Strategic Alliances: Reasons and Types

strategic Alliances primings and TypesIntroductionStrategic adhesivenesss and why are they createStrategic chemical bonds potty be seen as one of the fas discharge developing trends for moving in today Alliances are sweeping through nearly all(prenominal) industry and are becoming an essential driver for their super growth. A strategical adherence, by definition, is a form of affiliation that involves a vulgar sharing of resources for the benefit of all of the strategic associates. Mutuality is key (Beavers 2001). The business consideration is whether both union checkmates need to each one some new(prenominal). Strategic alliances part in size and scope from informal business relationships based on simple contracts to joint venture agreements, some times where corporations are round up to manage the alliance. According to Vyas et al (1995) strategic alliances are cropping up across the international arena chiefly collectible to the maturation of some(prenomi nal) trends of the 1980s, such as intensified foreign competition, shortened product heart cycles, soaring cost of capital, including the cost of research and development, and ever-growing demand for new technologies. However, strategic alliances cigarette be tricky. Partnerships foster mutual benefits, but the alliances exist but as long as they are ad new wavetageous to both parties. look for indicates that a high proportion of strategic alliances fail (Forbes 2002 Lorange and Roos 1991 Day 1995). This hear explores concept of strategic alliances drawing from Mintzberg et als schools of strategy and then critically identifies the main factors that determine the design and delivery of effective co-operative strategies. It does so by using the case study that pertains to Avebe and Noveon Alliance.Why?For many multinational firms, strategic alliances have become increasingly important tools for ensuring speed and flexibility in carrying out multinational strategies. A typical ex ample is SEVEL (Societa Europea Veicoli Leggeri), the 1978 strategic alliance between Fiat and Peugeot for the production of a new light van named Ducato. two parties were short on resources and saved time and energy by combining their RD and manufacturing efforts (Lorange and Roos 1991). Strategic alliances can be effective ways to interpenetrate new technologies rapidly, to sneak in a new merchandise, to bypass g everyplacenmental restrictions expeditiously, and/or to learn quickly from the leading firms in a given surface areaMintzberg et als Schools of StrategyStrategic alliance is an agreement between both or more individuals, or entities, or organisations to cooperate in a specific business activity, so that each benefit from the strength of other and gains competitive proceeds. The formulation of strategic alliance has been seen as a rejoinder to the globalisation and increasing uncertainty and complexity in the business environment. Strategic alliances involve the sh aring of knowledge and respectableise between the partners as strong as in reducing the risk and costs in areas uniform relationship with the supplier and the development of new products and technologies. Strategic alliances usually hire sense when the parties snarled have complimentary strengths. Its unlike full-scale acquirement, an alliance does not give a firm total control over its partners.Avebe and Noveon Alliance Case Study.Avebe, a Dutch company, established in 1919 as a joint sales organisation for the greater part of the Dutch independent potato starch industry. Through research and development, joint ventures and acquisition in Netherlands, Europe and Worldwide, Avebe now plays a major role in the global sales, market placeing, production and development of potato starch and starch specialities apply in food, pharmaceuticals, animal feed, textile, paper and adhesives. Avebes specialities are employd by the textile industry for obtaining good weaving efficiency, to obtain smooth fabrics, and for sharp and long-wearing printing of fabrics.Noveon, headquartered in Cleveland, Ohio with regional centers in Belgium and Hong-Kong, is a leading global producer and marketer of technology advanced speciality chemicals for a large-minded range consumer and industrial application. Noveon was recognised as leading producer of polymers. It was overly acknowledged as the largest producer acrylic acid for synthetic polymer.Reason for cooperation AvebeAvebe was outstanding in printing thickeners but not yet in antiphonal dye printing market. It was not possible for Avebe to enter into this market as it was purely a starch based industry. Only a combination of starch and synthetic polymer could help them enter this market. For this Avebe had two options- Noveon and Alloid Colloids (under ICI Corporation, England). cabal of Avebes and Noveons products in laboratory test showed excellent printing thickness for reactive printing dye market.The final sel ection was based on foursome considerations, namely-Noveon had the same synthetic polymer as that of ICI in dry form and Avebe was expert in dry blending.Dry blends guideed in more efficiency both in space and cost compared to liquid one.Noveons synthetic was proved the outdo when combined with Avebe than any other.Noveon had excellent market expertise in the US, which Avebe lacked. conspiracy of Avebe and Noveons expertise expected around 25% of the new market to every company.Reasons for cooperation NoveonNoveons alliance with Avebe started by an accident. Noveon acquired QSI in South Carolina in 1994. QSI used to leveraging natural starches from Avebe for