Strategic Alliance Pros and Cons
There are various strategic alliance pros and cons that business managers should be well informed on before deciding to team up. A strategic alliance is an agreement whereby two or more businesses dealing in similar or related products join to form one company for a particular period of time. Besides, the businesses in the alliance usually have a similar target audience too, making them compatible in almost all levels of operations. Although the mean reason behind strategic alliances is profitability, the businesses involved are not usually in direct competition with one another.
In a strategic alliance, the companies or businesses involved partner in a number of ways including, sharing of resources, expertise among others for mutual benefit. Based on the purpose of the alliance, the partnership can be structured in different ways. The most common types of strategic alliances include joint ventures, equity and non-equity strategic alliances. This implies a wide range of strategic alliance pros and cons, depending on the type of partnership and its purpose.
Strategic Alliance Pros and Cons
The following are some of the main advantages and disadvantages of a strategic alliance.
When businesses come together, they can easily attain a competitive advantage over others in the market, which operate individually. This is because, they will be able to pull together their resources, capabilities and expertise for better results. As a result, the alliance is likely to grow rapidly and efficiently, thus, earning the parties involved a greater market share.
Economically, there are other ways through which businesses can also benefit from strategic alliances. The partnership can help in the reduction of costs and risks, which are evenly distributed across the members. Besides, an alliance is also a greater way of increasing economies of scale owing to the expected growth in production volume, which reduces the cost per unit.
A strategic alliance can also offer organizational benefits to a company in various ways. Since the companies involved in the partnership share skills, expertise and even equipment, there is an easier exchange of the same between the workers. In this way, companies are able to enhance the quality of their products, increase production and even expand distribution.
Strategic alliances can also benefit the involved partners politically. For instance, a local company can decide to team up with a foreign one in order to gain entry into a new market in cases where there are barriers to local enterprises.
Cons of a Strategic Alliance
One of the risks or disadvantages of a strategic alliance is sharing. Since the involved parties pull their resources, skills, capabilities and knowledge, it can be challenging when it comes to business secrets. Although there may be agreements for the protection of trade secrets, it is not always certain that they shall be upheld by all parties.
Another disadvantage of a strategic alliance is that in some occasions, it is not easy to choose the right partner. This may result into lack of commitment, which can negatively impact the overall operations of the alliance. In fact, there are several occasions whereby partners have turned into rivals, tearing down each other.
There are other risks that are likely to be faced by parties in a strategic alliance including, poor communication, lack of clear goals and objectives, lack of trust among others. In fact, the seeds of failure are often sown in the alliance long before it even begins operating. However, this does not mean that all alliances are doomed to fail, some can thrive well and deliver greater results for the partners.
Considering the strategic alliance pros and cons outlined above, there are more benefits to forming such a partnership compared to the demerits. However, it should be noted that the success of the partnership relies on its purpose and commitment to fulfilling that goal. It is of great importance that the businesses first draw clear and precise objectives, and procedures to be followed in their operations. Besides, lines should also be drawn on the obligations of each party in order to enhance efficiency and team work for mutual benefit.
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