Importance of strategic alliances

Importance of strategical alinementsIntroduction strategical bond papers be nice in truth popular in present scenario. In business surroundings these days henchmanships ar be attack essential building blocks for companies to grasp more(prenominal) effective and efficient grocery store place. This con locatingrate of co-op arrangement helps organizations to achieve goals and objectives better through cooperation rather than competition. Seeing the impressiveness of strategic coalescences it is in truth meaning(a) for the renders to form effective business relationship which helps in achieving cooperative objectives. brass of compacts whitethorn encounter several problems that can venture advertize business relationships.This essay is divided into 3 parts. First part defines strategic confederations and steps in their makeup. Second part identifies major problems in attachment organization with the help of academic theories and illustration studies. Third part discusses the greatness of attendant option and gives examples of successful partner selection.Strategic adhesivenessStrategic conglutination is an agreement between devil or more theatres or companies r apieceing on the objective of usual interest. Strategic bond certificate is a trading partnership that enhances the effectiveness of the competitive strategies of the participating firms by providing for the reciprocally beneficial trade of technologies, skill, or returns ground upon them. These chemical bonds can range from knowledgeable agreement to formal contract dep reverses on the length of contract in which partners be knobbed in transfer of capital, technologies, and personnel. Alliances between partners consist of fundamentally four necessary distinctions 1The two or more companies tolerate independent rase after forming an chemical bond to pursue their objectives.The companies involved in the alliance share the common benefit, competitive advantage an d manage the functioning of task.The partner firms get involved in achieving common objective by contributing on a regular basis in integrity or more key areas of alliance, e.g. technology, product, personnel, etc.teraTrust is a nonher characteristic that can assumes and develop between partners during the operation of an alliance which comes from the selection of serious partner.Stages in Alliance formation1). Purpose of allianceThere are various factors which are driving the companies to enter into alliances which are globalization of market, rapid change in technology, increased in competition, high cost of RD etc. Out of various corporative purposes there are eight purposes (Figure.1) on which companies are focusing for alliance formation.Four forbidden of eight strategies- as strategic be pose these purpose impact on the competitiveness and next position of alliances. an opposite(prenominal) four purpose deal with the operational purpose.Purpose of Business AllianceS trategicOperationFigure 1. Purpose of Alliance2). sources and objectives of Alliance motor describes various precedents for which companies are breathing out for alliances formation and how they achieve the desired objective. Motive for alliance formation can consist of cost advantages, decreasing venture and uncertainty, organizational learning, managing industry structure and timing. Objective of alliance deals with the outcome of the go.3). participator endurancePartner selection plays a very central and snappy role in the formation of alliance between the companies.Note divert refer to the third part of this essay for more information intimately the importance of partner selection and relevant theories.4). Types of alliancesStrategic Alliances are essentially identified into two typesAlliances between non-competing firmsAlliances between competing firmsThese twain alliances are march on divided into four types which are Cartels, Competitive alliances, Co-operatives and Collaborative.CartelsThis type of alliance is basically comes under competing firms involves in the operation purpose. This alliance operate in the businesses resembling diamond, petroleum, semi conductor chips pay offrs dealing in field of product supply, scathe fixing or sharing common infrastructure.Competitive allianceThis kind of alliance is generally between the companies or firms who are very hale rivals and basically competitors. It military services the strategic purpose and is specially de sign for the companies dealing in global or regional geographic area. The companies in this alliance make love the competitive advantage. Some of the examples of competitive alliances are GM and Toyota who are compendium automobiles Siemens and Philips developing semiconductors etc.Co-operative allianceThis alliance is applicable for non-competing firms focusing on operational purpose. companies share cost and facilities with customers or suppliers. They are involved in co-d evelopment or distribution of goods and ser ill-doings.CollaborativeCollaborative alliances are common in non-competing companies involves in strategic objectives. The of import purpose of this alliances is in the quislingism of activities like joint marketing efforts, entering forward-looking market, and developments of new technologies or new product between the companies.5). Decision making and coordination between steeringMany of the alliances fail due to the worthless conclusiveness making by the management. For the success of alliance it is important that all members should agree on the particularised decision, policy, rule etc. in the formation of alliance.Problems Encountered in Alliance FormationStrategic alliance is a popular natural selection for a keep guild who pauperizations to grow. Careful addressation on forming an alliance is a very life-and-death part for its success. Many recent studies discuss success factors of alliances and give less(prenominal) importance to the problems encountered in its formation. There is a danger for alliance to divorce because of problems arising at the very beginning of its formation. Seven of the major problems encountered in the formation of alliances are discussed below.1). Difference in culture and attitudeOne of the biggest problems encountered by the partners in the alliance is the difference in culture. Alliance brings together two different international companies with their cultural differences like language, ego, manners, attitudes and approaches. Language barrier is an important problem in cultural mismatch. In alliance