Question

Why and how strategic partners are beneficial in doing international
business and investment? Please analyze your answer with strategic
business alliance examples.

Answer 1

A Strategic Partnership is a collaboration between two companies or organizations for a certain period to achieve a mutual goal. The partners share equal benefits and take equal risks after joining hands.

A Strategic partnership can prove to be a masterstroke especially if the goal of a company is to penetrate international markets. For an organization, establishing a business in a foreign market can be a daunting task as the cultural, economic, and linguistic barriers may prove to impede internationalization. On a successful partnership with the local firm, it will be easier to understand customer preferences, supplier behaviours, and distribution networks. This enables the company to provide quality products that align with customer behaviour and preferences.

While involved in a strategic partnership, partners gain the skills, market knowledge, resources, and assets that would have been impossible to gain if the firms operated independently. Moreover, by partnering with the local firm, its positive brand image will rub on its partner. This method of creating brand awareness in an international market is much easier as compared to building a brand image on your own.

From a financial standpoint, a strategic partnership can stabilize a firm whose profits are dwindling. Depending on the country of the partnered firm, companies may be able to avoid certain restrictions or duties on entering the market. Thus, reduced barriers to entry save expenses and enable smooth entry into foreign markets.

For example, Spotify partnered with Uber in late 2014, therefore enabling passengers to hear their music during the ride. This move greatly benefitted both companies. On subscription of a Spotify account, a customer can have his or her Spotify music already playing in the car before entering. By partnering with Spotify, Uber added another dimension to its service by providing personalized music, and similarly Spotify has another strong reason to make its users sign up to its premium service. Thus, this move enabled both the companies to tap each other’s markets and increase brand awareness while at the same time availing the benefits of each other’s brand image.