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,