Firms motivations to create alliances

Résumé du document

More and more companies are recognising that to gain a competitive advantage they may have to enter into alliances with other firms. Referring to examples, identify possible motivations for entering into a strategic alliance and then critically evaluate the possible problems that may be encountered and how to overcome these problems. According to David A. Aaker (2001:277), we may differentiate between alliances and strategic alliances. The author states that an alliance may be defined as "a voluntary association that furthers the common interests of the constituent members. On the other hand, a strategic alliance may be defined as "at least two companies or partners voluntary combining value chain activities, architecture, and value chain linkages for the purpose of increasing individual and collective value addition, increasing competitive advantage, and achieving agreed or common objectives. In this essay, we will focus on strategic alliances. In the first part, we will point out what different alliances can be spotted and what motivations may bring companies to enter strategic alliances. Then, in the second and last part, we will highlight the possible problems that may be encountered when entering strategic alliances and how to overcome these problems.

Extraits

[...] Superior knowledge can be productive only if it meets the needs of the alliance (IBID). All along this essay, we saw that companies do not have the same needs and this is why several types of alliances are used such as joint ventures, consortia, Networks, franchising . On the other hand, we also saw that companies when working tegether may not have identic views of the alliance and may follow their own interest. Relational or performance risks are then probable issues. [...]

[...] We now identified what were the different alliances companies prefer and what their motivation are to enter such alliances. However, George Luffman et al. (1996168) assert that strategic alliances are usually not the most favoured means of reaching objectives of the firm as the project is not fully under the control of that firm. David Faulkner and Gerry Johnson (1992:134) affirm that there is no better than a 50 per cent survival probability for alliances over a five year term. [...]

[...] But joint ventures and consortia are not the only alliances companies can choose. For example, Contract of partnership in specific functions is also a commonly used alliance. Rosabeth Moss Kanter (1994) emphasize that in such a contract, one or more companies decide to collaborate in one or more functions, such as marketing, production, distribution, or other functions, without starting a new, legally distinct entity. Ownership of capital is another alliance that Rosabeth Moss Kanter highlights. In this type of alliance, the alliance can be based on stock participation of one or more of the partners by other partners. [...]

[...] These contracts specify an incremental process of alliance making. Merck, for example, adopted this approach in its partnership with Astra AB in Sweden. Merck started with a distribution agreement that allowed it to market Astra's new drugs. Initial success led Merck to set up a new venture to handle a wide range of Astra products. Encouraged by satisfactory results, Merck strengthened the tie by inviting Astra to take a 50 percent stake in the venture. Compared with long term agreements, recurrent contracts are more adaptive to changes in the environment. [...]

[...] We therefore are going to review the main motivations that could bring two or many companies to create a strategic alliance. George Luffman et al. (1996:164) found two types of reasons to create strategic alliances: internal and external reasons. Concerning internal reasons, the authors firstly highlights the notion of dividing risks. For certain projects, risks of failure are high and even higher when investments are elevated. For instance, the joint venture between General Electric and Snecma was made to develop and produce a new airplane propeller. [...]