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Joint Alliance Essay

1022 words - 4 pages

In an era of great flux in the commercial world, large companies are breaking up while others are coming together. The mode of entry we have selected for our product, is by a joint venture. The advantages in doing this is, we share the risk and cost of doing business and benefit from local firms knowledge culture and language. The disadvantage of doing this is, we share control of the company and we may have conflicting interests, or ideas.Alliances enable companies to make incremental commitments to an unfolding strategy, a useful feature when environmental uncertainties preclude decisions that are more definite. In addition, the partial commitments involved in alliances leave the company with resources to invest in more than one such arrangement, then spreading and diversifying risk. At the same time, however, the open-ended nature of an alliance means that if not managed carefully, it can unravel and nullify all the potential benefits. If the partial commitments of the members are not enough to compel them to act co-operatively, the alliance can be a recipe for strategic gridlock.Joint Ventures are most useful in hedging your bets when there is uncertainty among competing future outcomes. This kind of uncertainty is common to the dot-com world in which there are likely to be one or only a few winners. In but hedging and risk sharing strategies, the company takes a passive role after forming its alliances. As events unfold, the company is protected from excessive loss because of its portfolio of alliances. However, alliances are also used in the more active management of risk. One common use of alliances is to change the capabilities and strategic position of a company. Other companies have used mergers and acquisitions for the same purpose, Daimer-Benz did so in acquiring Chrysler, becoming a German-US automotive group. When should a company, under pressure to change business capabilities or market position, use a joint venture or alliance? Differences in cost apart, these alternative strategies manage risk differently.A joint venture at an early stage of transformation can also be seen as a way of buying an option on future developments. The company first invests in an alliance and then has the option to either to exit or get more deeply involved after it sees how the business develops. The cost of entering a relationship is relatively small in this case, as is the cost of exit; but the value of the option to grow the relationship may be high.There are risks that may occur in joint venture projects. Management lore on alliances is full of anecdotes of messy relationships and of allies that turn into rivals. Here are a few ways to manage the relationship risk in a alliance. First avoid co-opetition, the risk is high in alliances between rivals. Define the scope carefully, even if not direct rivals, good fences make good neighbors. Do not ignore governance: careful structuring of the alliance in advance of the deal and continual adjustment...

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