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solved assignments semester 4 Q. What, in brief, are the types of Strategic Alliances and the purpose of each? Supplement your answer with one real life example of each.


Answer: Types of Strategic Alliances and Business Decisions
The mutual agreements between the organisations can take a number of forms and are increasing their common goals to get upper hand over their competitors.
The different types of strategic alliances are listed below:


Joint venture Joint venture is the most powerful business concept that has the ability to pool two or more organisations in one project to achieve a common goal. In a joint venture, both the organisations invest on the resources like money, time and skills to achieve the objectives. Joint venture has been the hallmark for most successful organisations in the world. An individual partner in joint venture may offer time and services whereas the other focuses on investments. This pools the resources among the organisations and helps each other in achieving the objectives. An agreement is formed between the two parties and the nature of agreement is truly beneficial with huge rewards such that the profits are shared by both the organisations.
The advantages of joint venture are:

·                     A long term relationship is built among the participating organisations
·                     It Increases integrity by teaming with other reputable and branded organisations
·                     Helps in gaining new customers
·                     It helps in investing little money or no money
·                     It provides the capability to compete in the market with other organisations
·                     Reduces production time as the organisations are into join venture
·                     More new products and services can be offered to the customers

The disadvantages of joint venture are:
·                     Sometimes the organisations deal with wrong people, thereby losing investments
·                     The organisations do not have the opportunity to take up decisions individually
·                     There are risks of disputes among the organisations that lead to poor performance
·                     If the organisation enters into joint venture agreement with unprofessional selfish  organisation, then it increases the risk of hurting business reputation and devastating customer’s trust.

Example – The China Wireless Technologies, a mobile handset maker is getting into an agreement with the Reliance Communications Ltd (RCom) to launch its new mobile. The joint venture between the two companies is to gain profits and provide affordable mobile phones to the market that consists of advanced features and aims to earn eight billion dollars in the next five years. The new mobile consists of dual SIM smart phone with 3G technology at a cheaper rate.

 Mergers and acquisitions
Merger is the process of combining two or more organisations to form a single organisation and achieve greater efficiencies of scale and productivity. The main reason to involve into mergers is to join with other company and reap the rewards obtained by the combined strengths of two organisations. A smart organisation’s merger helps to enter into new markets, acquire more customers, and excel among the competitors in the market. The participating organisation can help the active partner in acquiring products, distribution channel, technical knowledge, infrastructure to drive into new levels of success. With the perception of the organisation structure, here are a few types of mergers. The different types of mergers are:

Horizontal merger – The horizontal merger takes place when two organisations competing in the same market join together. This type of merger either has a maximum or minimum effect on the market. The minimum effect could also be zero. They share the same product line and markets. The results of the mergers are less noticeable if the small organisations horizontally merge. Consider a small local drug store that horizontally merges with another small local drug store, then the effect of this merger on drug market would be minimal. But when the large organisations set up horizontal merger, then higher profits are obtained in the market share providing advantages over its competitors. Consider two large organisations that merge with twenty percent share in the market. They achieve forty percent increase in the market share. This is an added advantage of the organisations over its competitors in the market.

Vertical merger – This involves the union of a customer with the vendor. It is the process of combining assets to capture a sector of the market that it fails to acquire as an individual organisation. The participating organisations determine the intentions of joining forces that will strengthen the current positions of both the organisations and lay basis for expanding into other areas. The purpose of a vertical merger is to build the strengths of the two organisations for an effective future growth. In order to explore new methods of using existing products to create a new product line for wider markets, it is also important to consider the assets like property, buildings, inventories and cash assets. The vertical merger involves careful planning.  Market-extension merger – It is the process of merging two organisations that sell same products in different geographical areas. The main purpose of this merger is to make the merging organisations to achieve higher positions in bigger markets and ensure a bigger base for client.

Product-extension merger – Most of the organisations execute product extension merger to sell different products of a related category. They serve the common market. This merger enables the new organisations to pool their products to serve a common market.

Conglomerate merger – This merger involves organisations alliance with unrelated type of business activities. The organisations under conglomerate merger are not related either horizontally or vertically. There are no important common factors among the organisations in terms of production, marketing, research, development and technology. It is the union of different kinds of businesses under one management organisation. The main purpose of this merger is to utilise financial resources; enlarge debt capacity and obtaining synergy of managerial functions. The organisations do not share the resources; instead it focuses on the process of acquiring stability and using resources in a better way to generate additional revenue.

Acquisition is the process of purchasing an organisation by another organisation, either through the purchase of its shares or assets.

Massive growth can only be achieved in less time by buying other organisations. Acquisitions have become the major entity for growth in market these days. Most of the organisations choose to grow by acquiring other organisations to increase market share, gain access to new technologies, achieve synergies in the operations, to develop distribution channels, and to obtain control of undervalued assets. There are many risks in acquisition like clashes in the culture of organisation, key employees may leave, synergies may fail to emerge, assets may be less valued than perceived etc.

