Maximizing the benefits and Minimizing Drawbacks in Strategic Alliances
Companies aim to form strategic alliances mostly because of the advantages that these alliances provide for the firms. Firms are primarily motivated to form strategic partnerships because of the profits that come with the venture (Liang and Huang, 2018, p. 12). However, profits are not the only advantages that come with partnering with other firms. Sometimes organizations want to compete on a global scale or keep up with the fast-paced business environment without overly extending beyond their core business. Some of the advantages that come with strategic alliances include better pricing, an extensive network, competitive positioning, easier entry to new markets, and the shared costs or risks of significant projects (Liang and Huang, 2018, p. 12). However, strategic alliances may come with a myriad of disadvantages, such as poor integration to organizational change, clashing visions, poor alignment of company goals and values, and reduced employee motivation, among others. As such, firms need to get ways to maximize the benefits of strategic alliances and minimize risks to extend the scope of operations via international expansion and diversification strategies (Liang and Huang, 2018, p. 14). A company can use the following strategies to minimize risks and maximize the benefits of strategic alliances.
Partner Selection
An effective alliance can help a company to achieve its strategic goals, such as sharing risks and costs, market access, and or gaining access to vital core competencies. As such, partners must possess capabilities that a firm lacks but values (Fatehi & Choi, 2019, p. 222). Furthermore, companies must choose strategic partners that share their visions and goals to make the integration easier and beneficial for both firms. Finally, before forming alliances, firms should select partners who are less likely to exploit the partnership for their personal and selfish gains by taking away more from the firm and giving away very little in return (Fatehi & Choi, 2019, p. 226). Firms can effectively select the right partners by acquiring information from investment bankers, other firms, and employees that work with the firm that is the potential partner.
Competitive Skills
To reap the maximum benefits of strategic alliances, firms should select partners with a strong reputation in a specific area or brand to augment its skill set and develop a workforce that provides the complete package to clients (Russo & Cesarani, 2017, p. 31). Firms should look to enter into alliances with firms that can enable them to gain new competitive skills without having to incur the extra burden of recruiting, training, caring, and paying new staff members (Russo & Cesarani, 2017, p. 34). Firms should also seek to enter new territories with partners who have excellent knowledge in the intended region. This strategy helps the firm save on the time and cost that it would potentially take to research and gain comprehensive knowledge about the new market (Russo & Cesarani, 2017, p. 34). Companies should seek to ally with partners who have well-developed work experiences and relationships in the target territories to develop a workforce that offers an attractive package to the new market.
Alliance Composition
Strategic alliances should be structured in a way that reduces the risk of firms giving away too much to the partners in unacceptable ways (Bhattacharyya, 2019, p. 53). Before entering into new alliances, firms should ensure that they make it impossible or difficult to copy or transfer technology or expertise that was not meant for transfer. Partners can put in place contractual safeguards in the agreement to reduce the risk of partner opportunism (Bhattacharyya, 2019, p. 53). The partners should agree in advance to substitute technologies and skills to ensure an opportunity for equitable benefits. Firms can reduce the risk of opportunism by extracting credible loyalty, trust, and commitment from their partners in advance.
Managing the Alliance
Lastly, the primary element that fosters successful strategic partnerships is maximizing the benefits of the alliance and minimizing the risks. One of the most significant factors that affect strategic alliances with foreign partners is cultural differences (Di Dio & Correani, 2020, p. 17). Numerous clashes in the management style can be attributed to cultural differences and organizational values. Managers should, therefore, make allowances to contain these differences with their partners, build trust with partners, and be willing to learn from partners (Di Dio & Correani, 2020, p. 17). It is also essential for firms to look for partners who have almost similar organizational cultures.
References
Bhattacharyya, S.S., 2019. Development of an Integrated Model of Strategic Alliance. Indian Journal of Industrial Relations, 54(3).
Di Dio, F., and Correani, L., 2020. Quality-improving and cost-reducing strategic alliances. Economia Politica, pp.1-32.
Fatehi, K., and Choi, J., 2019. International strategic alliance. In International Business Management (pp. 217-239). Springer, Cham.
Liang, J., and Huang, Y.F., 2018. What Motivates Firms to Form Strategic Alliances? An Agency Perspective. An Agency Perspective (August 17, 2018).
Russo, M., and Cesarani, M., 2017. Strategic alliance success factors: A literature review on alliance lifecycle.