Problems of Strategic Alliance and its Management

Problems of strategic alliance is accompanied by a problem which is different from that of a single organisation. The probability of occurring of such a problem becomes inevitable when two different and independent organisations work together.

The difference of opinion occurs very often due to various reasons like difference in cognizance, difference of values, difference in aims and difference in alliance resources. These types of differences become important factors for the triggering of innovation. However, the strong motivation for promoting such transactions that are beneficial to one part alone may end up in damaging the relationship of trust. It is possible that the fruits of alliance cannot be materialised in the event of lack of strong relationship and it is also possible that the strategic alliance partners may turn rivals in future.

The strategic alliance which has such types of problems requires relationship, trust and devotion, in particular. The following nine pints can be listed as the conditions for the strategic alliance.

· To have a clear understanding about the present and future capability requirement for one’s company (there are many cases when company’s jump over to grab any opportunity to meet the immediate needs, in actual practice).
· To study the alliance which has the possibility of covering a very wide scope.
· To seriously study the capability, zeal and values of the other party before entering into alliance relationship. It is necessary to understand the actual state of affairs of the other party.
· To consider beforehand, the risk of knowledge getting stereo typed, disclosure of knowledge and optimism etc. The two partners will have to harmonise and cooperate with each other, while they complete with each other at the same time.
· To avoid over dependence. It must be kept in mind that the alliance is not an alternative method to the development from inside. It should act to supplement the information resources of one’s company or improving upon them.
· The alliance of enterprise must be constructed managed in the form of an independent enterprise.
· The partners should have complete mutual trust. Trust and liberal communication are indispensable for the success of any alliance.
· The core type activity and the traditional organisation of one’s company must be modified so that the results achieved as a consequence of alliance are received with flexible mind.
· It is the responsibility of the leader to clearly communicate the purpose, importance and reasonability of the alliance through his or her speech and conduct. It is necessary that the leader must set a model example concerning the devotion, patience and flexibility.

As the enterprises adopt strategic alliance more frequently with an aim of acquiring and learning the knowledge, the management of overall alliance patter will gain importance over the individual alliance management. And with the progress in the process of forming alliance the significance of contribution of individual alliances to the strategy and basic purpose of enterprise will become less important. Rather, it will become necessary to study how various alliances affect the growth of the enterprises.

In this world of knowledge leadership based competition, the pre-dominance on the basis of the product is no longer a continuous possession. The knowledge which is difficult to transfer alone has become the real and basic asset for an enterprise.

However, the information resources which have higher degree of independence and are difficult to transfer also have some peculiar problems attached to them. The typical characteristic features like non-general purpose utility and fixed types etc of such information resources normally lead to loss of sensitivity, flexibility in behaviour and maneuverability towards the changes in the environment of the organization.

Strategic Alliance of Knowledge Chain

In the strategic alliance of product chain, the cost reduction, limiting the risk, accelerating the sales speed, expansion of competition opportunities, building flexibility and weakening of strengths of rival enterprises etc. can be carried out part-by-part.

However, this type of alliance is insufficient for assuring the pre-dominance of the competitive strength on a continuous basis. This is because of the fact that the pre-dominance is acquired on the basis of easily transferable information resources. Therefore, the pre-dominance of competitive strength which is gained through this type of alliance is gained through this type of alliance is of fragile nature and it can be lost very soon.

On the other hand, the competitive pre-dominance which is generated on the basis of difficult to transfer information resources through strategic alliance of knowledge chain is of a very strong nature. It is not very easy for any rival company to acquire the same pre-dominance state continuously.

The information resources which are difficult to transfer are different from the information resources which are easy to transfer and these can be obtained only through a cordial and cooperative working between the two organisations. The degree of originality is very high. Therefore, it forms the basis which generate continuous competitive pre-dominance as against the other companies or groups.

Two types of Strategic Alliance

The strategic alliance can broadly be classified into two different types. One is known as “strategic alliance of product chain” which aims at assuring mainly the transferable knowledge which can be easily transferred or acquired. The other type is called as “strategic alliance of knowledge chain” which aims at acquiring the knowledge through close relationship and is namely concerned with acquiring knowledge which is difficult to transfer.

1. Strategic alliance of product chain
This is the link on the basis of product or the parts, with alliance among the enterprise as the center of focus. The initial stage of alliance between G.M. and Suzuki which began in 1981 is an example of strategic alliance of product chain. G.M. required small car on immediate basis and Suzuki wanted an access to the transportation system in America as well as the capital investment for its self-designed sub compact car, without incurring the cost and risk of constructing its own dealer network.

The strategic alliance of product chain like this had played only a very small role in acquiring knowledge.

2. Strategic alliance of knowledge chain
In this type of strategic alliance, focus is laid on knowledge and it aims at learning the knowledge as well as creativity. This type of alliance is not restricted to similar enterprises only and is carried out even among the wide range of different organizations also. A typical example of this type of alliance was the tie up between I.B.M. and Seimens, which was made public in 1990. The two companies aimed at acquiring new technology for design and manufacturing of computer chip for developing the second generation chip which would have an accuracy higher than the most advanced chip, through this alliance.

Reasons for Selecting the Strategy Alliance

The present day competition is called the intelligence intensive competition and knowledge leadership competition. Why is it that the strategic alliance is being selected, while the other methods are found not suitable?