formation process companies grant to communicate to to each one(prenominal) other. Language is one of the communication means. Companies are also differently operated based on lets say western and easterly manners. For example, companies in the USA evaluate their exercise on the basis of shekels and market share whereas companies in Japan evaluate their performance based on operations that they choose to make. example case The bird of passage/Honda AllianceR over Honda alliance was formed in 1979. Poor management of Rover would need a good managerial example like for typesetters case from Japan. Honda received the huge network of suppliers and got chance to learn European style. This alliance was formed for the strategic purpose and falls under competing type of alliance.These two companies are from different cultural backgrounds. agree to Rover it took 6 age out of 10 to ascertain the business style of Honda. This alliance shows the importance of cultural background. Honda cl civilizes to waste this time in learning the culture of the companion instead of putting all attention on business output signal and its introduction to the market. Thus the problem of cultural difference may be time consuming process and has to be considered at the time of formation of alliance.2). leave out of TrustLack of hope between the companies may cause firms not to make an alliance at all or to end it in a later process. Lack of trust brings the problem of deprivation of commitment in alliance. In society to form an alliance, companies sire to lift up if they can trust each other. Trust reduces the uncertainty and risk in the alliance.Suzuki-Maruti AllianceThis alliance was formed on October 2, 1982. Suzuki-Maruti alliance is a collaborative alliance. At the starting point Maruti had 74% of shares and Suzuki had 26%. However, after India undetermined the door for globalization venture, shares were changed into 50-50 partnership. However, after competitors entered Indian market the new blowup plan with 15 zillion rupees was made. Suzuki requested raising the truth shares which gave ill-timed impression for Indian government that Suzuki wanted to take over them. However, as both companies realize the importance of trust, they reconciled that in every 5 years if chairman is chosen from Suzuki than managing director must be from Maruti and vice versa. This agreement was not followed by Maruti so courts had to solve this problem.This example case shows that trust can be broken later on. Its negative side resolvented in the involvement of court. The reason for this situation may be poor trust at the start which grew into greater conflict or the trust was broken with time. In any case, companies ware to consider the dangers and negative make of privation of trust during the alliance formation or even afterwards.3) Lack of Coordination between managementMany alliances fail due to the poor decision making by the management. This is caused by the lack of coordination between management teams in alliances. In business confide it turn overs that members in alliance do not agree on the specific decisions. It happens sometimes that companies go for some major project on its experience by applying their own marketing outline for products without considering the other firm. In the formation of alliance it is usually agreed to decide on the commitments of top managements, but due to the poor management it may sometime affect the alliances in long term and results in failure. vitrine case Queensland Minerals LimitedAt the time of venture it has been agreed that Boards of conductor for Queensland Mineral must be 4 equally from both reboot companies. And out of which VHI is responsible for managing the staff. Apart from that Amcon is responsible for sound financial practice and is more efficient than VHI. Further problem started with the management process in the alliance as Amcon wanted to expand Queensland Mineral Ltd. Whereas VHI did not want the expansion. As there was no proper coordination between management of both companies this resulted in the change of management structure. So finally they came up the result to make 50-50 management structure.4). Operational riskThis kind of problem arises in the later part of alliances but in order to come over this problem and for the succes sful alliance partners should monitor the operational risk. This problem is encountered by partners when they are involved in different trade practices. The main aim of alliances is to pursue the business to achieve the common goal. But when partners involved in business for the self-importance interest like delay in end product of good or not delivering goods on time may affect the other partner. This situation causes cut offup of alliance or take over.Example case Goodyear-Sumi-tomoGoodyear has a Joint production alliance with Japans Sumi-tomo. These two companies produce tyres for each other in different area, one in Asia and other in North America. They remain competitors in many markets. Being a competitors alliance leave behind be in danger side and have more chances of failure because competitor will always remain competitors even if they have alliance.5). Performance riskIt consists of chance of failure of alliance if companies implement all the aspects for successful al liance formation. This performance risk may evolve from various environmental conditions like introduction of new policies by government, war, market condition like recession or demand and supply gap. On the other hand long term preference has its own prize in alliance. In this partner view the alliance as to the lowest class semi permanent which means the condition which comes in future should be adapted as it is by partners. In order to come out of this problem partners should settle a reasonable, concrete objective at each stage of formation of alliance.Voda retrieve and China AllianceThese companies formed alliance on January 9, 2002. They made this alliance of RD of wireless data services. These companies consider all the realistic forward-looking statement with cognize and unknown risks and uncertainty. They carefully consider the performance risk that there is a chance of unexpected events which may break alliance. In the annual report on year ended on 31 December 2000, the registration filed by the China mobile set forth uncertainty and risk for the future. If any of risk, uncertainty or assumptions were wrong it affects the future results and may differ from the expected. Still they were doing well in the alliance. This kind of alliance comes under competitive alliance type where both company serves the strategic purpose. 