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Wednesday, May 20, 2009

Advantages And Disadvantages Of Strategic Alliance

Strategic Business Alliance
When a company has built strategic business alliance with other partners, they are preparing the enjoy of the following benefits/advantages. (especially for foreign partners)

1. They gain better access to attractive country market from host country’s government to import and market products locally

2. Take advantage of partner’s local market knowledge and working relationships with key government officials in host country. It is very important to get working relationship with local government officials, (social capitals).

3. Capture economies of scale in production and/or marketing, when they operate together, they can use the same machine or equipment to produce products and use the same marketing channel for both products.

4. Fill gaps in technical expertise or knowledge of local market; they will learn technical knowledge from each other.

5. Share distribution facilities and dealer networks, they can use the same agent or retailers to reduce the logistic cost and penetrate the market more easily, they can use the put-together technical and financial resources to attack the rivals.

6. Direct combined competitive energies toward defeating mutual rivals

7. Useful way to gain agreement on important technical standards, it is easier to set up a standard for the products with a joint effort.

8. Can reduce the cost and more efficient to penetrate the market by doing the followings:

a. Joint research efforts
b. Technology-sharing
c. Joint use of production and distribution facilities
d. Marketing/promoting one another’s products.

Is everything perfect for building partnership? Of course not! Everything comes with its own pros and cons.

Here are the drawback/disadvantages of partnership:

1. Overcoming language and cultural barriers

2. Dealing with diverse or conflicting operating practices

3. Time consuming for managers in terms of communication, trust-building, and coordination costs

4. Mistrust when collaborating in competitively sensitive areas

5. Clash of egos and company cultures

6. Dealing with conflicting objectives, strategies, corporate values, and ethical standards

7. Becoming too dependent on another firm for essential expertise over the long-term

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