Let us try to understand the reasons for selecting the strategic alliance over other methods through a comparison with M & A or the other means like accomplishing by acquiring the resources from the market or by working on the basis of in-house resources only.

1. Meeting the requirement from in-house resource only
The building of knowledge and information apt to become inactive when the efforts are limited to in-house activity only. The speed of change in environment is so fast that it is difficult to catch up with the changes through in-house activity alone. However, the risk of competition is also very high and it may be more risky to go ahead independently.

2. Sourcing from the market
Large number of important management resources can be acquired from the market. However, any easily transferable information resource, which can be procured from the market (packaged knowledge as available in the design, drawing and manuals, the knowledge accumulated in the human beings or the knowledge fed into the machines) is a package which is extremely easily available and transferable with same ease for anybody. Therefore, this results more often in the “information paradox”, in other words, the information which can be obtained easily does not have much value.
The information resources which are difficult to transfer like the knowledge and information possessed by the skilled persons, teams and organisation etc. And the accumulated knowledge which cannot be transmitted completely to other persons have their own importance. Such type of resources cannot be obtained in the form of simple packages from the market or elsewhere, on payment basis.

3. M & A
As seen from the earlier text, it cannot be denied that the importance of M & A will increase from now onwards. However, the M & A is accompanied by various problems also, such as limitations with regard to objects, restriction to financial management resources and legal hindrances. Besides these problems also, the capability which is specific to a company also depends upon very fine factors like the job customs, feeling of trust, independence and entrepreneurship spirit. There is a fear of losing on these aspects also. Further, the flexibility in enterprise may also be lost.
These are the resources for which enterprises have resorted to strategic alliance.

Resources of Competition Strength

The reasons for carrying out strategic alliance mentioned so far include the harmonisation of competition, sharing of risk, combining of resources that can be supplemented mutually and to overcome the hindrances against the entry into the new market.

However, the explanation given through the above points, is not sufficient to understand the role of present day strategic alliance. The significance of strategic alliance which are being carried out more frequently today, can be understand clearly by focusing on the information management resources which are very difficult to shift and which can be obtained through co-operative working only.

Even among the management resources, the information management resources that are peculiar to the enterprise forms the basic resource for competitive strength, as explained earlier also. These resources have typical characteristics and these cannot be bought in the market and at the same time it is not very to generate these resources as well. The information resources are generated through the operation activities. These are the invisible assets possessed by the human beings.

The information resources which are generated through strategic alliance form the basis for the pre-dominance of important competitive strength. The joint activity of those who have different values and recognition systems as well as the combination and creation of bond among different sets of knowledge, are the conditions for promotion of innovative activity also. Any enterprise can sustain its competitive strength continuously, if it can generate its pre-dominance in competitive strength vis-a-vis the other company on the basis of such conditions. The other companies cannot easily acquire similar competitive strength. In this way, acquiring of information and knowledge as a management resource that form the origin of competitive strength is very important issue of determining the future development and expansion of any enterprise.

The strategic alliance is being understood by all the enterprises with such background and implications.

Strategic Alliance

Strategic Alliance getting more Activated

One more typical enterprise activity which is prevalent now a days is the strategic alliance like merger and capital participation, besides M & A. This type of strategic alliance among multiple number of independent organisations is very widely prevalent among diversified organisations and in diversified form.

· Form of strategic alliance : …… providing licence, joint development, collaborating operations etc.

· Partner of strategic alliances: ……competitive enterprise, suppliers, Govt instructions, universities, workers’ unions etc.

The competition among the enterprises has become more severe and there have been speedy changes in the view point of the customers as well as in the technological reforms. Further, the technological reforms have progressed day-by-day and have become composite. The scale of capital investment has also expanded and risks have also become larger.

In contrast, the accomplishment of all management resources from within, as required to meet the diversification and reform requirements from the existing operations has become extremely difficult in the present management environment for all the companies, howsoever, big or rich the company may be in management resources.

Even in Europe and America until the middle of 1950’s the companies used to depend mainly on the in-house management resources for the development of products or services. This is how the companies posted growth. However, from 1960’s onwards, the M & A became a strong tool for the growth of enterprises and in 1980’s the strategic alliance among the enterprises, like joint ventures were seen more frequently along with M & A. Today, it is well known that various big houses like G.M. and I.B.M are engaged in making positives efforts in strategic alliances.

The concept of strategic alliance has grown in Japan also. According to the survey conducted by the Head Office of Kansai Seiansei in 1990, the total number of strategic alliances by the enterprises with overseas enterprises till 1984 (collaboration and equity participation etc) were about 27% and this percentage increased to 38% in a period of 5 years after 1984. This survey was conducted for some enterprises listed on Tokyo and Osaka stock exchanges and some which are not listed, but are similar “Keiei jittai chosa” (Survey of actual state of management).

Further, the percentage of enterprises that had strategic alliances with other domestic enterprises was also 23% till 1984 and it increased to about 30% in 5 years since then. These figures are substantially high when compared to the percentage of those enterprises which have executed M & A. In addition, the percentage of enterprises that have undergone strategic alliances, has also shown the increasing tendency.

In this way, the traditional image of the enterprise has changed. Even in the large business houses, which had so far tried and achieved the development using the necessary management resources from within, there is a major change in the strategy.