Question

3.         The strategic alliances notes discuss several reasons for forming alliances. What is the principal difference between a strategic alliance that aims to create value through tacit collusion and a strategic alliance that aims to create value through other means? How can you determine whether two firms are forming an alliance to facilitate tacit collusion or are forming an alliance for other goals?

Answer 1

'Strategic Alliance means it is an agreement between two or more independent companies that are in production, development or involved in selling the product or services & to cater the technical arrangements by forming an alliance to curb the competition generate the competitiveness'.

1. The strategic alliances can be formed due to the following reasons which cater to the needs between the firms:-

• To get the economies of scale by enabling the participating companies to cater thier resources to achieve the critical in managing the resources for international success & match with the demand of scope.
• To get enhancement in the competitiveness by joining hands for technical arrangements, to curb the administrative complexities & adopting the core competencies in using this strategy to be the survival of the fittest.
• To Divide the global business risks associated with partnering in by sharing the research & development to facilitate in providing goods that are valued for money by sharing the expertise to speed up the process in the market & the business.
• An alliance that is formed to gain market share by pushing out other companies in the market. by streamlining market penetration for survival  & to curb the uncertainty in the market to overcome the competition.

2. To understand the difference between a strategic alliance that aims to create value through tacit collusion and a strategic alliance that aims to create value through other means can be explained below:-

Tacit collusion:- Here it is a strategic arrangement that occurs when the rival firms make informal agreements to work together/collude without speaking to the rivals in a way to set higher prices in order to get more profits which the firms make more profit at the expense of consumers by reducing the competitiveness of the market. This avoids detection by government regulations.

• Here in the times of unprofitable business conditions collusion strategy can make a way to save the industry & prevent firms from going out of the market & business by creating the value, but in contrast, it cannot serve the consumer interest for a longer run.
• Here the firms go to achieve the price leadership as a form of collusion will unofficially collude the prices set by the market leader by keeping prices high without meeting the rival firms. It's hard to prove whether such collusion is fair/unfair competition or just natural operation of markets.

b) By different means the value is created:-

• Improving the current operation by changing the competitive environment to get the ease of entry & exit.
• The value can be created by the ability to learn from other partners & share the risk & cost being associated.
• Here the value is created by forming technology standards in the competitive environment & provide the low-cost entry into the new industries & exit by adopting the alliances.

3.  We can determine whether two firms are forming an alliance to facilitate tacit collusion or are forming an alliance for other goals by following means:-

• To understand the firm's objective or motive behind such strategic alliances that are undertaken to partner or cater needs of each other so as to get the mutual benefits out in the market & competitiveness by & large.
• Here the strategy can be identified whether its collusion or alliance by other goals in checking their core competencies by auditing the alliance formed by assessing the internal & external forces acting on it.
• Here in collusion, new firms are discouraged from entering the market by types of collusion which acts as a barrier to entry or exit strategies apart from the other means which focuses on providing the value to free in entry & exit were by such alliances can be differentiated to know why they are formed.  
• Another medium to understand such formation of strategic alliances in taking an account of the profitability of the form by analyzing it as collusion charges the high prices to get surplus compared to other means. Here auditing the key financial statements will give the result of such alliances & thereby assessing the structure of the market & share they are following to cater to the needs of each other to achieve the competitiveness.