Today’s Strategic Alliances

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If you want to survive on the international scene, you had better develop a well connected supply chain.  Yet, businesses need to properly align with organizations that have the same ethical system and create value in the relationship.  This reality speaks to the nature of strategic alliances. 

With the sudden emergence of countries like China, Brazil, and India, there is a new emerging demand from consumers across the globe.  These newer countries are strategically positioning themselves to change Western civilization and America’s Super Power status.  

Antoine van Agtmael, author of The Emerging Markets Century, argues that these emerging countries are not a fad but a wave of things to come in the near future:   “Instead of being peripheral, as they have been since the first Industrial Revolution, key economies of the former Third World will soon re-emerge as the dominant economies of the future.”  

In fact, he notes that these emerging countries’ economies are growing at a rate nearly twice as fast as developed countries such as the United States and its Western allies. 

Gareth Jones and Jennifer George, authors of Contemporary Management, explain about the positives and negatives of entering global markets:  “As we have discussed, a more competitive global environment has proved to be both an opportunity and a threat for organizations and managers.” 

Businesses must build relationships that minimize their risks in global markets.   According to some estimates, these emerging markets will be nearly twice as large as the current developed economies.  Antoine van Agtmael suggests a different business shift:  “A new breed of companies will play a critical role in producing this shift; a select number of which truly deserve to be regarded as world class.” 

https://www.youtube.com/watch?v=HgfwzPRyVvw 

Strategic alliance is defined ‘as an agreement in which managers pool or share their organization’s resources and know-how with a foreign company, and how organizations share the rewards and risks of starting a new venue.’  However, these relationships must make sense over the long-term in order to sustain any meaningful value. High performing organizations cannot afford to misfire with the wrong strategic alliances.  Consequently, good organizations need to be deliberate in forging the right relationships in a global market.

 Discuss the concepts of strategic alliances in a global market.

 © 2013 by Daryl D. Green

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13 thoughts on “Today’s Strategic Alliances

  1. Strategic alliances are very important today in a world of globalization and will only become more important as times continue to change. This type of agreement is something that is very important to businesses and must be put into place if businesses want to expand and compete internationally. The concept of strategic alliances is not a new concept but in the world of business it can be described a little differently. The idea of strategic alliances in business is developing relationships with other countries for the purpose of sharing resources which in return will hopefully bring both countries wealth. According to Tas and Teng (2000) “Strategic alliances are voluntary cooperative inter-firm agreements aimed at achieving competitive advantage for the partners.” As the world around us changes we must adapt to these changes and continued developing relationships in order to remain competitive.

    Reference:
    Das, T., & Teng, B. (2000). A Resource-Based Theory. Retrieved on February 13, 2013.

    http://aux.zicklin.baruch.cuny.edu/tkdas/publications/das-teng_jom00_resourcebasedtheory_31-61.pdf

    • Ashley, you stated, “As the world around us changes we must adapt to these changes and continued developing relationships in order to remain competitive”

      My response: This is most definitely true. The world is constantly changing and business must also adapt to these many changes in order to survive. One great way to thrive in an every changing market would be through strategic alliances. I recently researched Toyota and Ford Motor company, which have recently formed a strategic alliance that would allow them to have a competitive advantage over their competition. Company Spotlight (2012) stated, “In August 2011, Toyota and Ford Motor Company signed a memorandum of understanding to collaborate on the development of an advanced new rear wheel drive hybrid system for light truck and SUV customers”. This is just one of the many examples of companies that are working together in order to have a competitive advantage over others.

      Company Spotlight: Toyota Motor Corporation. (2012). MarketWatch: Automotive, 12(12), 9-19.

  2. Dr. Green you draw up a great point about the value of a well connected supply chain if you want to survive on the international scene and how strategic alliances can be of benefit in achieving this. I think you are correct in leading your audience down the path of understanding how emerging countries like China, Brazil and India are here to stay. The International Futures model (IFs) created by Dr. Barry Hughes at the U. of Denver is a great resource for understanding this [IFs model: http://www.ifs.du.edu/ifs/index.aspx%5D. Anyone interested in learning more about it can certainly contact me as I have been using it for about 5 years now a[IFs project: http://www.ifs.du.edu/%5D. At a country level this same point is also true. In order for the U.S. to remain as a power we will need to leverage strategic alliances with these emerging nations. So the lesson for U.S. organizations is also the lesson for the U.S. government as well.