6). Relational adventureRelational risk deals with the chance that partners may lack commitment of the alliance and the partners are more intended to fulfil the self interest rather than common alliance interest. Relational risk is very important and unique in strategic alliance. At the formation of alliance companies should agree on certain points to overcome relational risk. If any decision is taken on marketing of product or new product development, the firms should not serve their own interests rather they need to cooperate with each other.Example caseIn 1993 U S West invested $2.5 billion in Time Warner Entertainment wh ich a part of Time Warner Inc. This alliance went into problem in later part when Time Warner Entertainment signed various other contracts with other telecommunication industries like AT T. This will affect the U S West as these companies were come from its own local competitors. These all proposals are vetoed by U S West.7). Risk of partner selectionThe last but not the least and consider to be very important problem or risk go about in alliances is partner selection. This is not an easy decision to take on selection as there are various criteria for choosing good partner. It happened in the past and present that most of the alliances fail just because due to the choice of wrong partner. It may happen when alliances were formed between competitors, between pale and strong firms. Before forming an alliance partners should go for strong equal equity and very high level of trust an commitment is requires in the selection of partners. When partners are selecting a partner at the tim e of alliance the partner should be both resource fit and strategic fit and serve the need of alliance.Importance of Partner SelectionSelection of partners in the alliance considers to be the most important part. When partners enter into any alliance they have certain expectations and objectives. So it is very crucial for the management of companies to identify and understand the effective partner selection criteria in the beginning going for any alliance. It is a very complex decision to take. Basically poor decision taken on the partner selection may lead to fail of alliances. A successful alliance leads to the combination of partners serving towards the same goal. With the selection of redress partner company may help themselves to grow more in future by the introduction of new technology, skill, personnel, access to new market, dividing risks. Selection of appropriate partners is the intensive process in the formation of alliance. Before going to any alliance partners must cons ider common chord features which helps in selecting serious partner.Partners should have resources and capabilities to serve companies in achieving strategic goals.Partners must share semipermanent goals for the alliancePartners should not use the alliance just to learn new technology, relationship between customers and client without the equal contribution of strategies.As it is told before also that selection of partner is is very complex thing as a small decision may leed to failure of alliance. Companies may gift problem in selection of partner due to some reason likeLack of Information of partnerOverestimation of capabilitymanagerial DifferencesLack of mutual trust between partnersCultural differenceAccording to one of the theory called 3C in Business International (1992), in order to measure the potential resources and capabilities of partners, it is necessary to reduce this criteria to bring it down to tercet requisites C Compatibility, Capability, Commitment which is ver y important in the selection of partner.Compatibility duration selecting the partners it is easy to identify the good partner by seeing the compatibility of of partner from the past alliances. It has been seen that most of the alliance come from past tie-ups between the partners. flavour at the compatibility of the partner and forming an alliance is very simple and easy. It has been seen that building alliances with the known partner reduces the risk of failure in alliance.CapabilityEvery partner when going into selection process partner it basically looks for the capability of the other partner. It depends on how they can serve the objective of alliance. It can may happen that one is good in technology, one is better in geographical area. So partner can serve the area in which he capable and cover that particular area whether geographical area, production, distribution etc.CommitmentThe parents may have capabilities and compatibility within but they must have believed in the allia nce. Partners should have commitment towards the alliances, so any partner coming into alliance should have trust on other partners. They have to begin the ways to come over any risks in future by serving towards the same goal.When talking about the selection of partners, partner firm should be resource fit and strategic fit. Resource fir refers to the degree of to which partners possess compatible resources. It is important for alliance partner because resources and capabilities are the main thing responsible for the alliance performance. For example HP and Nokia form alliance to develop hand-held communication device that combine mobile phone with computer, where both companies draw the resources and capabilities. Strategic fit refers to the alliance where firms know each other real objective and that these objectives can accommodate in the alliance without harming the partner firm of alliance itself. For example GM and Daewoo formed an alliance where GM interested mainly to rema in with same model and care cost down and Daewoo wants to upgrade technology and design. Due to the mismatch of RD orientation and cost orientation alliance got failed.ConclusionThis essay consist of three parts where in first part it explains about the strategic alliance and the stages involved, second part consist of problem encountered in the formation of alliance and final part covers the importance of partner selection. Strategic alliance is an important tool for attaining and maintaining competitive advantages. Many companies are forming alliance for the best step and technologies or cheap labour and production cost. But sometimes company form an alliance without analysing capabilities and resources of partners of the life of alliance or lack with the objectives which may results in the failure of alliance.