Organizations create strategic alliances for a variety of reasons. Several fast-growth technology companies use strategic alliances to profit from more established channels of distribution, marketing, or brand reputation of bigger, better known players. On the other hand, more-traditional organizations tend to enter alliances for reasons like geographical expansion, cost reduction, manufacturing, and other supply-chain synergies.
As global market opens up and competition grows, midsize businesses should be progressively creative about how and with whom they align themselves to go to the market. Strategic alliances are often formed if they offer some benefit to all the parties in the alliance.
What are the Main Advantages of Strategic Alliance ?
- Entering New Markets: Creating an alliance with an existing organization already in that marketplace is an extremely attractive alternative. Partnering with an international company can make the expansion into unfamiliar territory much easier and less stressful for a company. In many instances of franchising alliances, a partner will be a business which provides a totally different set of services to a market that resembles its own, allowing the business to boost its market size with little impact on the franchise business. An alliance allows the firm to achieve the benefits of rapid entry while keeping costs down.
Figure: Key Strategic Alliance Benefits in Business
- Reducing Manufacturing Costs: Strategic alliances may enable businesses to pool capital or existing facilities to achieve economies of scale or increase the use of facilities, thus lowering manufacturing expenses. Partnerships can help to lower costs, particularly in non-profit areas like research & development.
- Shared risk: In today’s dynamic world major industries are extremely competitive that no business has a guarantee of success when it enters a new market or develops a new product. Strategic alliances allow the involved businesses to offset their market exposure. Alliances probably perform best if the companies’ portfolio complement each other, but do not directly compete.
- Developing and Diffusing Technology: Strategic Partnerships may also be utilized to build mutually on the technical expertise of a couple of businesses in developing products technologically beyond the capability of the businesses operating independently. Not all organizations can provide the technology that they need to successfully compete in the markets. For this reason, they are joining up with other businesses who do have the resources to provide the technology or who can pool their resources so that together they can supply the required technology. Both parties take advantage of the partnership.
- Winning the Political Obstacle: Getting a product into another country might confront the business with political issues and strict regulations enforced by that government. A few nations around the world are politically restrictive while some are worried about the influence of foreign companies on their economics that they require foreign businesses to engage in the joint venture with local companies. In such a situation, strategic alliance will allow businesses to penetrate the local markets of the targeted country.
- Economies of Scale: When businesses pool their resources and allow each other to access manufacturing capabilities, economies of scale can be achieved. It relates to the cost advantages which a producer gains from expansion. In business alliances, this could include access to wider marketing channels, that a business might not otherwise be able to afford outside the partnership. Costs savings may also come from joint investments on things like R&D, or access to a partner’s operational facilities.
Watch a video on Advantages of Strategic Alliance between Companies
- Competitive Advantage: Synergy and competitive advantage are elements which lead companies to greater success. Strategic partnerships are particularly appealing to small businesses because they supply the tools businesses need to be competitive. For several small companies the best way they can stay competitive and even survive in today’s technologically advanced corporate environment is to create an alliance with another company.
Small businesses can realize the mutual benefits they can obtain from alliances in areas like marketing, distribution, production, R&D, and outsourcing.