An alliance is a agreement between two or more independent companies, which by joining or sharing part of their capabilities and / or resources, without merging, establish a certain degree of interrelation to carry out one or more activities that contribute to increasing their competitive advantages. They are produced in any industrial sector, pursue the most diverse objectives and integrate companies of different sizes and activities.
The predisposition of a company to make alliances will depend on the need it has of certain resources or services, and on the capacity of the possible partners to provide them. Therefore, the competitive position of the company will depend on both its internal capacity and the type and scope of relationships established with other companies.
- Constituted by a group of independent companies that contribute capital and resources to the global cooperation project. There must be a link of need between each of them.
- The product of this group of companies maintains its legal identity, its culture and its ability to management to independently develop their own strategies.
- It must specify: the companies that comprise it and the future obligations of each one in relation to the activities that are the object of the alliance; and the objective of its activity.
- In turn, the companies that form it maintain full autonomy with respect to activities that are not subject to cooperation.
- Its organizing principle is that of self-organization and its basic unit of action is two or more companies interacting, not a company acting in isolation.
- It is <fuzzy border>> between market relationships and organizational relationships that makes knowledge flow more easily from one company to another.
- Relationships within an alliance are more egalitarian than in a hierarchical organization; taking strategic it is done by consensus and authority and command give way to influencey negociación.
- The activity of this collaborative project is carried out on a continuous basis and in the medium-long term.
- The duration of the alliance is limited and dynamic in the face of changing and complex competitive conditions.
- They are supervised by organisms for the defense of competition and subjected to rigorous controls.
Reasons to create an alliance
The reasons for creating an alliance are twofold: The most important is for a defensive instinct to survive, the other would be for the offensive desire to achieve a competitive advantage. In this way the alliance facilitates the efficiency of the company and the best distribution of resources.
The main problem posed by the alliance is the oversizing that the company reaches, which can be solved with several alternatives, the most optimal being an alliance specialized in the component of larger-scale production, which allows companies to reach a level efficient efficient without changing its current dimension.
The most relevant advantages of alliances are: Decrease production cost, decrease company risks by investing in projects R&D and allows the diffusion of technology through companies.
The causes for which alliances are created are very varied: We can find government motives, With this, the penetration of the company in the country is achieved since it allies with a national company, alliances in times of uncertainty and turbulence allow to open new paths to compete, alliances are created to set sector standards and to face the competition without using excessive resources.
Alliances have 3 anti-competitive effects:
- They reduce potential market competition.
- They eliminate current competition between partners.
- Vertically related partners may exclude or impede competition from independent providers by trading with parent organizations.
Disadvantages of the alliance
- Opportunistic behavior: is the breach of what has been agreed or the attempt to take advantage of what is agreed.
- Technological risk: The alliance can lead to the dissipation of strategic advantages if the partners manage to appropriate their key technology.
- Cultural risk: A problem that may arise is that the different cultures and operating environments of the partners are incompatible.
- Political risk: They take forms ranging from hard currency controls to expropriation, from changes in tax laws to requirements for additional local production, or expensive pollution control equipment.
- Competitive risk: Unless the long-term strategic value of the alliance is understood, frustration will be felt when it turns out to be an inexpensive and easy way to respond immediately to the uncertainties generated by globalization.
- Achieve economies of scale or learning: concentrating the resources of the different partners increases the scale of activity or the learning rate with respect to the case in which each partner operates individually.
- Advantages of access to an activity or knowledge: by establishing a coalition with a company that enjoys superiority in a certain field.
- Risk reduction in operations that, carried out individually by the partners, would pose too high a risk; but which is distributed when they are executed by the coalition.
- The organization of competition that can be achieved through alliances or coalitions in a certain sector.
When formulating its competitive strategy, the company must be clear about which activities it can carry out internally, which ones it has to acquire in the market and those that it must carry out through a strategic alliance. Those influenced by previous experience and the perception of possible earnings influence the company's attitude towards sharing the performance of certain activities.
The search and screening of partners are decisions that take time and other resources in order to make as few mistakes as possible. An inappropriate choice can create difficulties that lead to the failure of the alliance. Among the most suitable criteria to select the partners proposed by different authors:
- Geringer believes that the relative importance of the selection criteria can be assessed by variables associated with the strategic context of the alliance and partners.
- Harrigan recommends following three criteria in selecting the right partners for the company: consciously select your partners, choose those with previous alliance experience, complementarities between the two companies.
- Porter and Fuller believe that the alliance will be more effective if the structures and procedures of management of partners are similar.
Phases of the cooperation process
- Strategic planning: the starting point is always the elaboration of a strategic plan in which the long-term lines of action are determined, as well as the instruments that the company has to carry them out. In the same way the company must make a Insights of its weaknesses, threats, strengths and opportunities within its sector of activity.
