Strategic Alliance Essay Example for Free

Strategic Alliance Essay The collaborations between companies have been one of the most critical changes in industrial field during the last three decades. Through outsourcing and taking off ‘non-core’ activities, corporate borders have been pulled back and large companies are increasingly cooperated with other companies to access resources and devote themselves to activities outside their own boundaries. Business cooperative relationship between companies is regarded as ‘hybrid’ organizational forms (Borys and Jemison, 1989; Powell. 987; Thorelli. 1986). In order to access more international market and reduce risks, the hybrid organizational forms are mainly realized by contractual agreement, strategic alliance and joint venture. Compared to some casual cooperative arrangements between companies, strategic alliance is refer to a long-term, substantial collaboration, which is ‘an agreement characterized by the commitment of two or more firms to achieve a shared goal entailing the pooling of their resources and activities’ (Teece. 1992, p. 19). It can be put on a continuum, where contractual agreement is on one end, characterizing low control and resource commitment, whilst the other end is joint venture, representing a high control and high resource commitment (Hill et al. 1990). Variety types of strategic alliances include shared new product development, supply chain partnerships, technical collaboration, outsourcing agreements, joint research projects, etc. In these days, strategic alliances are more and more important for firms to achieve efficiency and effectiveness in the international market. Through cooperation rather than competition, firms can access knowledge and market resources over both firms, instead or acquiring them. It is not just costs and time saving, but also increasing the efficiency with which knowledge is utilized. Firms are entering into strategic alliances because of numerous factors. The rapid change in technology with high expenditures on RD, intensifying competitions, globalization and so on. Different companies have their own competitive advantages, which can be beneficial to other parties. Resources, especially technology and market information, can be shared by parties under strategic alliance. For example, Starbucks entered an alliance with Barnes and Nobles Bookstores in 1990s, to provide their in-house coffee service in their stores. Barnes and Nobles’ market resources has been utilized, resulting in Starbucks coffee being marketed into bookstores. As well as that, more customers were gained by Barnes and Nobles, thanks to the outstanding Starbucks coffee offered in store. Although theoretically, forming strategic alliances can bring immense benefits to companies and reduce the risks in projects, it is not rare to see problems in practice. Differences in cultural and language, control related problems, even the differences in cognizance can lead to failures. In this article, we will focus on not only on the increasing importance of strategic alliance in international market, but also the motives, benefits, related costs and limitations. Our group work is done in three parts. Part (A) Introduction and Literature Review is done by Jiaxing and Lily. Jiaxing gives the definition of strategic alliance, while Lily is responsible for literature research and critical review. Followed by the literature review, a case study will be given in part (B) by Xinrui, to demonstrate how the literature is confirm or disconfirmed by practice. In part (C), a brief conclusion of this topic will be given by Mehedi and come up with the forecast of trend and new topics in this area, based on Part (A), Part (B) and the further information collected by Kazi. Literature Review There are abundant studies trying to address the definition of strategic alliance. Based on resource-dependence theory (Pfeffer. 978) and the resource-based view of the firm (Penrose, 1957), some scholars (Van De Van and Walker, 1984; Rothaermel, 2001) have identified strategic alliances as a quest for resources. Also, a majority of researchers view the alliances’ priority objectivity as sharing of knowledge (Inkpen and Crosssan, 1995; Khanna et al. ,1998; Kale et al. , 2000), which is the organization learning perspective. As a result, alliance member seek to learn faster than other parties, trying to achieve a positive balance in the trade of knowledge, which is so called ‘Competition for Learning’ (Hamel, 1991). The number of strategic alliance has been increasing rapidly since late 1980s (Vissi, 1997). The following is an integration of our findings in literature. Motives of Alliance Formation In the article of Varadarajan and Cunningham (1995), motives for firms entering a strategic alliance is analysed: Globalization and intensified international competition: With the development of telecommunication and traffic, there is a major trend of globalization in the last few decades. More and more corporations are trying to break into foreign markets to widen their market. Strategic alliance is an efficient and effective way in gaining complementary resources from a foreign party and reduces risks. Remove barriers to enter new markets: In certain international markets, especially the developing ones, firms often have difficulties due to some domestic factors, such as government regulation and local parties’ resistance. By forming an alliance with local firms, the expansion can be realized more smoothly and the risk is reduced. Broaden product lines/ narrowing product line gap: Firms can be especially interested in finding another partner, when they are in lack of technology or not able to bear the high RD costs. Existing technology of partner can be utilized in a short timeframe and also costs-saving. In this way, their product lines can be broaden and the gap between product line can be narrowed. Enhance the effectiveness and efficiency of utilizing resources: each partner in strategic alliance should have their own competitive advantages, such as technology, market resources, local experiences, logistic systems, etc. y forming the alliances, these advantages can be shared by parties and making all of them more competitive than before. Extension and acquire new resources: Resource acquisition is an essential motive in formulation of strategic alliance. Manufacturing firms often enter into alliance to acquire RD resources; whilst technology companies is seeking to gain the market resources as much as possible. There are two forms of strategic alliances: market related and technology related (Vyas et al. 1995). In a mature market, it is often the case in which the market related alliances are more profitable. However technology, related alliance tend to be more beneficial for high-tech firms compared to others (Rai et al. 1996). Researches of Vyas et al (1995) show that synergy between the partners is the key factors to achieve