Joint Alliance

Essay by twillyUniversity, Master'sA-, June 2004

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In an era of great flux in the commercial world, large companies are breaking up while others are coming together. The mode of entry we have selected for our product, is by a joint venture. The advantages in doing this is, we share the risk and cost of doing business and benefit from local firms knowledge culture and language. The disadvantage of doing this is, we share control of the company and we may have conflicting interests, or ideas.

Alliances enable companies to make incremental commitments to an unfolding strategy, a useful feature when environmental uncertainties preclude decisions that are more definite. In addition, the partial commitments involved in alliances leave the company with resources to invest in more than one such arrangement, then spreading and diversifying risk. At the same time, however, the open-ended nature of an alliance means that if not managed carefully, it can unravel and nullify all the potential benefits.

If the partial commitments of the members are not enough to compel them to act co-operatively, the alliance can be a recipe for strategic gridlock.

Joint Ventures are most useful in hedging your bets when there is uncertainty among competing future outcomes. This kind of uncertainty is common to the dot-com world in which there are likely to be one or only a few winners. In but hedging and risk sharing strategies, the company takes a passive role after forming its alliances. As events unfold, the company is protected from excessive loss because of its portfolio of alliances. However, alliances are also used in the more active management of risk. One common use of alliances is to change the capabilities and strategic position of a company. Other companies have used mergers and acquisitions for the same purpose, Daimer-Benz did so in acquiring Chrysler, becoming a German-US...