Strategic Alliance Advantages and Disadvantages

Meishi Thomas Williams
Everest University Online Business Policy and Strategy
November 28, 2012
Instructor: Jill Heaney

Strategic alliance is defined as a formal agreement between two or more separate companies in which there is strategically relevant collaboration of some sort, joint contribution of resources, shared risk, shared control, and mutual dependence (Thompson 2010). There are many advantages with a strategic alliance that I will explain throughout this paper. According to the text, there are five factors why businesses form alliances. Exxon- Mobile merged in 1999, they signed an $81 billion dollar agreement to merge and form Exxon-Mobile. This merger became the largest company in the world. Because the merger was so large, the FTC required the company to the restructure many of the gas stations to incorporate the new Exxon-Mobile branding in order to avoid monopolization. Exxon-Mobile remains the strongest leader in the oil market with a huge hold on international market. This company remains the world’s largest publicly held company (second to Wal-Mart). The biggest advantage is mainly because it makes them more competitive. Companies are able to offer more products and or services. They are then able to provide or extended to other audiences. Many companies show improvements in there profit from participating in relationships of the strategic alliance. Approximately twenty percent of the revenues reported come from these ventures. There are several advantages and several disadvantages of strategic alliances.
Advantages:
I think that there are more advantages to go by than disadvantages, when you weigh the pros and cons I think that this is the best way to go; 1. Gain competitive advantage through access to a partner's resources, including markets, technology, capital and personnel. 2. Costs are shared among all members of the alliance, thereby reducing the cost to each. 3. In the eyes of the public the company has more to offer and seems larger than it is. 4. Add complimentary resources and capabilities, enabling participants to grow and expand more quickly and efficiently. 5. Reduce marketing and advertising costs, since these will be shared among the members of the alliance, leading to greater brand awareness; expand potential markets, selling to a larger target audience. 6. If your business operates locally, a strategic alliance can help it expand statewide; if statewide, it can expand regionally or nationally; if national, it can expand internationally. 7. Provide opportunities to take advantage of economies of scale through bulk buying, placing the alliance in the same league as much larger entities in terms of purchasing power. 8. Broaden the market penetration and market share and Increase sales. 9. Maximize ability to raise capital, as potential funding groups see these alliances as safer bets for future profits than each of the individual entities alone.
Disadvantages:
There are also some inevitable trade-offs to consider: 1. Weaker management involvement or less equity stake. 2. Fear of market insulation due to local partner's presence. 3. Less efficient communication. 4. Poor resource allocation, difficult to keep objectives on target over time. 5. Loss of control over such important issues as product quality, operating costs, employees, etc. I am not sure that I would have any advice other than to make sure that you complete all of the research necessary to maintain and have a successful merger. You must make sure that you are ready to make the commitment and deal with all of the ups and downs that it takes to be necessary. Just know where you are going and how long it is going to take to achieve the goals you are after. Always remember it is ever changing.

Reference
Thompson, A., Peteraf, M., Gamble, J., & Strickland III, A. J. (2012). Crafting & executing strategy. (18 Ed.). New York: McGraw-Hill Irwin http:// www.google.com
http://www.management.about.com/mergers