    The point you make about how to navigate these alliances is critical as they should not be taken lightly and they certainly will need a good plan, well thought-out structure and an implementation that works out well for everyone involved in the alliance. One organization that I am a member of is the Assoc. of Strategic Alliance Professionals [http://www.strategic-alliances.org/] and we spend much time discussing these very issues. The whole idea of these alliances is not necessarily to pull two complimentary companies together but to create value. A value that neither one of you can do on your own and a value that is necessary for the receiver of that value. An alliance should also create a competitive advantage that cannot be created outside of the alliance. Kent Larson makes several points in his video which you have in your post that help us understand this. The point or crux of the strategic alliance is to achieve critical business objectives by filling gaps, leveraging competencies..etc. through the collaboration and sharing that happens within the alliance. This is what creates a competitive advantage and this advantage can be assessed by using a simple criteria like the VRIO framework (Value, Rarity, Imitability, Organization).

    Kent Larson also brings up some very important points around the complexity of alliances which necessitate a clear view of the objectives, compatibility of the objectives, compatibility of the org. culture involved, and a clear exit plan strategy. I would also add that some sort of shared values, even though possibly inferred in the culture, should also be explored. I think you bring up an important point with the quote from Antoine van Agtmael that a new mindset might be in order to achieve this shift. Thank you for your timely and well-thought out article.

    • Dr. Pfohl,

      Thanks again for your enlightening thought on strategic alliances.

      It’s special when you have a fellow scholar sharing his perspective on the topic.

      Our virtual community is enriched!

      Professor D. Green

  3. In today’s global market and advancement in e-commerce, companies are facing more and more competition. In order from companies to be able to compete against the increase of companies, they have to find ways to create a competitive advantage over their competition. One way many companies are gain an advantage on their competition is by forming a strategic alliance. Wen and Hong (2010) explain, “in the face of such pressure, integrating enterprise resources by strategic alliances will maintain the flexibility of the enterprise and improve its competitive advantage” (p.707). Strategic alliances allow for companies the ability to share risk, reduce production cost, and improve technology (Wen & Hong 2012, p. 707). Due to the benefits of strategic alliances, many companies are looking to partner up with companies in the emerging market. In conclusion, the global market is becoming more competitive and companies are trying to find ways to gain a competitive advantage over their competition. One way for companies to do so is by forming a global strategic alliance.
    Reference
    Hung-Wen, L., & Jhy-Hong, D. (2010). The effects of e-business on the performance of strategic alliances. Total Quality Management & Business Excellence, 21(7), 707-724. doi:10.1080/14783363.2010.483085

  4. The concept of strategic alliances in a global market
    Some of the reasons why companies embark on strategic alliances are to increase revenue, develop new markets and to increase its value within the industry. There are some benefits as well as some disadvantages to these alliances in the global market. It provides reduced cost and expertise for the participating organizations (ASEA,2011) . It can provide local contacts and resources that may be critical to the success of the program. However, it can be ineffective if one partner doesn’t perform at the expected level and usually limits the objectives of the alliance (ASEA, 2011). Therefore careful consideration and research should be taken to ensure that the strategic alliance will be beneficial for both parties involved before an agreement is finalized.

    Reference
    ASEA (2011) American Society of Association Executives. Benefits of Strategic alliances and Partnerships. Washington, DC. Retrieved from http://www.asaecenter.org/aboutus/content.cfm?itemnumber=137633

  5. For a company, going global can have many advantages. Many times globalization is thought of as a way for large companies to gain more profits, however small businesses are also benefiting from going global. Mielach (2011) states, “…24 percent of small businesses are currently engaged in global commerce, and many of those businesses are experiencing a large return from global trade”. This shows that nearly ¼ of the many small businesses in existence are already going global. This is just another way that small businesses, which are so important to the business world, can be competitive with others.

