Question

Q5. The highly competitive freight transport industry is forcing carriers to form strategic alliances. Explain the following:

(a) What is a strategic alliance among carriers?

(b) Two (2) advantages of a strategic alliance.

(c) One (1) disadvantage of a strategic alliance.

Answer 1

Strategic alliances indicate the agreements between two or more independent companies to cooperate in the production, development, services, and sales of products. Strategic alliances are useful for companies that are in the same industry in order to minimize market competition and achieve similar goals.

For instance, in strategic alliances, company A and company B combine their respective resources, and capabilities to generate mutual interest in manufacturing, designing, and distributing products and services.

Advantages of strategic alliances:

In strategic alliances, companies have to share their resources to create products of the common interest. It results in the minimization of the manufacturing costs and efforts of any one company. Sharing resources results speed in-market prospects.

Strategic alliances also lower market competition. When two or more rival companies are planning to share business, competition for maintaining the position is automatically reduced.

Disadvantages of strategic alliances:

Less efficient communication and understanding between two companies can lower the bonding strength between them. It affects the reputation of both companies. It also minimizes profits.