Five Potential 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.

In a plain view, strategic alliance just reflects the desire of enterprises to achieve their independent business objectives cooperatively. But, in the true fact of today’s globalizes and complex market place, there is the need to make such a business arrangement in order to gain competitive advantages among the fierce competitors in the market place. 

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:

i.          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. Thus, strategic alliance is the opportunity for the enterprise to achieve its objectives in this aspect. Further to that, in later time the enterprise also could then use the newly acquired capabilities by itself and for its own purposes.

ii.         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. For example, an enterprise can license a product to its alliance to widen the market of that particular product.

iii.        Sharing the financial risk

Enterprises can make use of the strategic arrangement to reduce their individual enterprise’s financial risk. For example, when two firms jointly invested with equal share on a project, the greatest potential that each of them stand to loose is only half of the total project cost in case the venture failed.

iv.        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.

v.         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.

For example, to create a favorable brand image in the consumer’s mind is costly and time-consuming. For this reason, an enterprise deciding to introduce its new product may need a strategic arrangement with another enterprise that has a ready image in the market.

AS a conclusion, strategic alliance is beneficial and it can exists in many forms. As mentioned above, cooperation in the sharing of production facilities, combining of knowledge, skills and technology, marketing of each other’s products using existing distribution networks and co-funding of projects are the collective forms of strategic alliances.