Literature Review
The aim of this report is to analyze the concept of strategic alliances that emphasize on the value proposition of joint ventures, which promotes accessing the knowledge in a better way than acquisition. Strategic alliances assist organization in tapping new base of customers. The process of managing partnerships can be demanding because of co existence of parent organizations. Incompetent goals, past rivalry, non identical management style and business legal and political complexities affiliated with government for cross border may cause a deal of obstruction in strategic alliances. The globalization and evolution of technologies modified the operations procedure of businesses and resulted more inclination toward strategic alliances. Strategic alliance is not always beneficial for advancements of an organization, it has limitations also.
Global marketing process implies discovering the needs of the customers across the world and then fulfilling these needs better than other market players in both local and international sectors. Palepu and Misztal (2012) stated a simple structure international strategies and investment concept can utilize to chart the distinctive institutional subjects of any developing markets. According to them the probability to broaden the market base in developing countries is to first evaluate the absence of established facilities and then to device strategies to exploit “institutional voids” to as a competitive advantage of the organization (Sherman 2014). International strategy states that an organization does not fortify strategic international partnerships will not get ahead in global market. Strategic alliances facilitate organizations to seize and exploit the growing opportunities in global markets. The partnership aids companies to utilize resources of each other and curbs the limitations; it also enhances the reliance between native and foreign partners. In spite of the significance of inter organizational relationship for the utilization of resources with common objectives, conflicts occur due to resource dependence theory (Jin, Zhou and Wang 2017).
Strategic alliances generated and cultivated as legalized inter-organizational partnerships, significantly among international organizations across the world (Yang 2013). These synergetic relationships follows to attain long and short term goals through association than through competition, but partnerships also develop challenges at several levels of organizational structure. Strategic alliances are crucial to companies for a number of important factors:
- Momentum to capture the new market is significant, and strategic alliances promote it.
- Complexity is increasing, and no single organization has the required total expertise to best serve the customer.
- Partnerships can finance the R&D and product development costs.
- Alliances aids entry to international markets.
Baranov explained the significance of strategic alliances in organization’s activity. He proposed strategic alliance as an agreement where two or more businesses amalgamate together for a certain period of time. The partners, typically are not in direct rivalry, but have familiar products or services that are focused toward the same target segment. Strategic alliances help business to secure competitive advantage by using customer base, technologies, human resources and funds. It implies amalgamation or fusion between two or more distinct event to structure a entity, in most case for competitive reasons. So allies may provide the strategic alliance with entities such as distribution channels, product, manufacturing unit, funding, knowledge, expertise (Russo 2017).
Types of Strategic Alliances
The strategic alliances are commonly classified into three categories: joint venture, equity strategic alliance, and non-equity strategic alliance. The three classifications of strategic alliance play a key role in competitiveness in market and achievement in the global market venture
A joint venture refers to a legal contract by two or more parties to construct a single unit to oversee a project. When two or more organizations establish an independent unit of operations to share their mutual interest and capabilities to gain competitive advantages in the market is defined as joint venture. Joint ventures are conducive in forming long-term partnership and in sending knowledge. Knowledge transfer cannot be reckoned, it can only be learned through experiences (Schneier and Ezra 2016) such as those taking place when people from partner firms work together in joint venture. Competency and experience in an area propagate the sustainable competitive advantage.
Equity Strategic Alliance: Two or more organizations when form a mutual profitable relationship to carry out common goals while remaining self reliant is implied as equity strategic alliance. Ownership percentage in equity strategic alliance is often not equal. Entitlement of the shares of newly formed company varies according to their (Belal and Akhter 2012). Strategic alliances emphasize on the connection between two or more different organizational culture, operational capabilities. Cultural diversity is one of the aspects of equity strategic alliances. Foreign direct investments (FDI) are one of the examples of this.
Non-equity Strategic Alliance: Non-equity strategic alliance implies is formation of a new partnership without engaging in equity shares. Two or more organizations share the partnership on contract basis to attain competitive advantage (Belal and Akhter 2012). Non-equity Strategic Alliance depicts the less formal relationship so experiences are not obligatory.
- Expertise or knowledge exchange:Strategic alliances between two or more entities help them to co produce a better product because of their advancement of respective fields.It is difficult for any single organization to procure financial and other capabilities to continue their research and development efforts .This also helps organizations to shorten their product life cycle to be competitive than their competitors. Telecommunications, Electronics, Information technology are the industries that cater to strategic alliances.
