The increasing need for innovation is causing business people venture into partnerships where they combine their resources with other businesses to create synergies in the production of specific products. As the global markets become increasingly competitive the need for innovative products is increasing to create products which are competitive. The creation of a strategic alliance requires several businesses to come up with joint ventures where the parties retain their original status (Lewis, 2000). The parties forming the business relationship do not dissolve but retain their original mandate.
The parties provide resources towards the joint business venture and the gains are divided according to the agreed criteria (Rangan, Michael & Srinivasa 1995). Companies have different reasons for creating strategic alliances. There are benefits and disadvantages of operating strategic alliances. The paper focuses on the reasons for creating strategic alliances, their advantages and disadvantages as well as focusing on a few types of strategic alliances established by businesses in the global markets. Reasons for strategic alliance Businesses combine their resources together to acquire synergies from each party.
Specialization in the business world has encouraged businesses people provide specific products in the market. The production of certain products may require special skills from different companies. The strategic alliances allow the parties share the risks involved in a certain venture. Doing risky business alone may become risky but when different organizations are involved in the business they can share the losses which may be incurred when the venture fails. Innovation in the production systems is encouraged by strategic alliances since several organizations and individuals with different skills and resources are involved in the venture.
Innovative products are very competitive in the market since they provide the customers with the chance to purchase new products with new features. Some ventures required a lot of capital to operate. The strategic alliances allow businesses with inadequate capital to pursue a large investment (Mowery, Oxley, & Silverman 1996). The strategic alliances are established to operate for a given period of time or they can have eternal life (Kotelnikov n. d). Advantages strategic alliance Businesses gain competitive advantages when they adopt strategic alliances.
They access resources of the partners in the alliance and are able to gain synergies which enable them to compete successfully in the market. Toshiba is an example of a company which believes that gaining competitive advantage in the market requires creating alliances with other companies since an individual company has no capacity to rule the market or technology (Kotelnikov n. d. ). Complementary resources are obtained when a business joins others to create a common venture. Most strategic alliances are created by companies which are not competing in the market.
Companies with resources which can be combined to produce competitive products usually form alliances. Technical and operational resources are gained from the strategic alliances. Efficiency in growth and expansion is enhanced when companies form alliances. When a business enters into a strategic alliance it reduces time wastage and increases productivity (Kotelnikov n. d; Segil 2004). Companies which seek fast growth use strategies of developing strategic alliances to access certain chains of distribution and marketing. Strategic alliances improve the reputation of the brands produced by the member companies.
The players in the strategic alliance use this opportunity to market their products through different channels, hence improving the overall image of the products and the brands. Other companies enter into strategic alliances to expand their regional operations. The partnership provides opportunities to access markets elsewhere such that the business has a large market for its products. Increase in competition and the need for more resources has locked many small companies from accessing international markets. Establishing strategic alliances provides the parties with adequate resources and synergies to access the global markets (Kotelnikov n. . ).
Diversity in the business arena us enhanced by creating alliances with different stakeholders. As companies create partnerships with other companies they acquire more diversity in their range of products which they produce. Product development is also enhanced through strategic alliances. Companies can acquire knowledge about the necessary changes to the products they produce. This provides opportunities to develop products according to the prevailing demand in the market. Countries increase the amount and number of exports they provide to the international markets by creating alliances with other countries.
This provides opportunities to increase the gross domestic products of the economy and enable the countries improve their balance of payments. When countries increase their exports they are able to reduce their foreign debts and acquire better relationship with foreign governments (SmallBusinessNotes. com 2009). Disadvantages strategic alliance Companies share the future profits to be obtained from strategic alliances. Since this is a partnership where each party has a stake, the profits and other benefits are shared between all parties.
If a business ventures into the market alone no sharing of benefits obtained. A single business venture allows the founders enjoy all the profits obtained (Corporate Partnering n. d. ). Companies disclose some of their trade secrets when they enter into strategic alliances. Since the parties must provide resourceful information to the partnership, some trade secrets may be used by the partners to create competition. In some cases the partnerships involve competitors combining their resources together to come up with a better venture.
