FACTORS PROMOTING THE RISE OF STRATEGIC ALLIANCES (OR)

REASONS
FOR FORMING STRATEGIC ALLIANCES
(i)

To gain access to foreign markets in the pharmaceutical industry,

Pharmacia and Pfizer have formed an alliance for smooth market entry to
accelerate the acceptance of a new drug.

(ii)

To reduce financial risks IBM, Toshiba and Siemens have entered into
an alliance to share the fixed costs of developing new microprocessors.

(iii)

To bring complementary skills Intel formed and alliance with HewlettPackard (HP) to use HPs capability to develop Pentium microprocessors.

(iv)

To reduce political risks Maytag, a U.S company entered into alliance

with Chinese appliance maker RSD to gain access to China.

(v)

To achieve competitive advantage GM and Toyota established joint

venture by name Nummi Corporation.

(vi)

To set technological standards Philips entered into an alliance with

Matsushita to manufacture and market the digital compact cassette.

(vii) To shape industry evolution Lucent Technologies and Motorola entered

into an alliance to develop a new generation of Digital signal processing
chips that is designed to power next- generation cellular phones and other
consumer electronics.
TYPES OF STRATEGIC ALLIANCES
a) Mutual Service Consortia: A Mutual Service Consortium is a partnership of
similar companies in similar industries who pool their resources to gain a benefit
that is too expensive to develop alone.

Eg: IBM offered Toshiba its expertise in chemical mechanical polishing to

develop a new manufacturing process.
b) Joint Venture: A joint venture is a cooperative business activity, formed by two
or more separate organizations for strategic purposes, that creates an independent
business identity and allocates ownership, operational responsibilities and financial
risks and rewards to each member, while preserving their separate identity or
autonomy.
Eg: IOC and oil tanking GmbH formed a joint venture to build and operate
terminating services for petroleum products.
c) Licensing Arrangement: A licensing agreement is an agreement in which the
licensing firm grants rights to another firm in another country or market to produce
and/ or sell a product.
Eg: P&G licensed the Old Spice trademark and business to a Goa- based
company, Menezes cosmetics (P) Ltd for a period of 10 years to manufacture, sell,
distribute and market in India, Sri Lanka and Bangladesh.
d) Value-Chain Partnership: The value- chain partnership is a strong and close
alliance in which one company or unit forms a long- term arrangement with a key
supplier or distributor for mutual advantage.
Eg: Value- Chain partnership between Cisco Systems and its suppliers.
All forms of strategic alliances are filled with uncertainty. One thorny issue in any
strategic alliance is how to cooperate without giving away the company or business
units core competence. There are many other issues that need to be dealt with
when the alliance is initially formed and others that emerge later.

Strategic alliance success factors

The success factors of strategic alliances are: Have a clear strategic purpose;
Find a fitting partner with compatible goals and complementary capabilities;
Identify likely partnering risks and deal with them when the alliance is
formed;
Allocate tasks and responsibilities to each partner;
Create incentives for cooperation to minimize differences in corporate
culture;
Minimize conflicts among partners by clarifying objectives and avoiding
direct competition in market place;
Comprehensive cross- cultural knowledge should be ensured in an
international alliance;
Exchange human resources to maintain communication and trust;
Operate with long- term time horizons;
Develop multiple joint products so that any failures are counterbalanced by
successes;
Share information to build trust and keep projects on target. Monitor
customer responses and service complaints;
Be flexible and willing to renegotiate the relationship of environmental
changes and new opportunities;
Agree upon an exit strategy when the alliance is judged a failure.