Forming Strategic Alliances Business Essay

Forming St valuegic confederacys Business EssayDuring the globalization, managers atomic number 18 confronted with a rapid changing warring landscape. In order to worst this difficulty, firms try to make onlyiances. Making strategic adherences is the relevant choice for managers to look for expressive styles for how to compete impellingly and create the successful future.Recently, collaboration mingled with companies became fashionable .Strategic chemical bonds is a accommodating agreements betwixt companies. It involves all kinds of companies such as large, medium and small. In strategic alliances, checkmate companies join forces for common goals without losing their strategic autonomy.Representation of an allianceGoals and interestsGoals and interestsspecific to Aspecific to B origination Dussauge and Bern (1999), Cooperative Strategy, ch.1, p. 3The Advantages of Strategic confederacysThere be some(prenominal) advantages of forming alliancesIt may facilitate entry into a foreign market galore(postnominal) firms who inadequacy to enter foreign market, they make local partner who leave understand business conditions and who has good relations with local government and organizations. For example, in 2004 Warner Brothers entered into a joint venture with two Chinese partners to produce and reel films in China. Through the confederacy with local firms, Warner Brothers succeeded to distribute any films it producesIt allows firms to address cost and risks for developing new yields or processFor example, an alliance between Boeing and Mitsubishi sh be 8billion U.S Dollar among the partners for create a new aircraft such as 7E7.It stimulates to develop skills and assets which atomic number 18 difficult to do al angiotensin-converting enzymeFor example, in 2003 Microsoft and Toshiba launch an alliance for developing a new microprocessor for entertainment for automobiles. Microsoft brought its software engineer skills and Toshiba its hardwa re engineering skills.It helps companies to depict technological standardsFor example, in 1999 Palm ready reckoner formed an alliance with Sony under which Sony agreed to license and recitation Palms operating(a) sy stand in Sony PDAs. The motivation was to pretend Palms operating system as the industry standard for PDAs against Windows-based operating system from Microsoft.The Disadvantages of Strategic AlliancesEstablishing alliances deal be risky. Unless a firm is careful, it can give away to a greater extent than it receives. It operator that, if the partner reckless of managing its know-how, it can be leaked to other partner.Main drivers of establishment of alliancesThe recent and rapid growth in the number of strategic alliances can be explained by various changes in the international business environment. globalization of trade and acceleration of technological progress seem to be major driving forces that have led firms to enter into significant numbers of cooperativ e agreements.Strategic Alliance drivers planetaryization expert changeDisenchantment with M A reference book Tayeb, M. H. (2001), International Business Partnership, ch.2, p.35.GlobalizationThe Globalization is the process which includes the objectives relating to the need to establish a large global presence, to gain knowledge and size, ensure competitive defence and deal with regulatory and political barriers to new market entry. wholeness of the main drivers of globalization is the fact that customer needs and preferences throughout the being are rapidly converging. This makes firms to produce so-called global products suited to all consumers, irrespective of their nationality.International alliances can offer an effective way to broaden more rapidly and therefore enhance a federations competitiveness. bit qualification international acquisitions is both costly and risky setting up a network of wholly foreign subsidiaries is bulky, expensive and hazardous licensing gives l ittle control. Global alliances can allow the partner companies to pussy resources produce global product and distribute it worldwide British Telecom, MCI and ATT for World Partners Alliance of Sambuca and Nemiroff Alliance of Philips and Whirlpool.Technical ChangeThe cost and complexity of new technology are increase extremely rapidly. Between 1970 and 1990, RD expenditures rose one-third whiles as fast(a) as spending on fixed assets (Collins and Doorley, 1991).With the increase in the variety and complexity of technology know-how, the range of possible innovations based on this expertise is growing wider. While the range of possibilities offered by new research has been increase tremendously, individual RD programs are growing ever more expensive and the throw a chance of achieving technically successful and commercially pro representable results have become more and more uncertain. This is why cooperation is viewed as un reverseable in many sophisticated industries by di viding up the RD work between the partner firms, it enables them to share costs, pool their expertise, and explore a greater number of avenues (Dussauge, Hart and Ramanantsoa, 1992). For exampleThe Peugeot/Renault JV, Alliance of PRV V6 EngineDisenchantment with MAThe disenchantment that has followed many blendrs and acquisitions seems to be one of the movements behind the recent development of strategic alliances. Alliances make it possible to avoid the culture and organizational shock coming in the wake of a merger by proceeding step by step, and by gradually adapting the content and structure of the agreement.Formation of Strategic AlliancesFormation process parentage Schaan, J (2007), Cases in Alliance Management, ch. 1, p. 7Strategy developmentThe rationale for a strategic alliance needs to be firmly in a clear strategic understanding of a companys current capabilities and those it go out need to be successful in the future. First of all, managers need to establish the str ategic goals of their companys and then mensurate their resources and capabilities to see if they are capable of punish on their own.The process starts by developing a rea identifyic estimate of what resources are required to meet a companys semipermanent strategic objectives. The objectives are for increasing competitive advantage. The manager must state that what capabilities the firm has and inquisitive for. With this undertaking, managers begin to establish their criteria for rating confederation opportunities if this is an option they choose.Before reservation the mind to go for the alliance, the potential costs involved need to be considered such as technology transfer, coordination and management costs, which is high indeed. (Tayeb, H. M 2001).Managers need to take into account of, if the firm has an experience on building alliance. If this is inaugural