FROM SEARCH ENGINE TO INFINITE POSSIBILITIES

From Search Engine to Infinite Possibilities

From Search Engine to Infinite Possibilities

Question 1:

In a complex, uncertain world filled with dangerous opponents, it is best not to go it alone'. As globalisation leads the world forward, national boundaries diminish and competition increases from less industrialised nations it becomes more and more difficult for firms to maintain their market shares. To define competencies, and to exploit the advantages from combined knowledge is one of many drivers for cooperation between firms. Big Companies co-operate in many ways, such as licensing, franchises, turnkey projects, joint ventures, strategic alliances and equity alliances. This helped big Companies like Apple, T-Mobile and Barnes generate greater revenues, acquire new resources, expand into unknown markets and minimise competitive risk(www.nydailynews.co).

There are some opportunities for big companies like Microsoft and Yahoo if they become Google partner. To begin, Williamson (1975) suggested that companies might choose alternative arrangements that minimise the sum or cost of production and transaction cost. Transaction cost economics was developed by Williamson (1975), and Kogut (1988) states that 'transaction costs refer to the expenses incurred for writing and enforcing contracts, for haggling over terms and contingent claims, for deviating from optimal kinds of investment in order to increase dependence on party or stabilise a relationship, and for administering a transaction'. Therefore this theory suggests that alliances are created to obtain a minimum cost relationship. Building apon this, Horaguchi and Toyne (1990) state 'the strategy to form an alliance is not just reactive, it is also proactive in that it creates new products, new markets, new organisations, new management techniques, and new technology'. On the other hand Harrigan (1985) takes a broad view of the motives of strategic alliance formation, where internal benefits, competitive benefits and strategic benefits are all grouped together (googleblog.blogspot.com).

Porter (1986) in comparison, states that the formation of a strategic alliance depends on the five forces; the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, and rivalry amongst firms. Thus, firms may form collaborations and agreements if any of the five forces push against the firm. Porter (1985) also links the five forces with the three generic strategies; cost leadership, product differentiation and focus. Kogut (1988) mentions that alliances are formed under the competitive strategies approach as a defensive mechanism in order to hedge against strategic uncertainty (www.guardian.co.uk). These theories provide us with reasons why firms may collaborate together, we must now put this into practice and consider the methods used by multinational enterprises.

Daniels & Radebaugh (2001) outline the reasons why companies may co-operate with each other, these motives shall all be discussed using examples with maintaining the focus of the multinational enterprise.

To begin with, Companies' may cooperate together to benefit from spreading their costs or reducing their costs. For example contracting out tasks that take place in a firm can be more economically feasible then the firm actually undertaking the task in-house. This is because the sub-contractor may have excess capacity ...