Strategic Alliance Pros and Cons
The popularity of strategic alliance has risen in the last decade and despite this fact, there are canny investors questioning the true engagement level such partnerships bring. This is especially true if the two companies entering into the agreement operate in the same business environment. For alliances to work, it is important to have an idea of the pros and cons presented by such agreements:
- The companies involved in strategic alliance gain better access to attractive markets from the host country government to market and import products locally.
- They benefit from the knowledge of local partners and work relationships with some of the key government officials.
- Captures economies of scale whether it is in marketing and/or production largely because they operate together. This means they can use similar equipment and machine to produce its products and use the similar channel for both products.
- Fill gaps in technical knowledge and expertise of the local market. The companies that unite are able to acquire technical knowledge from each other.
- Reduce operation costs and make penetration into the market more efficient by carrying out joint research, technology sharing, promoting and marketing one another’s products and technology sharing.
- Strategic alliance is especially use for gaining agreement on important technical standards and it becomes easy to set up a suitable standard for products as a result of joint effort.
- Combined competitive edge that makes it easy to defeat mutual rivals.
- It makes it easy to share dealer networks and distribution facilities because the companies can use the same retailers or agents in order to reduce logistic costs and also penetrate the market easily. The financial and technical resources when put together also make it easy to penetrate the markets.
There are also cons to setting up a strategic alliance and some of these are as highlighted below:
- They have to deal with conflicting and diverse operating practices.
- Difficulties are experienced when overcoming cultural and language barriers
- Clash of company cultures and egos
- Dealing with strategies, ethical standards, corporate values and objectives can be difficult
- There is likely to be mistrust when collaborating in areas that are competitively sensitive
- It is time consuming for managers especially in terms of building trust, coordination costs and communication.
- It is easy for one firm to become more dependent on the other as a result of lack of expertise.
Of importance though about strategic alliance is the fact that a small firm is able to learn more from a senior partner and this goes a long way to boost growth.
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