alliance, a company should look carefully at its internal policies and practices and evaluate to what degree they wil l help or hinder an alliance. For example, if a company has difficulties on managing its internal communication, then there will be sift on the alliance relationship. It is outstrip to modify internal practices as requirement before introducing a third party.The process of strategy development is as followingStrategy DevelopmentSource Schaan, J (2007), Cases in Alliance Management, ch. 1, p. 7Selecting the right partnerIt should come as no perplexity that choosing the right partner is a major determinant of how successful an alliance will ultimately be. Inexperienced companies should not hurry up to do a deal-choosing partner.Poor partner selection ranks high among the reasons for alliance failure. It ever takes longer than anticipated to find the right partner. Managers should spend time and resources to exhaustively analyze the potential opportunity. Depending on the scope and complexity of the alliance, it takes from several months to a couple of years to find the right par tner.Small companies looking for alliance partners are often tempted to look for shortcuts as they find themselves facing time and financial pressures. They may succumb to the temptation to partner with any company, whether or not it meets their strategic needs. This is the mistake that companies make, because a partner must fit a companys strategic needs.Small companies just or soly keen on forming partnership with large companies. The reputation and image of the large company can often cause the small firm to ignore its own strategic objectives. by and by the strategic objectives were subtendd, managers should decide how many partners to approach. The search process starts by formalizing partner profile screening criteria, developing a list of prospects, ranking the list against the criteria and then focusing on a manageable number of the best prospects.Complementary assets and capabilities is the totality characteristic of partners for evaluation the strategic fit. Having id entical strategic assets is not a good basis for a partnership because the hatchway of competitive combat can be high over the long term.It is necessary to evaluate partners according to their strategic, cultural and operational fit.Concerning to strategic fit, managers should take into the balance of need between the partners. If the needs of other partner are to get more profit, then this will not be long-term alliances.The nature and durability of the strategic fit is also a lively consideration. It is important that the long-term objectives of the partner are not in conflict and that the intended benefits can be sustained.During analyzing strategic fit, firms need to choose a partner who has a potential strategic network. In high-tech industries, most of the firms have cooperative network with each other.As it said above, building an alliance with large firms is risky. Companies should choose a partner who is almost the resembling size. Research indicates that choosing subst antial size of partner can decrease successful collaborative activity. It can lead Merger and Acquisition.Cultural fit is core of choosing partner. It can affect business logic, competitive behaviour, time orientation, and decision making. It instantly impacts the ability of partners to work together to meet their common objectives. Research of KPMG shows that, the reason of 70 % of strategic alliances failure is cultural contradiction among the partners.Culture of companies has laborious effect on organizations operational practices such as management and organizational structure, decision-making practices and employment policies. dialogueThe major part of long-term collaboration is naturalised at the dialogue stage. Negotiation should be as first and best as a means of building the linkages that will support effective collaboration between the partner companies.The negotiation process is perfect way for developing some unique insights into how the other party does business.In negotiation process, several areas require particular attention such as amass negotiation team, negotiation homeworks, the process of negotiation itself and forming a negotiation agreement.Negotiation can be stressful and managers need to be sure that his team members can have contribution. Besides, legal and tax professionals have a in truth important role to play in putting a partnership together, but during the negotiation it is best to avoid them to attend the process.Well preparedness can make the negotiation process easy and smooth. Advanced preparation should also help assess bargaining power, understand the concessions to be do and forecast issues that might arise.Good negotiations are characterized by honesty and an outspoken flow of information between the partners.The agreement should be well written and set out the purpose, term, duration, warranties, obligations.ImplementationMaking the right decision about strategy, partner and structure is only the beginning. Th e real work starts when companies implement their alliance. While the chosen structure and scope of an alliance will significantly mildew the kind of implementation required, the material covered in this section presents principles for creating attractive conditions that are applicable to all.The main problems of forming strategic alliancesThere are contrastive problems of forming strategic alliances.As it is obvious that strategic alliances in most cases are managed by two or more parents makes them inherently risky. The problems in forming alliances stem from one cause there is more than one parent. The owners of parent firms are powerful. They can and will disagree on just about zero (Killing, 1982). Such as Queensland Minerals alliance, owners of both parts parent companies were disagree. Amcon Corporation cherished to expand to Queensland, but the CEO of Victoria Heavy Industries did not want to. As a result Amcon renegotiated the alliance agreement.Organizational culture, a companys shipway of doing things, refers to basic assumptions and beliefs that are share by members of an organization. These operate unconsciously and define an organizations view and its environment.Organizational culture can cause problems where companies with distinctive cultures merge or form a strategic alliance. Employees from the parent firms tend to use their home-company culture. In this connection, Datta and Rasheed (1993) mentioned that, a lack of cultural sensitivity can substantially lead to misunderstandings in strategic alliances.Main Problems of Forming Strategic AlliancesUnsuccessful rate of alliances are high. The success of an alliance seems to be a function of three main factorsPartner selectionAlliance structureManaging alliances