Strategic alliances have been common since the beginning of business corporations and these alliances are always mutually beneficial. Such alliances have been common on a global scale since the past 50 years and have proved to be significantly successful for many organizations. But the rate of failure of such alliances have also been high since the beginning and there have been some challenges faced. These hindrances are mainly due to the lack of communication between the involved parties and sometimes even a cultural difference can be the reason. Such alliances have been formed at an international level in the recent decades and led to the growth of many multi national companies. By studying these patterns and the challenges faced by such alliances, a critical evaluation can be made regarding its future state
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. When organizations want to enter a foreign market it is advisable to create an alliance with an existing competitor in the market. This new ally can help the company by providing an already established market regime. The ally on the other hand can utilize this organizations vast resources. The important factor here is the practical knowledge of the markets. This plays a highly crucial role in most internationally created business alliances. By having a domestic alliance while entering a market, one can also make sure that the product or service provided is according to the customers taste and preference. Sometimes there are also exist barriers created by the government for new market entrants and these barriers can be broken with the help of strategic alliances. Division of risk is also an essential motivator in the formation of strategic alliances at a global level. When there is a high level of instability in the market, corporations seek to form temporary partnerships and alliances so that the losses and risks can be divided carefully.
Other important reasons for being in a strategic alliance are competitive advantage and synergy. These are highly crucial motivators for most organizations to enter into alliances especially before entering new and different market. Firms which want to expand their business at a global level want to have a competitive advantage in the market and the best way of doing so is to create alliances in these domestic markets. A lot of time is saved when an organization enters into an alliance as they can use the established modes of operations. These alliances can be in the form of joint ventures, franchising, research and development, outsourcing and even distributors. It is also suggested that the success and responsiveness of an international alliance is dependent on the location and country. The state of cultural value of a country also weighs into this decision. Moreover by studying the cultural differences in an alliance, the adverseness of a situation can be controlled effectively. Alliance managers play a crucial role in such situations and it is suggested that if these managers realize the importance of social benefits over the economic ones, both the organizations involved will ultimately reap the rewards and benefits.
The most dire challenge in forming a successful international strategic alliance is the selection of a suitable and trustworthy organization. The most prominent reason for the failure of alliances is the low level of compatibility between the organization. It is of utmost significance to find a party that will fit the structural and organizational policy of the firm. The goals of all the involved parties should be leveled and integrated. There should be a considerable level of trust between the involved companies or else it might lead to internal conflicts in the alliance. This alliance should be equally beneficial for both the organizations so as to restore balance in their operations. The distance between the aligned parties also plays a highly crucial role here and is among the most difficult challenges faced by such an alliance. The more the distance between the involved companies, the higher the chances of the alliance failing. Thus there must be a mutual trust and confidence between the involved organizations as this will lead to smoother and effective functioning. The firms must keep aside their cultural differences and utilize each others knowledge and other resources to increase the profitability and satisfy the stakeholders. To beat the distance barrier the companies will have to undergo radical change patterns in their working and structure so that everything is up to date. This barrier can also be dealt with by the use of innovation and technology which has been dominant in the recent decades. By using the internet and other technological enhancements of today, the organizations entering in an international strategic alliance can make sure of its mutual beneficial relationship for a long period of time.
Another hindrance that can be identified in the formation of alliances is the interference of government and other such political bodies. This is a massive concern in some countries and have limited the growth of organizations immensely. Governments also sometimes charge heavy taxation fees which ultimately end up taking a part of the companys profits. This ends up affecting the alliance in a negative manner. It is also possible that sometimes the government might confiscate the assets of a company functioning in its domestic boundaries and this can prove to be a very harmful act towards the strategic alliance.
Thus there exist numerous challenges that have led to the failure of many international strategic alliances and groups. In this world of quick globalization, it is necessary for some companies to depend on the benefits that are provided by international alliances with other organizations. These benefits can be reaped but there will be challenges that should first be overcome. To do so the most important step is to find the right partner to conduct business with and develop a relation of mutual respect between each other. This is the core and essential requirement for a successful international strategic alliance and must be followed precisely. Strategic alliances have been forming since decades and can be utilized by companies to achieve a greater level of profitability. The final product and service can also be improved which will be highly beneficial for the consumers. But for this to be possible, the organizations must be careful and chose a suitable partner to align with. This may be difficult to do due to the unfamiliarity of the new market and its level of operations. But if done the right way, strategic alliances can help a firm venture into new markets and achieve a global level of expansion in its business.