- Evaluation of alternatives: The company can adopt different strategic options: Going alone, mergers or acquisitions, cooperation. The latter is the most used because it is a more flexible strategy and in which fewer resources must be exposed, in addition to the fact that the company maintains its legal independence and the freedom to act in those fields in which alliances have not been established.
- Cooperation design: an action plan is established, in which the resources are determined, the people who are going to be responsible for their compliance and the deadlines. The stages in the design of the cooperation are: search and selection of partners, negotiation process and legal form that the agreement can take.
- Cooperation implementation: It is the implementation of the agreement to meet its objectives. If, once the cooperation has been determined, it works, it is advisable to monitor and control it to identify any possible problems and be able to solve them.
Conditions for the stability of an alliance:
The difficult thing is not to create an alliance, the difficult thing is that it reaches the proposed objectives and meets the expectations of the members. For this it must remain stable during the planned operating time. Trust (based on reciprocity, where partners have complementary resources and common goals) between the parties can be more effective than formal aspects in achieving stability.
Stability is reaffirmed when: the partner is identifiable in the market, its long-term profitability depends on the realization of new alliances and when potential partners are in a position to learn that this partner is not to be trusted.
Stability is strengthened when: there is a good sponsor and good institutional leadership.
It is threatened when: dominance by a partner appears, NIA syndrome (rejection of any idea that comes from abroad no matter how good it is), mobility of managers (they will break the alliance if it benefits their business expectations), due to the complexity of the alliance, differences between the parties (dividends, choice of suppliers ...), strategic error (the bases on which it has been based are wrong), lack of dedication to nurturing the alliance, existence of hidden outputs and abandonment by a partner.
For it to survive more than the usual limit of 7 to 10 years: It is necessary to broaden the planned objectives and if there are problems in meeting objectives, choose to redesign the alliance.
Solution: The flexibility to evolve and recover. With a letter of purpose that addresses all important issues and is not legally required, the commitment necessary to work together is demonstrated by maintaining an open process for making adjustments.
Types of partnerships
a) Alliances according to their nature
- VERTICAL: It is based basically on a buyer-seller relationship; it develops across the boundaries between activities, emerging as part of stable buyer-seller relationships. Some of these agreements favor specialization since it allows companies to focus their efforts on carrying out the activities that they really dominate, hiring the rest from abroad. Therefore, the formation of vertical alliances implies identifying the activities where the company has a good competitive position. The basic reasons for this type of cooperation are access to the capacity of the partners and the achievement of efficient production.
- COMPETITIVE HORIZONTAL: They are carried out by companies that compete in the market and are therefore direct rivals, but as partners they are interested in jointly developing some type of activity. They are the most numerous. These alliances tend to give positive results when the partners are similar in strength, weaknesses and objectives; They also favor the emergence of economies of scale, reduction of excess capacity, the transfer of knowledge and the pooling of risks.
- COMPLEMENTARY HORIZONTAL: Carried out by companies that market complementary products and are therefore not direct competitors in the market.
b) Alliances according to their field of application
- PARTNERSHIPS IN TECHNOLOGY: Technology deals are proliferating lately due to the inability of a company to generate internally all the technologies it needs; Furthermore, this type of cooperation may be favored by governments with technological policies that support this activity through subsidies or other means.
- PARTNERSHIPS IN PRODUCTION: Production cooperation basically seeks economies of scale, as well as sharing risks and obtaining comparative advantages from the local conditions of a country, therefore these agreements are very important from an economic point of view, and provide advantages in the medium and short term.
- ALLIANCES IN MARKETING: Only 24% of industrial producers sell their products directly and the remaining 76% do so through some type of intermediary. An essential element for the proper functioning of a partnership with distributors is the existence of good communication between the manufacturer and the distributor.
Analysis of alliance contracts
- Technology contract: They are joint research agreements made by competing companies to develop knowledge and techniques in the sector. These agreements have different clauses that must not violate competition.
- Production contract: They are industrial supply and common purchase agreements by a group of companies.
- Marketing contract: They are agreements that affect the distribution of products and services as well as the advertising and promotion included in it.
Specific factors for the success of the cooperation:
- The agreement must set specific objectives and the determined duration to achieve them.
- The alliance must be simple in order to be easily manageable. They should always be easily capable of accomplishing the tasks for which they were created.
- It is easier for the relationship to be successful if there has been a previous professional relationship between both parties.
- If the company has previous experience in cooperative strategies, it will be easier for it to be successful.
- An alliance has a better chance of success if there are other collaboration agreements in progress.
- Trust is one of the keys to the positive outcome of an alliance. The partners' position must be clear from the outset.
- There must be information and participation of the main cadres in the companies involved.
Specific factors of failure in an alliance:
- Significant differences between the objectives pursued
- Irreconcilable differences in corporate culture or management styles.
- Perception of inequalities in the distribution of the load.
- Weakening of the negotiating position of one of the partners when one of the partners takes a position of strength due to the knowledge acquired or changes in circumstances.
- Opportunistic behavior of one of the participants.
- Lack of rigor in Insights strategic.