive advantage.


Ease of Market Entry
Firms wishing to enter a new market often face major obstacles, such as entrenched
competition or hostile government regulations. Partnering with a local firm often can help
the entering firm navigate around such barriers. In other cases economies of scale and
scope in marketing and distribution confer benefits on firms that aggressively and quickly
enter different markets. Yet the costs of speed and boldness are often high and beyond the
capabilities of a single firm. A strategic alliance may allow the firm to achieve the
benefits of rapid entry while keeping costs down.





When Peugeot pulled out of its partnership with the Guangzhou Automobile Group in 1997,
Honda Automobile Company seized the opportunity to take on the failing venture. Honda had
already invested in several alliances in China, and this was just what they needed to
establish an even stronger foothold in the nascent auto market. With a relatively small
initial investment, Honda has seen a significant return on investment: by 2001, Guangzhou
Honda reached sales of RMB 12 million (US $1.4 billion), with pre-tax profits of RMB 4.5
million (US $0.5 billion).




Shared Risk




Today’s major industries are so competitive that no firm has a guarantee of success when
it enters a new market or develops a new product. Strategic alliances can be used to
either reduce or control an individual firm’s risk. For example GM and Fiat have formed a
strategic alliance to share risks and enhance the knowledge base for both partners,
creating an important partnership for the companies in two of the world’s largest
automotive markets, Europe and Latin America.


Shared risk is an especially important consideration when a firm is entering a market that
has just opened up or that is characterised by much uncertainty and instability.


Shared Knowledge and Expertise




Still another reason for strategic alliances is the potential for a firm to gain knowledge
Continues for 7 more pages >>




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