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Strategic Alliances

Strategic Alliances

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Published by: api-3720563 on Oct 14, 2008
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03/18/2014

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STRATEGIC ALLIANCES
\u201cAn association to further the common interests of the members\u201d
Inter corporate agreements covering a wide gamut of functions ranging from
component sourcing through R&D to Production & Marketing.

Strategic alliances lead organization to get an opportunity to widen their customer base, offload or utilise their surplus capacity, integrate vertically, use each others strengths and so on.

For example :
A large company can break down the marketing barriers that face a small
company which in turn brings entrepreneurial creativity to partnership.
CHARACTERISTICS
1. Two or more firms that unite to pursue a set of agreed upon goals, remain
independent subsequent to the formation of an alliance.
2. The partner firms share that benefits of the alliance and control over the
performance of assigned tasks.
3. The partner firms contribute on a continuing basis in one or more key
strategic areas, sector products, etc.
NEED

1. Satisfy customer demands.
2. Share R&D costs.
3. Fill knowledge gaps.
4. Make scale economies.

5. Make scope economies : Alliances can enlarge dramatically the scope of a
company\u2019s operations. Alliances focusing on scope help counter the ever-

shorter product cycle of modern technology.
6. Jump market barriers.
7. Speed in product introduction.
8. Pre-empt competitive threats

9. Use excess capacity.
10. Reduction in costs.
Advantages of Alliances

Alliances are the quickest way to grow a company, particularly in times of damage. Without implementing difficult and time-consuming internal changes, they allow a company to :

\ue000Rapidly move to decisively seize opportunities before they disappear.
\ue000Respond more quickly to change.
\ue000Adapt with greater flexibility.
\ue000Increase a company\u2019s market share.
\ue000Gain access to a new market or beat others to that market.
\ue000Quickly shore up internal weaknesses.
\ue000Gain a new skill or area of competence.

Alliances can rapidly meet a company\u2019s need for key resources such as more customers, additional capital, new/better products, new distribution channels, additional facilities, increased production capacity, or competent personnel etc.

Types of Strategic Alliance
Such alliance may be in the form of :

\ue000Management contract.
\ue000Franchising
\ue000Supply or purchase agreement.
\ue000Joint Venture.
\ue000Agreement to provide technical services.
\ue000Licensing of know-how, technology, design or patent.

These arrangements differ in scope mainly by virtue of the following :

\ue000Capital commitment.
\ue000Structure of organization.
\ue000Decision making.
\ue000Proportion between risks and reward.

Advantages

A business strategic alliance is also means to an end, not just and end in itself. Strategic alliance often take place between firms of different industries and of varied sizes, for vertical or horizontal links, consolidation of positions or any of the following :

1) Gain a means of Distribution in International market \u2013 It may beneficial for an exporter to ally with local partner, to understand the functioning and the local market network.

2) Overcome legal or Regulatory barriers \u2013 In some countries it is mandatory to have local partner in order to conduct business. Thus, alliances offer suitable options.

3) Diversification \u2013 It may be advantageous to enter into an alliance, as a
business guide to minimize pitfalls in a new business territory.
4) Avoiding competition \u2013 An alliance may be entered into with a market leader
or a major competitor to avoid competition.

5) Focus on New Products and Restructuring \u2013 An alliance in the form of a research and development alliance may focus at the development of new products. Apart from this, an alliance may also enable the firm to adapt to a more effective organisational structure.

Integrating Alliances into Corporate Strategy

Alliance strategy must be integrated into the overall corporate strategy and articulated in the strategic plan with a process for implementation. The entire process of developing and managing an alliance could be as follows :

a) Development of the strategic domestic or global plan
b) Development of the alliance plan
c) Alliance partner \u2013 search and selection
d) Development of the implementation plan

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