- Cut throat global competition: Strategic partnerships strengthen the key competitiveness of any organization. It plays a crucial factor for the small and medium sized companies with prominent market leaders. Smaller companies stay competitive with their strong allies.
- Amalgamation of best Industry practices: Intricacies of skills converge when the companies from two different sectors make partnership with each other. An alliance enhances the strength to combat excluding potential entrants and single player.
- Gaining Economies of scale and cost effectiveness:Gathering resources provides economies of scale, and cost effectiveness. Multinational companies gain immense advantages due to the partnerships with the local ones.
There have been seven parameters involved in success of strategic alliance (refer to the figure 2)
Selection of strategy than partner: Selecting a strategy should be priority than selecting a partner first. Strategy will examine the importance of strategic alliance than acquisition or joint ventures (PWC 2017).
Invest in mutual planning: Mutual beforehand planning aids to create the foundation for successful execution and strengthens trustworthiness (PWC 2017).
Structuring the dissolution: Strategic alliances has limited lifetime due to its formal in nature and should be planned about shared assets and people (PWC 2017).
Building and nurturing trust: A strategic alliance is all about interorganizational co operation with one another. It is important to adopt a ‘win-win’ situation (PWC 2017).
Starting with achievable common objective: Keeping focused achievable common objective is significant to foster trust and execution of the plans (PWC 2017).
Benefits of Strategic Alliance
Regular monitoring: Regular monitoring on metrics that will measure success rate of the alliance’s objectives is important (PWC 2017).
Creating enterprise-wide capability: Promoting alliance culture is prime factor for a dedicated common corporate function, and utilizing this method is important to cultivate that (PWC 2017).
All the business entities include internal and external environment. External and internal analyses are important for understanding environmental analysis. It is significant to track the market/competitive, governmental/legal, economic, supplier/technological, geographic, and social aspects. The external factors of an organization entail factors cannot be influenced. External environment in business focuses to a consolidated environment which can have direct influence or not. It is a set of political economic, social, legal factors and technical factors, which cannot be directly managed but impacts on company behavior (Isiac 2014).
PESTEL, (refer to the figure 4) a management tool is applicable to examine external factors. It focuses on detailed issues which have direct implementations to business. The term ‘PESTEL’ explains the domains of Political, Economic, Social, Technological, Environmental and Legal. A unique approach to PESTEL is discovering trends. It anticipates change and provides organization to act proactively. (Watkins Harvard Business Review 2017)
Political environment: It refers to government policies and regulations the approach towards the new and existing business, trade unions. All these aspects have an impact on the design of corporate strategy dependent on the political factors of a country or territory. All organizations must adhere to the law, and managers need to understand the effect of future laws (Wan et. al 2014). Greece is a member of International trade and diplomatic organizations: EU, OECD, NATO, ISO, UNESCO and Interpol. Continuous modifications in leadership affected the business because of due to political instability (Export.gov 2017).
A recent economic model is being applied, to facilitate an investment friendly economic environment which will build confidence and trust based on entrepreneurship, international openness and competitiveness. The major goal of government economic policies is to the trade deficit, minimize inflation, public sector loans and, as well as to finish the privatization of public sectors. Many multinational companies (MNEs) choose Greece as the pivot for their access to Southeast Europe and the Middle East. Greece is the only country having the membership of both an EU and EMU and providing monetary and exchange rate stability for international business environment.
It involves social elements like values, beliefs, literacy, mortality rate, and customs as whole demographics of a country. Demographics and the culture always drive valuable impact on the company’s process. (Kennerle and Neely 2013). The percentage of Economically Active Population in Greece is around 77 to 80%.In Greece 3.727.633 individuals were employed whereas 859.003 individuals remained Unemployed (rate of unemployment 23%) in 2015. In 2016 rate of unemployment was near to 25% according to the Greek National Statistics Service (Export.gov 2017).
It refers process and techniques to approach the development of products and their channel strategy. Due to the advancement of technology and communication process, it plays a significant factor. Greece currently owns the largest commercial marine navy around the globe, with the first rank among the EU and fifth internationally in terms of Deadweight tonnage (DWT). Greek administers 4,092 ships of different categories, with a total of capacity of 320,597,574 DWT and 188,904 GT (Export.gov 2017). The advancement of technology made Greece a strong player in the maritime sector in the world.
Seven Important Factors for Success of Strategic Alliances
In Greece (“kinopraxia”) is referred in commercial practice to imply the strategic alliances of individuals or businesses to carry out a specific task. A 25% tax is applicable to any type of profits realized by the joint venture, each partner either jointly or separately liable for tax responsibilities of the joint venture. Special rules apply also for the maintenance of the accounting records of a joint venture
Law 3669/2008 : regulating JVs for the construction of public works
Law 2810/2000 : regulating JVs in the agricultural sector(enterprisegreece.gov.gr 2017).
