Explain the importance of strategic alliances in international Assignment

Explain the importance of strategic alliances in international business and the reasons why companies choose this growth strateg - Assignment Example This action of entering into foreign markets opens up the firm to benefits of economies of scale and increased opportunities for marketing and distribution. However, the cost linked with entering into foreign markets may far out-span the capabilities of a single firm (BLEEKE & ERNST 1993, 27). This then dictates the need to enter into a strategic alliance with another international firm. This has the effect of expediting the rate of entry into the foreign market albeit maintaining relative low costs (SHENKAR & REUER 2006, 71). Several logistical tussles are still to be encountered with entry into foreign markets. These tussles range from entrenched competition, unfriendly government regulation and irrelevant beauracracies (GIBBS & HUMPHRIES 2009, 45). There is a higher prospect of overcoming these obstacles when strategic alliances are employed, as contrasted to when the firm decides to venture into foreign markets on a solitary basis. There exist three core categories via which stra tegic alliance can be regarded. The first one of these is joint ventures. Joint ventures are formed when the respective companies combine to form an independent company. The respective companies decide to share the profit and loss of the new entity that will be created. One of the most notable cases where joint venture was created is that of Sony Ericson. Sony and Ericson decided to form a new entity known as Sony Ericson Mobile Communications. However, this new entity has just recently been fully owned by the Sony Corporation who renamed it Sony Mobile Communications. The next category of strategic alliances is equity strategic alliances. This entails the new partners having different percentages of equity in the new venture. Depending on the motive or goal of the strategic alliance, the partners can either opt to share equity in each other’s business on in one business. The determining factor is the reason for the strategic alliance. An example of such an alliance is that b etween Star-Bucks and Kraft. The last category of strategic alliance is non-equity strategic alliances. This is when a strategic alliance is carried out on the terms of a contract agreement rather than on the ownership basis. The relationship of this kind is usually referred to as a contractual relationship. A good example of a non-equity strategic alliance is the one between Vodafone and Telecom Malaysia. The deal was signed in 2006 whereby Vodafone was the leading partner. Strategic alliance requires a well though-out procedure to ensure the alliance is successful and realizes its intended goal(s). Prior to embarking on an alliance, firms should choose partners whose strategic goals and objectives are compatible to their own. The firm should take into consideration the extent to which synergy will be availed. Additionally, firms should endeavour to participate in strategic alliances that complement the firm. This translates to mean that, firms ought to engage in alliances that wil l complement their skills, their products and services in addition to its market share. Akin to all business agreements, rules and regulations must be incorporated into strategic alliances. These factors are divided into scope of operation and length of cooperation. The scope of operation entails partners agreeing on how to handle potentially competitively sensitive information. Secondly, it expounds on what will be shared and what will