Question

Explain strategic alliances and their differences from vertical integration strategies.

Answer 1

A Strategic alliances is a cooperative strategy in which firms combine some of their resources and capabilities to create competitive advantage .Strategic alliances allows firms to leverage their existing resources and capabilities while working with partners to develop additional resources .A competitive advantage developed through a cooperative strategy often is called a collaborative or relational advantage. For example LOCKHEED MARTIN AND BOEING formed strategic alliance

THERE ARE 3 TYPES OF STRATEGIC ALLLIANCE:

1. A joint venture: is a strategic alliance in which 2 or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage . It is formed to improve firms abilities to compete in uncertain competitive advantage .The partners in a joint venture own equal percentage and contribute equally to venture operation .

2.An Equity strategic alliance is an alliance in which 2 or more firms owns different percentages of the company they have formed by combining of their resources to create a competitive advantage .Many foregin direct investment such as those made by japanese and US companies in china,are completed through equity strategic alliance.

3.A non equity strategic alliance is an alliance in which 2 or more firms develop a contractual realtonship to share some of their unique resources and capabilities to create competitive advantage . In this type of alliance firms do not establish a separate independent company and they do not take equity position .Non equity alliance is less formal and deman fewer partner commitment .

VERTICAL INTEGRATION:

vertical integration exists when a company produces its own inputs or its own sources of output distribution.In some instance firms partially intergrate their operations producing and selling their products by using company business as well as outside sources.

Verical integration is commonly used in the firms core business to gain market power over rivals product quality and possibly protect its technology from intimation by rivals market power also  created when firms develop the ability to save its operation, avoid market cost improve product quality.