its operation. This was the start of their joint venture. Synthetic polymer Noveon had was fairly expensive succession Avebes natural starch was relatively cheap. They expected that blending of these two would result in better quality at reasonable terms. Noveon expected that the price of synthetic and natural thickener blends would increase in US and Europe, due to the demand for high quality products. Combination of synthetic and natural thickeners could curtail the cost of dye stuff and chemicals. The saving was estimated to be around $ 1 million per year. Noveon selected Avebe for their technology. Far East and Europe preferred Avebe as their beat out choice.Initial agreementThe agreement was signed by both the companies on 24th March 1995. After two year, to anticipate competition, both the companies hypothesise a marketing agreement for their joint product. The agreement was as follows- portion of the world market. As per this agreement, Noveon agreed market their product in the States and the Caribbean. Avebe agreed to market its product in Europe, Asia- pacific and Russia. China and India was generateed for both.Restriction on sale of each others product. As per this agreement Avebe was prohibit to sell Noveons product and Noveon agreed not to sell Avebes products to any other company without a prior consent of other.3) Information shift/ training. Both Avebe and Noveon agreed for a meeting once in six months to exchange development, manufacturing and technical service information relating to their joint venture.Reasons for alliance1) Alliances assist the firms skill and diversification into new areas of activities.Alliances help to extend a firms competitive proceeds in several ways. A firm enters into strategic alliance because this can potentially provide benefits that are not possible through each internal development or external acquisition. This helps the company to acquire benefit by reducing the cost rather than taking it all by itself. An alliance stand as an intermediate to help the allies enter into new industry and markets.2) Alliance provide useful platform to test their products in new markets.Alliances help in extending and renewing their sources of competitive advantage while expanding globally. This helps the new companies to enter into new market with little market knowledge. By this these companies learn how to compete in the global market. Working unitedly helps in overcoming the economic obstacles too.3)Design School of strategic management- Henry MintzbergThis normative school of Mintzberg see strategy formulation as a function of conception which is responsible for the development of strengths, weaknesses, opportunities and threats of the organisation (SWOT). In this school the strengths and weaknesses are of the company are mapped along with the opportunities and threat in the market place. This is enforced in order to formulate clear and unique strategies in a deliberate process. In this the internal environment is matched to the external environment. This school mainly helps in reducing ambiguity and is mainly used in unchangeable environments. It supports strong and visionary leadership. The main drawback of the design school is that it is weak in a fast moving environment and there are risks of resista nce. It overly has many variables and is inherently complex and also inflexible.Types of strategic alliancesStrategic alliances can be classified into three main typesShared- impart allianceShared- supply alliance bring together companies which join forces to achieve economies of scale on a given component or on an individual distributor point in the production process. The shared elements are further incorporated in products that are further incorporated in products that remain specific to each other and that competes directly in the market. This type of alliance is formed when the stripped efficient size at a particular stage in the production process is much greater than for the entire product, and when neither of the partner produce large enough to achieve the critical size. Shared- supply alliance are usually formed between partners of comparable size. This alliance primarily involves research and development (RD) and manufacturing activities. Coordination of research activ ities between the partners makes it possible to optimize the use or resources. These alliances are usually formed by firms operating in the same zone. In this case of shared supply alliance the assets and skills that the partner companies bring to the joint project are similar in spirit and their goal is to benefit from increased economies of scale.Quasi- concentration allianceThis alliance brings together companies that develop, produce and market a joint product. There is no open competition in quasi- concentration alliance. Quasi- concentration alliances are primarily characterized by transactions between the consortium of allies and the market. Transactions between the companies are also carried out within the alliance. This alliance covers all the main functions involved in carrying out an activity, that is, research and development, manufacturing, and marketing. Marketing and sales are either split between the partners on the basis of geographic presence or carried out jointl y.Complementary alliance.Complimentary alliances bring together companies which contribute assets and skills of antithetical natures to bring up a combined project. Here one manufactures the product, which is marketed by others distribution channels. There is no competition within the allies. This type of an alliance is mainly formed by only two parties.