Question

Strategic Alliances can create value for firms. Explain how this can be achieved and use an example to support your answer. 400 words

Answer 1

Introduction and meaning of Strategic Alliance : It is an agreement between two or more parties to achieve a set of predetermined mutual benefits. It develops a outsourcing relationship which is based on win win benefits approach.

How Strategic Alliance create value for firms :

By different types of strategic alliance like joint venture ,equity strategic alliance, non equity strategic alliance companies are ultimately get benefited . It ultimately creating more value for the participants by improving present operation , ease of entry and exist , changing competition in environment ,

Improving present operation :

(1) Economy of scale : Successful strategic alliance reduce cost of production by technological support, reduction of wastage , increase in the output demand etc. By economy of scale fixed cost getting divided by the number of output produced and per unit fixed cost gets reduced and hence profitability of both the participants increased .

(2) Increase learning from the other partner(s) : Both the companies possessed different expertise that alternatively helps each others. During the time of outsourcing the expertise from the other partners for getting mutual benefits, the other firm increase the learning experience and which make them technically strong for the future in the same field of operation .

(3) Sharing of risk and cost : Strategic alliance helps the participant partners to reduce the chances of losses and risk. Because of financial and technological togetherness cost and operational risk can be shared by them. Some time strategic alliance helps to reduce political risk in overseas business .

Ease of entry and exit : A new entrant can form strategic alliance with a company, which currently exists in the market .It allows the new entrant to starts operation at a lower expenditure. So, it makes the entrance easy for the new coming company. With continuity in operation , the new company can slowly take over the old firm and allow them to exist from the market very easily, without of much financial shortage and difficulties .

Changing competition in the market :

Advancement in technology standard : Due to the successful strategic alliance , technological exchanges take place , which ultimately change the pattern of competition by setting up new benchmark of standard in the market. Because of strategic alliance, the participants get the first mover advantage for a short period of time before others join the market with same standard of items.

Apart from the above Strategic alliance helps the participants to enter into a target market, creates opportunity for growth and expansion etc.

Example of Strategic alliance :

The alliance between Hewlett - Packard and Disney is a very strong example of strategic alliance in the past which is still continuing today. During the time of creating Fantasia ​​​​​​, Disney purchased some audio equipment form Hewlett Packard . From then it is an ongoing alliance. Today in fact, during the designing of Disney Mission ,both of them are side by side working technologically .It made the market both for Hewlett Packard and Disney and made themselves in a strong position in their respective field by providing some of the above mentioned benefits.