The Consequences of Strategic Alliances in the Business World

When Companies join together to form an alliance, they engage in the exchange of skills and production strategies for mutual benefit of each other. Typically, one ally may have the advantage of focusing on industry while the other member may have the benefit of the industry ecosystem depending on the types of the amalgamating organizations (Gomes, Bames and Mahmodd, 2016). The old system of industry structure whereby companies operated based on traditional approaches such as a single unit to achieve their strategies has been outdated. Based on the current business ecosystem, organizations prefer forming alliances in order to produce products and enter into a sensitive market that neither of the organizations could pass in alone (Albers, Wohlgezogen and Zajac, 2016). The ecosystems involving the formation of alliance reflect the current trend in the world. Based on this reality, there are various consequences of the formation of alliances in the business world today and they include:

It leads to the emergence of economies of scale.

This is normally achieved when firms come together hence merging their resources, technology and capital to formulate a new business and achieve their strategic goals. Following the study of (fang, 2011), organizations having complimentary abilities can depend on one another instead of spending numerous time, human and financial resources enhancing the achievement that they have already gained. The formation of alliance in most Companies has led to a massive expansion in terms of operations and revenue. In addition, other organization have merged and as a result improving their technological systems (Tallman, 2017). For instance, the alliance between Safaricom limited and Vodafone incorporation led to the revolution of mobile money known as MPESA.

The enhancement of competitiveness is a major consequence of strategic alliances

Unlike the old industry structure whereby organizations operated with a strategic objective of achieving their short-term and long-term goals, the current ecosystems focus more on establishing a powerful market and product forces through collaboration between two or more firms. In most incidences, participating in an international business requires organization several fields of specializations in order to cater for the world market (Starčević and Subotić, 2015). Under the order industry structure system, organizations were able to gather necessary production resources and execute most responsibilities by themselves. Though, after introduction of the new technology, companies have experienced challenges especially when using the current technology to enhance their production systems. In order to operate effectively under the normal global strategy, most companies are opting to a worldwide performance strategy whereby they will sustain their critical competencies only. To execute this this strategy efficiently in the ecosystems, gaps existing among the merging organizations are filled by the missing gaps on the other organization (Miehé, Lingens and Böger, 2018)

The formation of alliances leads to the establishment of new operating standards

The application of the new technology has played a key role in the emergence of new market opportunities. For instance, the alliance between Google Incorporation and Luxottica Group SA will lead to a mutual relationship and benefits to both of the Companies. Google is an American technological conglomerate that specializes mainly on offering search engine and advertisements. On the other hand, Luxxotica is an Italian-based eyewear Incorporation. Luxxotica is regarded as the largest eyerwear corporation in the world. As a consequence of their alliance, Luxxotica will be able to reach more customers through advertisements and the existing Google customers after marketing eyewears in collaboration with Google incorporation. The effectiveness of operation within an alliance ecosystem can be facilitated by the application of the global advantage diamond. This model demonstrates the effectiveness of penetrating growth markets by redesigning distribution models and reducing the cost of market resources. This model operates under the concepts of market access, resource access, local adaptation, and network coordination in order to promote the success of an alliance as shown in figure 1.1 below.

Source: (Sadeghi and Moradi, 2017)

Figure 1.1

The capability to participate in new foreign markets in a more knowledgeable way is another significant consequence of the business alliance policy. This is similar to the impacts of operating under the new ecosystem structure that enables organizations to ally based on environment rather than their industry structure. This policy enables the merging businesses to exchange relevant information relating their distribution and marketing strategies. Such information is applied to enhance the marketing and improvement of core activities of the alliance. In addition, this effect ensures that the product offered for sale will be presented to the target regions and the chances of receiving successful purchases are high. Both allying partners can advise each other on the modifications required for products in order to meet the regulatory and market tastes.

According to the new global reality, there are various economic forces that have triggered the way organizations operate. Contrary, globalization has achieved an increasing rate of growth marked by several financial crises. RDEs have offered western companies’ attractive opportunities to attain their global operation ambitions hence this has stimulated the activity of these companies to form alliances with other Companies from the globe. With such initiatives, there are various problems that have emerged as a consequence of the alliance policy among organizations.