    Mielach, D. (2011). Going global may be the key to future success for small businesses. Retrieved from: http://www.businessnewsdaily.com/1845-smb-exporting-survey.html

  6. We live in a world where globalization has been operating in high gear. “More and more companies tend to expand the global market through strategic alliance, which according to Liu is “the structure of collaboration to accomplish the strategic goals of members between different organizations” (2009). The goal of strategic alliances for companies is to minimize risk, while maximizing leverage and profit. The type of alliance can be a short-term or long-term contractual cooperation, and the members of alliances agree to cooperate on specific business issues.
    Many reasons force companies to form an alliance, including low technology, insufficient resources, low pace of innovation, high manufacturing costs and market access. Strategic alliances offer companies a competitive advantage over competitors.
    There are advantages for companies who participate in strategic alliances. A critical reason for developing strategic alliances is the sharing of knowledge between alliance partners. First, they have easier access to the global market. Second, companies can share the risk and cost of a product by engaging in a strategic alliance. Third, it is a means of accumulating technologies and assets. Finally, companies can assure the sufficiency of their resources, including new technologies, to maintain their competitive advantage (Liu, 2009).
    Reference:
    Liu, W. (2009). Advantage competition of inter-partner learning in international strategic alliance. The Journal of Global Business Issues, 3(2) 123-126.

  7. Strategic alliances are an important part of small and large businesses in today’s competitive business environment. With an economy living in the shadows of a recent recession, and company executives fearful of future growth and employment opportunities, strategic alliances have become a necessity for future success. A recent publication in the Journal of Global Business & Technology stated, “Strategic alliances allow companies to develop products and rapidly expand their markets while managing risk and costs through sharing resources. In recent years, there has been a dramatic increase in strategic alliances by firms. According to recent studies, a majority of executives believe that alliances will be a prime vehicle for future growth, dramatically improving an organization’s operations and competitiveness” (Elmuti, 2012). The current economy is forcing companies toward the old adage of do more with less. Unfortunately the ability for future growth is limited by this dilemma and ultimately increases the importance of successful strategic alliances.

    Reference:
    Elmuti, D., Abou-Zaid, A. S., & Jia, H. (2012). ROLE OF STRATEGIC FIT AND RESOURCE COMPLEMENTARITY IN STRATEGIC ALLIANCE EFFECTIVENESS. Journal Of Global Business & Technology, 8(2), 16-28.

  8. Strategic alliances are becoming even more important for companies due to the ever increasing and changing globalization of the world. Strategic alliances are a key component to companies wanting to expand internationally. “The strategic alliance based on combination of different countries, enterprises, and institutes has been becoming a new way for technology transfer” (Chunhua & Mengchun, 2011, p. 1). When aligning internationally each partner brings a specific talent that the other may not have. Partners may provide an advantage in areas such as products, distribution channels, capital equipment, knowledge, technology, or intellectual property.
    Chunhua, F., Mengchun, D., & Baojun, S. (2011). A Comparison Research on Industry-University-Research Strategic Alliances in Countries. Asian Social Science, 7(1), 102-105.

    • Jessica,

      I think its great you are bringing globalization into the discussion because technology has brought the world closer and closer together, therefore businesses are able to work together much easier. This has paved the way for strategic alliances of companies here in the U.S. and companies in China and Japan to name a couple.

  9. There are four potential benefits that international business may realize from strategic alliances (Bernadette Soares, 2007)
    Ease of market entry, Shared risks, Shared knowledge and expertise, Synergy and competitive advantage.
    I believe that in order for a company to thrive in this day and age it needs to align itself with comparable businesses thus enabling a wider market share and less competition.

  10. Alliances and partnerships are by design intended to be mutually beneficial. Such is not always the case, one or more partners in an alliance may take it as an opportunity to take advantage of others. If this can be avoided strategic alliances are a very effective tool in business. Cross-border or international partnerships can be particularly effective. As stated in Culpan (2002) cross-border alliances allow entrance into new markets with much more limited risk and significant influence. Once the intitial difficulty of negotiation is overcome these partnerships are one of the most effective tools for entering new and emerging markets.

    Culpan, Refik. Global Business Alliances. Greenwood Publishing Group, 2002.

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