#globalization #alliance #competitive market #merger #CMA
What are the regulations concerning strategic alliances?
Some of the largest concerns with strategic alliances have to do with (anti-)competition and privacy. A suggested strategic alliance must still leave a healthy amount of competition in the market they operate in. Further, the privacy regulations and immaterial property rights binding the two companies entering or wishing to enter the strategic must be compatible. For example personal data collected by the companies cannot be used by the new alliance unless specific permission for this end has been given by the users (vague and general permissions are not allowed). If one of the companies of the alliance is a bank or other business with highly regulated secrecy then this has to be taken into account too and a consideration needs to be done whether a functional strategic alliance can be formed. (Poorangi 2011)
In what situation would you consider a strategic alliance?
An international strategic alliance is formed when two or more companies from different domestic backgrounds come together and integrate their resources to achieve a common goal and keep their individual identities at the same time. Such alliances can be formed to either develop a product or just utilize each others resources. The two most crucial reasons why companies form international strategic alliances are foreign market entrance and division of risk. (Sange 2016)
Strategic alliances provide the opportunity for organisations to combine strengths in two different markets. The desirable outcome of the alliance is to capitalise on synergies. (the cooperation of two or more organizations to produce a combined effect greater than the sum of their separate effects.) (Weiss 2007)
It’s a remarkable paradox: Studies show that the number of corporate alliances increases by some 25% a year and that those alliances account for nearly a third of many companies’ revenue and value—yet the failure rate for alliances hovers between 60% and 70%. And despite an abundance of advice on how to make alliances work, that dismal record hasn’t improved in the past decade. (Weiss 2007).
Companies decide to form strategic global business alliances for many reasons. One of the most important reasons are: (D’Alimonte 2014)
- To gain access to another company’s knowledge or resources.
- Forming economies of scale (Companies with complementary skills can rely on each other’s proven expertise instead of spending time and resources to independently develop what has already been achieved.)
- Enhancing competitiveness
- Dividing risks
- Setting new standards for technology
- Entering new markets
- Overcoming the competition in a market
How does the strategic alliance affect the market?
The sizes of companies & alliances operating in the market grow when alliances are formed. This happens at large scale as deregulation has been the trend since the 1970s-80s. (Dudley Susan.2016)
Alliances bring economies of scale and supply chain advantages that bring great competitive advantages for most globalized markets, not to mention the added lobbying power that the new entity has. Hogging supply chains can give large entities unfair competitive advantage thus squeezing SMEs out of the market or into a position where they’re likely to be sold.(Dudley Susan.2016)
It is very important to regulate strategic alliances as their natural market effect is often to domineer it.
What should be taken into consideration when choosing partner(s) for strategic alliance?
It is important to have a partner that brings the true benefits of a strategic alliance, whether they are related to scale, access to know-how, supply chains or markets and avoids as many of the disadvantages as possible such as more scattered ownership, management, communication and quality control. It is important to choose a compatible partner. (Peek 2006)
One needs to start by evaluating one’s own standing in the market and the needs and ask oneself whether a strategic partner is needed and how strong this need is. Then one can produce a set of criteria against which a list of partners can be evaluated. It is important that the ways of operating of the two companies are compatible or that they can be made compatible through efficient communication, share moral values and/or enough win-win opportunities to make merging of processes more attractive to the partners than quarreling about differences. (Peek 2006)
Poorangi Mehdi. 2011. Profile of SME’s Strategic Alliance in Malaysia. https://www.researchgate.net/figure/A-Schematic-Regulatory-Framework-for-Strategic-Alliance-of-SMEs_fig1_260079482 / Accessed on 18.11.2018
D’Alimonte Daniella.2014. 6 Reasons for Forming Strategic Global Business Alliances. http://www.tradeready.ca/2014/fittskills-refresher/8-reasons-forming-strategic-global-business-alliances/ Accessed on 18.11.2018.
Weiss Jeff. 2007. Simple Rules for Making Alliances Work. https://hbr.org/2007/11/simple-rules-for-making-alliances-work/ Accessed on 18.11.2018
Dudley Susan.2016. Competitive Markets Need A Neutral Referee, Not A Cheerleader. https://www.forbes.com/sites/susandudley/2016/05/16/competitive-markets-need-a-neutral-referee-not-a-cheerleader/#653b11d28e4d / Accessed on 18.11.2018
Peek Donna.2006.Evaluating and Selecting a Strategic Partner. https://www.entrepreneurship.org/articles/2006/12/evaluating-and-selecting-a-strategic-partner / Accessed on 18.11.2018
Sange Haseeb.2016. International Strategic Alliances, The What, And the Who. http://www.parkarbuzz.com/international-strategic-alliances/ / Accessed on 18.11.2018
Figure 1: A Schematic Regulatory Framework for Strategic Alliance of SMEs. Poorangi Mehdi. 2011. Profile of SME’s Strategic Alliance in Malaysia. https://www.researchgate.net/figure/A-Schematic-Regulatory-Framework-for-Strategic-Alliance-of-SMEs_fig1_260079482 / Accessed on 18.11.2018
Figure 2. Sange Haseeb.2016. International Strategic Alliances. http://www.parkarbuzz.com/international-strategic-alliances/ / Accessed on 18.11.2018
Figure 3. Green Merrit. 2016. Form Strategic Alliances. https://www.generalcounsellaw.com/mentor-protege-program/ / Accessed on 18.11.2018