Problem Identification:

The problem in that the old-fashioned industry structure is based on traditional strategies of operating a business and marketing products, as a result, it cannot provide an appropriate way of executing a competitive advantage within the business due to the following:

The establishment of market barriers through unfavorable acts such as government taxation

The establishment of market barriers is a major problem towards the allying of firms based on the ecosystem structure. For instance, the government of the United States has initiated multiple regulations to ensure that organizations are responsible for the level of authorities they exercise in the business environment. The formation of business alliances can lead to the emergence of a monopoly power hence exploiting consumers. As a result, the government enacts regulations that control operation of large corporations hence making it a challenge to formulate the new ecosystem business structures that facilitate the emergence of strategic alliances. Some of the regulations are

Continuous business innovations in the current world

Innovation has constantly transformed the operations of most businesses in the 21st

century. Innovation activities are crucial in promoting development of businesses in the current environment. Under the current situation, research and development is regarded as the most significant sector in an attempt to progress with the present technological advancements. Since most businesses tend to ally based on their ecosystem structure, the rapid improvements and advancements in technology have made it difficult to form alliances with organizations that rely on the traditional system of marketing products and operating. According to the study of (Sambasivan, 2011), organizations require efficient human resources in order to improve their level of innovation and technological advancement.

In the current world, organizations have extraordinary benefits in the business ecosystem which enables them to acquire a massive business experiences and skills to help enhance their competitive advantages. In addition, companies have opted to apply the strategy of diversity in order to promote the emergence of diverse talents within the workplace. As a result, diverse talents have stimulated innovation in Companies a move that has enabled most Companies to achieve their long-term goals and ambitions. Following the findings of (Shi, Son and Pescott, 2012), operating with a diverse workforce not only triggers the innovation of an organization but also establishes an effective understanding between business employees and the client base.

In order to promote an innovative business ecosystem, senior executives are responsible for promoting both skill development and the advancement of the human capital (Dudin et al,. 2015). For this rationale, the most talented individuals are typically trained in order to advance their knowledge and ability to perform the assigned duties more effectively. This training also focuses on training the employees on any updates resulting from innovation or the application of new technology in order to enhance their understanding and operational efficiency. To advance from the traditional business industry structure to the current ecosystem structure marked by adoption of the new technology, the business executives should allocate financial resources in order to promote the functioning of the technical team charged with the task of establishing and improving the ability of a business to apply the concept of innovation. Finally, the problem of encountering constant challenges while maintaining continuous business environment should be aligned with an efficient solution in order to ensure that a business achieves its competitive advantage within the market.

Solution

The establishment of unfavorable business policies such as high taxation can be a major challenge if strategic managers fail to address it accordingly. The problem of regulation may be categorized into various sections in order to obtain a specific solution (Karia, 2018). For instance, unfavorable regulations that may affect a business include: advertising policies, employment and labor, privacy protection, environmental impact and safety and health regulations. To address the effect of these regulations, an organization should consider the following solutions;

i) Evaluating different regulations and policies of a given nation or state before making a strategic decision to venture there. This will reduce the incidences of encountering unfavorable regulations rather than focusing on attaining the competitive advantage in the market. For this reason, the new ecosystem structure should be ventured in countries that have favorable trading regulations and policies.

ii) The second solution is that strategic managers should aim mainly establishing innovators within the organization rather than promoting the spirit of innovation. This implies that, with innovators, there will be a clear understanding of the current customers and innovating techniques and technology will be more customized to meet the specific requirements and expectations of those customers. This solution will ensure that organizations work extra-harder to offer excellent services and products resulting from innovation in order to gain a competitive advantage edge in the market.

iii) Since the formulation of an efficient innovation system within an organization is a complex system, strategic managers are instructed to place a complete focus on the demand and requirements of customers. As a result, they will be able to formulate an innovative strategy relevant to their specific scenario.

Recommendations

Considering that this strategic management white paper was executed to support the fact that the traditional mindset of business and product groups does not deliver an opportunity to achieve the competitive advantage of an organization. As a result, the strategic managers should be more concerned with the current ecosystem structure supporting the use of technology and modern business techniques. The following recommendations were made:

i) To implement the solution of establishing innovators rather than promoting innovation, the strategic managers should train and educate innovators based on the current standards in order to enhance their skill and benefit the entire organization. Educating innovators can take the form of booking vocational trainings and allowing them to visit shows and exhibitions on the best innovative Companies.

ii) To implement the solution of evaluating the regulatory systems and policies within an organization should be implemented by consulting the Trading Regulatory Authority. This body will give a guideline that contains all the policies and regulations that control the activities of organizations. Every strategic manager should this recommendation in order to avoid focusing on gaining the competitive advantage for an organization while failing to fix regulatory problems that may act as the key barriers to progress and success.

iii) Strategic managers are advised to formulate an innovative business strategy that aims at enabling the ecosystem business to achieve a competitive advantage. To practically achieve this, the strategic managers should consider involving other critical departments such as sales and marketing to contribute and formulate an effective innovative strategy for operation.

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