The internal environment specifies human resource management in the organization. The internal environment can be influenced and monitor through the proper designing and management of the organization. Internal environment components include structure of the organization, organizational culture, human resources (?uri?i? 2013). Productivity of workforce, competency, and knowledge are a deciding factor for achievement of organizational growth. Careful observation is required for the recruitment of qualified workforce to increase the capability. Financial factors often act a constraint to attain the objective o recruiting qualified workforce because it is an integral aspect of best business practices. (Obradovi?, Fedajev and Nikoli? 2012)
The Tsavliris Salvage Group spearheads in the salvage and towage market around the globe thogh its strategic partners present across the world. It provides its group of ships for tugging in the crucial situation. The multi tasking fleet named ‘Hermes’ is anchored at Greek port. Tsavliris salvage group are planning to construct an one stop solution to ships and shiping companies around the world using online platform by the special joint venture with its Chinese associate Kamji Marin international.
During the fatality in Chinese marines, Tsavliris Salvage will be able to help its clients with its technical and other different operational activities, to assure that the quality of service they experience is exclusive and unique in approach. The strategic partnership of Tsavliris Salvage will provide great assistance to the physical presence of Zhoushan International Marine Services Base, will facilitate to increase its visibility in the region of the Yangtze River Economic Belt (tsavliris.com 2017).
The alliance manager refers to the executive in charge to take the strategic relationships further at different level in its lifecycle (refer to the figure 3). Business managers associated with the alliance have dissimilar roles such facilitator, moderator, principal sponsor on the basis present life-cycle stage related to alliance.
Figure 3: Life cycle model of Strategic Alliance (Source: Das 2012)
In the beginning stages the alliance manager acts as a strategic benefactor, a blend of liaison and visionary. He supervises for the shift of the long term goals of the company to an array of commitments that have to be taken related to the alliance creation and performance, selection of partners, time period for the alliance and alliance operation manner. Identification and selection of that business alliance supervisors acts as a crucial role in alliances and that their duties embellishes more complex under the stress of rivalry unpredictability of the technological changes. The report analyzed the alliance manager scrutinize the proper control mode of their potential alliances using strategies such as, taking benefits of reputation earned through previous cycles of the same or different alliances with the paired partner, harvesting the advantages of company similarity for trading resources and skills, and thus yielding new goods and services along with the knowledge , utilizing the massive size of the current organization to invest in new proposals with small mid-sized companies, resources or talents of competitive advantage owned by the other organization , developing through focusing on market integration and product diversification.
Analysis of External Environment
Conclusion:
When an organization faces economic or legal obstacles to implement full ownership or hierarchy as a result, it will select for a strategic alliance to hinder particular market challenges that may intimidate its prosperousness. Strategic partnerships therefore consolidate liabilities and of all present or potential partners. Strategic partnership or alliances engage at least two or more organizations. These organizations share common advantages and management influences over given assignment or project. The organizations are also legally self reliant and they helps in particular strategic fields such as procedure of the production and technology. Strategic partnerships or alliances therefore generate mutual benefits between the organizations which drives advantages as a form of intangible assets .Several analysis and studies have been registered the positive results for the organizations involved in strategic partnerships. These incorporate higher return on investments, better return on equity, better return on investments and commendable success rates than to organizations that incorporate through mergers and acquisitions. Strategic decisions are directed by the assessment of current and prospective advantages that an organization plans to achieve. On the contrary organizational operational strategic decisions are anchored on calculations of costs and transactions. Strategic alliances between two or more organizations are not guided by the conventional and predictive direct influence on revenue, costs and other tangible advantages but by indirect positive results from the benefits derived indirectly. These intangible parameters of competitiveness where an organization turns out to be achieving ruling position in the market than their rivals are remarkable delivery of service, customized and exclusive products and even profitability. Strategic partnerships strive to be one of the major strategies in the business as a result of rising competition in the international market. However, strategic alliances approach distinct structures and those forms are not constrained to promotional and business domain alone. Strategic association of robust partners who are strong competitors in the same industry, alliance between robust and infirm partners, can open up new ways to growth of the infirm or weak partners, unison between business which are complimentary in nature , merger causes that outcomes in creation of a new company. The main agenda of strategic partnership or alliance is to enhance value with different goals on exchange, efficiency, knowledge gathering or surpassing barriers.
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