Business Essays

Business Essays: Strategic Alliances

Why might a firm form a strategic alliance with a competitor? What are the strengths and weaknesses of this approach to the development of new technological knowledge?

Over the past years, there have been an increasing number of firms forming strategic alliances. A 'strategic alliance' can be defined as a partnership, in which efforts are combined in order to achieve a common goal. The main theory behind strategic alliances is that they allow firms to increase their leverage without bearing all the risk.

According to Johnson and Scholes ,[1] "Organisations cannot always cope with increasingly complex environments (such as globalisation) from internal resources and competences alone. They may see the need to obtain materials, skills, innovation, finance or access to markets, and recognize that these may be as readily available through cooperation as through ownership."

There are various types of strategic alliance.

Bailey and Koney have divided the various types of strategic alliance into four main categories, including: 'cooperation,' 'coordination,' 'collaboration' and 'coadunation.' Figure 1 in the Appendix describes the main features of the types of alliance in each category, and Figure 2 in the Appendix shows which types of alliance fall under which category. For example, 'consortia' and 'networks' fall under 'collaboration.' Figure 3 in the Appendix describes some of these terms. It should be mentioned, however, that Bailey and Koney have taken a very broad view of different types of strategic alliance. Many would disagree that some of the terms they have used would fall under the definition of a "strategic alliance." They categorise mergers, for example. However, Bailey and Koney are useful as an introduction to the topic. Tidd et al are more specific in their discussion of strategic alliances, focusing on 'co-option' alliances and 'co-specialisation' alliances. These are described in Figure 4 in the Appendix. …

Firstly, a firm may form a strategic alliance with a competitor in order to challenge other competition. Although a failure, an example of this is The U.S. Memories alliance of the 1980s. This involved seven of the largest US semiconductor manufacturers (such as IBM and Hewlett-Packard). They set out to counter the Japanese dominance of producing random access memory chips.

A further motivation for a firm to form a strategic alliance with a competitor is in order to acquire knowledge and share technologies. An example of two firms engaging in this is Philips and Sony in their joint development and marketing of the CD. Philips had developed the prototype for the CD player by 1978, but appreciated that it would be difficult to produce and market it alone. Sony offered Philips access to complementary technologies. For example, Sony eliminated 500 components, making the CD player smaller. Besides offering help with development, Sony also offered Philips access to the Japanese market. Access to markets is another reason why a firm might enter into an alliance with a competitor.

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