Collaborations and co-branding Collaboration is the process of cooperative agreement of two or more organisations which may or may not have previous relationship of working together to achieve a common goal. It is the beginning to pool resources like knowledge, experience and sharing skills of team members to effectively contribute to the development of a product rather working on narrow tasks as an individual team member in support to the development. Such collaborations are the foundation for concepts like concurrent engineering or integrated product development. Collaboration is a win-win methodology. It means that both the organisations insist upon each other to gain equal profits with no negative attitude of acquiring each other’s possessions. Effective collaboration can be obtained by the following actions: The organisations must get involve in the process from the beginning and avail the necessary resources for collaboration.

·         The work culture in the organisation must encourage teamwork, cooperation and collaboration.
·         There must be effective team work and cooperation among the employees of both the organisations to achieve the goal.
·         Systematic approach of product development process must be based on sharing of information, technology etc. Co-branding involves the process of combining two or more brands into a single product or service. It is becoming a positive way to associate different brands and develop a strong brand in the market. It creates synergy among the various brands. An organised co-branding strategy leads the co brand partners to a win-win situation and helps in realising large demands in the market.

The co-branding agreement includes the important aspects such as rights, obligations, and restrictions that are abiding to both the organisations. It also includes important provisions and the needs must be carefully drafted to provide clear guidelines to the involved organisations. The organisations form co-branding to accomplish many goals which include expansion of customers, obtain financial benefits, respond to the needs of customers, strengthening its competitive position, introducing new product with strong image and to gain operational benefits.

It is more frequently used in the field of fashion and apparels. It can also be used for promoting campaigns, using cartoons on T-shirts, logos, distributing through branded retailer etc.

Example – The sportswear giant Nike formed co-branding agreements with Philips consumer electronic products. The Philips electronic products will contain Nike’s logos and it is mainly marketed in United States since the market share of Philips is not much impressive. The newly introduced digital audio player and portable CD players of Philips will be unveiled with the Nike logo to enhance profits in the market share in United States.

Technological partnering It is the process of associating the technologies of two different companies to achieve a common goal. The two organisations work as co-owners in business and share the profits and losses. The technologies of individual organisations are shared to achieve desired outcome. The required resources like knowledge, machinery, and expertise are collaborated between the organisations. Example – The software giant, Infosys Technologies Ltd. has entered into partnership with US based NVIDIA, GPU inventor and the world's visual technologies giant. The purpose of this partnering is to develop NVIDIA CUDA (Compute Unified Device Architecture). This technology is viewed as the next big revolution in the field of technology in lending high performance in computing. The software helps the developers of various applications to tap into the previously uncultivated power of the GPU. This will enable certain applications to achieve high performance. The capacity of CUDA is expected to multiply fifty times the performance of existing computing and reduce the run time to advance the user enterprise.

Contractual agreements It is the process of agreement with specific terms between two or more organisations which guarantee in performing a specific task in return for a valuable benefit. The contractual agreement is the heart of business dealings. It is the most significant areas of legal concern and involves variations in certain situations and complexities. The organisations require analysing fundamental factors before involving in contractual agreements. The elements to be analysed are:

·         It is necessary to identify the type of offer being laid by the organisation to make an agreement.
·         The acceptance of the information involved in offer which results in meeting the market needs.
·         The organisations are required to recognise the strong commitment towards the contractual agreement.
·         Systematic scheduling of the process involved in manufacturing product without any hindrances to both the organisations.
·         Discover the terms and conditions for manufacturing the product and the guarantee of the organisations in fulfilling it. The contract agreement includes several documents such as letters, orders, offers and counteroffers. There are various types of contractual agreements. They are:  Conditional – It is based on occurrence of an event.
·         Joint and several – The organisations promise to perform together but still they possess individual responsibilities.
·         Implied – The judicial court will determine the contract between the organisations based on circumstances. The parties will be able to buy all manufactured products, enter into a contract to supply other’s requirements, or renewal of the existing contract.

Outsourcing
It is the process of entering into a contract with an organisation or a person to perform a particular function. Most of the organisations outsource the work in numerous ways. The function being outsourced is considered as noncore to the organisation.

The external firms that provide outsourcing services are called as third parties or it is commonly called as service providers. The concept of outsourcing existed from the era of work specialisation. Usually organisations adopt this concept to carry out narrow functions such as payrolls, billing, and data entry. Since most organisations lack in many resources, it outsources these processes to other organisations which consists of specialised tools, facilities and trained personnel.

The four stages involved in the process of outsourcing are:

·         The first phase involves strategic thinking for developing the organisational philosophy about the role of business activity outsourcing.
·         The second phase is the process of evaluating and selecting the appropriate outsourcing projects and choosing the potential location for the work force.
·         Third phase is the process of contractual agreement such that the business activities are worked legally in terms of pricing and service level agreement (SLA) terms.
·         The final phase is to outsource management to refine the present working relationship between client and outsourcing service providers.

Example – Tatvasoft is an Indian outsourcing company that offers software development services to its clients in United States, Canada and Australia. They provide software outsourcing services and solutions with the focus on secure, scalable, and reliable business systems. The key benefits of outsourcing are cost efficiency, availability of trained staff, flexible manpower utilisation, and risk minimisation. 

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