INDIVIDUAL WRITTEN ASSIGNMENT

Individual Written Assignment

Individual Written Assignment

Introduction

One of the fastest growing trends for business today is the increasing number of strategic alliances. According to Booz-Allen & Hamilton, the number of alliances is growing by 20 percent a year, with 10,000 new alliances being reported in 1998 alone. Alliances range in scope from an informal business relationship based on a simple contract to a joint venture agreement in which for legal and tax purposes either a corporation or partnership is set up to manage the alliance (Industry Week, 1994: 13).

For entrepreneurs, strategic alliances are a way to work together with others towards a common goal. While this may seem to be a strange goal for entrepreneurs, considered by many to be individualists, not amenable to any type of group endeavors, in a strategic alliance one can maintain one's individuality while reaping the rewards of team effort - and the gains from forming strategic alliances appear to be substantial.

Companies participating in alliances report that at much as 18 percent of their revenues come from their alliances. That number is projected to climb to 35 percent by 2004. The most active area for alliances is Europe where, according to a Booz-Allen Survey, many companies report as much as 42 percent of their revenues coming from alliances with Returns on Investment (ROI) from their alliances of over 23 percent. Many companies reported a higher ROI on their alliances than on their core businesses (Hutt & Stafford, 2000: 51). The 25 companies most active in alliances achieved a 17.2 percent return on equity - 40 percent more than the average of the Fortune 500. Alliances clearly pay off for the participants.

Discussion Analysis

A strategic alliance is essentially a partnership in which you combine efforts in anything from getting a better price for goods by buying in bulk together to seeking business together with each of you providing part of the product. The basic idea behind alliances is to minimize risk while maximizing your leverage. Alliances are often confused with mergers, acquisitions or outsourcing. While there are similarities in the circumstances in which a business might consider one these solutions, they are far from the same. Mergers and acquisitions are permanent, structural changes in how the company exists. Outsourcing is simply a way of purchasing a functional service for the company.

An alliance is simply a business-to-business collaboration. Another term that is frequently used is establishing a business network. Alliances are formed for joint marketing, joint sales or distribution, joint production, design collaboration, technology licensing, and research and development. Relationships can be vertical between a vendor and a customer, horizontal between vendors, local, or global.

In 1988, Mitsubishi and Daimler-Benz launched their strategic alliance with much fanfare. The capabilities of these giants seemed well-matched and global competition drove them into each other's arms. The leaders of the companies signed a deal in principle to collaborate in various areas. But no concrete projects were launched then, and no major ones were forthcoming ...