efficiency and effectiveness. In order to know the synergy, a comprehensive understanding of the value that partners can bring to the alliance has to be acquired before entry. Also, a balance of control and contribution to the alliance need to be agreed to ensure the success and avoid conflict as much as possible. Limitations of Strategic Alliances When the needs of each partner are fulfilled, each party can benefit from the formation of strategic alliances. However, alliances are not without its problems. Due to numerous reasons, such as differences in cognizance, aims and resources, changes can be triggered. In some cases, projects with imbalanced benefits or control between parties can end up damaging the relationship of trust. In some cases strategic alliances broke up as a result. Usually the factors driving to a failure can be imbalanced control, unequal gains, differences in cultural values and antitrust charges. According to Day (1995), the liquidation cost of a strategic alliance can be one of the most expensive costs to a corporation. Even if the partnership remains, there are many factors thwarting the normal operations of the combined entity. One of the most important factors is the extensive time managers have to spend on communication, trust-building, and coordination. As it takes time for parties in a partnership to consolidate their internal network, both in terms of communication and interests groups, there always comes with the strategic alliances very time-consuming consolidation process. A manager has to first know the personnel he is supervising as well as his own supervisors, who are possibly from a totally different business culture. It takes time for managers to know whom they can trust and who trust them. Only based on trust can further coordination be performed. Another factor that affects the long-term value of the firms participating in the partnership is the clash of egos and company cultures. Say if Google once form a strategic alliance with Goldman Sachs, the investment bankers cannot easily forgo their perfectionism to Google’s relaxing and creative culture fostered for their wired-in programmers. While there is a possibility for two different business culture to combine and generate an even more unique and efficient business culture, in most cases the history and the effort invested to build the current corporate culture may be wasted; traditions are inferior in strategic alliances. Part B: There are many successful market related and technology related alliances taking place in contemporary market. From the successful examples contributed by Apple, Helett Packard and Disney, and Eli Lilly, we can see the sharing of sources in alliances facilitate breakthroughs in technology and revenue maximization in marketing. While most strategic alliances play a propelling role in pushing the business of parties in the partnership further, there are some offsets implicitly caused by the alliance strategy. The notorious WorldComs, Global Crossings, and Enron scandals offer us convenient examples in showing the unconfirmed part of strategic alliances. This part will first discuss the cases provided by Apple, Helett Packard and Disney, and Eli Lilly that show the confirmed side of the theories enclosed in the literature in this essay. Following the confirmed side is the unconfirmed side contributed by the scandals originated from WorldComs, Global Corssings, and Enron. White the iPad redefined personal computers and created and captured the tablet market, it the strategic alliance behind the scene that makes the popularity of iPad possible. Apple’s technology alliance with Clearwell makes the development of iPad much more efficient when these two firms jointly developed the eDiscovery Platform. The eDiscovery Platform is the electronic discovery software solution that enables enterprises, governments and law firms to manage legal, regulatory and investigative matters using a single application. Such platform makes it easy for orgaizations to cost effectively and defensibly solve real-world chanlleges from legal hold and collections through analysis, review and production. Such technological largely helped Apple to capture the market in large legal entities. Hewlett Packard and Disney exemplified their alliance as a long-standing partnership. Starting back in 1938, the alliance enabled Disney to rely on HP’s RD capability, which helped Disney out from the eight oscillators for sound design sold to Disney over 70 years ago to the most recent digital film making techniques offered by HP engineers to Disney’s Imagineers. Undoubtedly, the technology support to Disney makes it a dominant mass media firm. Furthermore, the business generated fruitful RD products and cash inflow for HP to march farther. As a pharmaceutical tycoon, Eli Lilly features as a powerful research partner for nearly a century. Its enormous contribution to Diabetes medicine saved multimillions people. Similar to most pharmaceutical companies, the multi-phases RD process outsources the firm’s research capability, legal resources, and capital. Eli Lilly was able to save the costs by seeking international partners, such as the Belgium-based company Galapagos, Canada’s BioMS medical group, and the Japanese Kyowa Hakko Kogyo. Its alliance with Galapagos fasten the development of treatments for osteoporosis; its cooperation with the Japanese firm determines that Lilly will have the exclusive license to sell the targeted cancer treatment in Japan; and the partnership with BioMS in a licensing and development agreement for a novel treatment for multiple sclerosis saved overall costs. These real world examples confirmed that strategic alliances provide an efficient way to research and develop new products, to save legal cost, and to capture the international market at faster speed. While the classical strategic alliances examples confirmed with the literature, there are notable failures caused by the shortcoming of strategic alliances. As the most notorious business scandals in this century, Enron and its alliance with Arthur Andersen bring a vivid example of how alliance help them avoid legitimately report their financial standings and gain illegal benefit from forfeiting financial statements. When the scandal was exposed to the media, both firms bankrupted in an instant, making the largest bankruptcy in the US history. Other the Enron scandal was the WorldCom forfeit their income statement when trying to incorporate Verizon and evolve to the largest telecommunications provider. When the US government launched an anti-trust suit, WorldCom collapsed immediately. The shared resources play a beneficial role in lower the fixed cost for parties in the strategic alliances. However, joint effort and resources also mean joint benefit, which can propel the corporations as well as ruin it. When there is a conflict of interests, the advantages brought by strategic alliances are harmful.