The competitors may obtain some confidential information about a company and use this information to create a competitive strategy. Many businesses fear entering into strategic alliances due to the risks of exposing their internal affairs to their competitors (Corporate Partnering n. d. ). Distractions to the normal operations of a company occur when they enter into a strategic alliance. The daily business activity is obstructed by the involvement of the management of the company in other activities other than the original mandate.
Companies face challenges of managing their own resources when the engage in other external activities. This may cause poor performance to the business (Corporate Partnering n. d. ). There are many disappointments involved in a strategic alliance. The parties may not be willing to cooperate with each other or they may have different aspirations and objectives of the alliance. This causes the partners deviate from their objectives since they are not committed towards the success of the alliance (Yoshino & Rangan 1995). The types of strategic alliances Licensing
This is a strategy where a compare issues licenses to other companies to carry out some duties, for example, the distribution of products of the company. The licensed companies establish a contract with the main company to perform specific duties for a given period of time. For example, the coca-cola company provides licenses to distributors to deal in their products. The multinational companies allow companies which have specialized in the distribution of products to access licenses to operate with the trade mark of the company (Yoshino & Rangan 1995). Supplier relations
Large companies establish partnerships with different suppliers to create a long term supply of materials required in the production of products. The company establishes a contract with the suppliers to ensure a continuous supply of materials. This ensures a continuous and undisrupted supply of the materials and other resources required in the production process (12Manage 2010). Outsourcing Outsourcing is the process of obtaining products (goods and services) from other companies instead of producing them internally. Companies outsource products to reduce the time and costs involved in the production process.
The company acquires materials and services which require more capital to produce internally. Outsourcing allows a company carries out short term projects by creating contracts with other companies to provide with some resources. This strategy reduces the time and costs of producing products required in the short run which the company has inadequate resources to produce (Bamford, Gomes-Casseres and Robinson n. d. ). Joint venture These are independent companies legally established to pool resources together while maintaining the independence of the mother companies.
The independent company acquires resources from the companies forming it. The aim of establishing a joint venture is to acquire a competitive advantage in the market (12Manage 2010). Collaboration Companies from the same industry pool resources to perform a particular venture. The parties to the collaboration provide synergies to the members to overcome a particular company which has an advantage over other companies in the market. Several small companies may team up to pool resources so that they can have a competitive advantage over their competitors (Bamford, Gomes-Casseres and Robinson n. . ).
R&D consortia When companies aim at establishing research which requires resources from different organizations they create alliances. The research may require the parties provide its skills, capital and other resources towards establishing researches which will benefit the member companies. Since research and development activities require many resources, combining resources from various organizations creates synergies in conducting research to create innovative products (12Manage 2010). Industry clusters
This is an alliance of different companies from different industries. Businesses, suppliers and other related organizations link to provide the resources they produce to a common pool to create innovative products. Some companies provide resources to other companies from other industries to create alliances for a better production process. Industry clusters are usually carried out by companies in a particular geographical coverage. However, some international companies may participate in industrial alliances (Kuglin and Hook 2002).
Innovation networks Companies carry out new technologies by creating alliances with companies with superior levels of technology. This provides an advantage of learning new production techniques which gives a competitive advantage (Kuglin and Hook 2002). Conclusion Strategic alliance is a strategy that has been adopted by companies to create innovative products which are competitive in the market. Companies which intend to pursue a joint venture with other companies while maintaining their independence use strategic alliances as an approach.
Strategic alliances provide the parties with opportunities to access more resources as well as gain more access t geographical markets. Companies get into strategic alliances to gain synergies which result from combination of resources. There are some risks associated with engaging in strategic alliances in that the companies increase the risk of creating more competition from the members of the alliances. Some managers fear exposing their trade secrets to their competitors when they engage in activities of other companies.