Question

Discuss the advantages and disadvantages of strategic alliances (i.e. cooperative strategy). What impact do these alliances have upon brand recognition/exposure? Are there any concerns with regard to quality control and/or brand loyalty?

Strategic Resource Allocation and Planning-is the name of the class

Answer 1

A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals

or to meet a critical business need while remaining independent organizations. This form of cooperation

lies between M&A and organic growth.

Benefits of Strategic Alliance

Nowadays, strategic alliance has become a common strategy to businesses. Two or more enterprises

choose to form a partnership and work cooperatively to achieve their mutually beneficial objectives.

Enterprises that enter into strategic alliance usually expect to benefit in one or more ways. Some of the

potential benefits that enterprises could achieve are such as:

1. Gaining capabilities

An enterprise may want to produce something or to enquire certain resources that it lacks in the

knowledge, technology and expertise. It may need to share those capabilities that the other firms have.

1. Easier access to target markets.

Introducing the product into a new market can be complicated and costly. It may expose the

enterprise to several obstacles such as entrench competition, hostile government regulations and

additional operating complexity. There are also the risks of opportunity costs and direct financial

losses due to improper assessment of the market situations.

Choosing a strategic alliance as the entry mode will overcome some of those problems and help

reduce the entry cost.

1. Sharing the financial risk

Enterprises can make use of the strategic arrangement to reduce their individual enterprise’s financial risk.

1. Winning the political obstacle

Bringing a product into another country might confront the enterprise with political factors and

strict regulations imposed by the national government. Some countries are politically restrictive

while some are highly concerned about the influence of foreign firms on their economics that

they require foreign enterprises to engage in the joint venture with local firms. In this circumstance,

strategic alliance will enable enterprises to penetrate the local markets of the targeted country.

1. Achieving synergy and competitive advantage

Synergy and competitive advantage are elements that lead businesses to greater success. An

enterprise may not be strong enough to attain these elements by itself, but it might possible by joint

efforts with another enterprise. The combination of individual strengths will enable it to compete

more effectively and achieve better than if it attempts on its own.

Disadvantages of Strategic Alliance

1. Alliances are costly, not only due to cash leaving the company’s hands, but rather due to returns.

1. Alliances can create indirect costs by blocking the possibility of cooperating with competing companies, thus possibly even denying the company various financing options.

1. Alliances also expose the company to its partners, and the unique technologies that it has are sometimes revealed to its partner company, which could later become a competitor or could utilize the fruits of the venture or the know-how better than the startup itself.

1. Material part of the costs of alliances such as joint ventures may be forecasted during the negotiations for its establishment; in many cases the balance of power between the parties changes during the course of the venture’s life, and the parties to it may have a change of mind.

1. Non-raising of capital by the startup could motivate the public company to try to renegotiate the terms of the venture, while taking advantage of the startup’s weakness.

Brand Exposures

1. Strategic business alliance relationships have grown increasingly popular and serve as a means for both parties to increase their brand awareness without expending extra time or experiencing significant financial impact.

1. Strategic business alliances can be extremely beneficial to growing your franchise, offering opportunities to increase exposure of your brand through the partner’s channels, as well as the potential to offer supplementary services to existing ones.

1. In partnering together, able to increase awareness of both the brands among a larger target market without the risk of overshadowing each other’s services.

1. The opportunity to grow market size with a partnership presents the additional opportunity to increase awareness of     the brand. One of the key elements of a business’ success is constant, growing brand awareness. If your brand awareness isn’t growing, your business isn’t growing. Strategic alliances allow an organization to reach a broader audience without putting in extra time and capital.