International trade has contributed to the development of international markets due to improved communications and the growth of a global culture. International trade contributed to the growth of new markets for several multinational organizations leading to the development of big multinational companies. However, multinational companies were not able to capture some markets due to a lack of familiarisation of these markets or because of competition from other companies. As a result, multinational companies decided to rely on strategic alliances in an effort of establishing their presence in diverse markets (Murray, 2004, p.34).
Strategic alliances are aimed at tackling internal or external/market forces that face organizations better organizations that can tackle several challenges easily. The alliance between companies is normally undertaken to tackle internal challenges such as lack of appeal to enter new markets or lack of capital or resources to develop new products (Culpan, 2002). One of the most important reasons that has necessitated the formation of strategic alliances is the necessity of tackling the challenges that prevent the growth of an organization. Many organizations would like to partner with other established organizations in an effort of growing their market share. This is because entering unfamiliar markets is costly and thus partnering with existing companies is easy and less strenuous. For instance, Anheuser-Busch allows several local brewers in regions like Canada, Mexico to manufacture their Budweiser brand in a partnership strategy (Ajami, 2006). However, there are other strategic alliances that are formed to obtain good technology at an affordable cost. Some companies operate on less effective technology which disadvantages them from competing effectively in their own markets. As a result, they pool their resources or harness the power of external technology in organizational production. Technology transfer benefits a lot of companies especially those involved in skilled or complicated industries like the aviation or software industry (Rugman, 2009). However, some strategic alliances are formed to tap human resources or talent as a means of bolstering their internal operations. BP Amoco partnered with PWC in a deal that saw BP outsource its accounting operations to PWC for better services.
Financial risk is one of the internal reasons within an organization that leads a company into the formation of strategic alliances. Some companies find it risky to pursue the production of a new product or develop a new strategy. Consequently, they form strategic alliances that ensure the pooling of resources and expertise in the development of a new product. For example, Boeing formed a consortium with European Aviation companies as a means of taking care of the huge costs involved in producing large airplanes (Liu, 2009, p.40-43). In some cases, strategic alliances formed through takeover bids are utilized in boosting the financial capital of one of the firms. Several companies form strategic alliances to create synergies that complement their activities leading to reduce operating costs. This is common in companies operating in the same industry and market such as software or airline industry (Contractor, 2002). One of the most important reasons that lead to the formation of strategic alliances is to gain a competitive advantage. The growth in different markets has led to the growth of huge companies which disadvantages small firms in developing their niche in the competitive market. As a result, small firms partner with huge corporations to gain a competitive advantage and develop the capability of competing with multinational companies. For instance, Swissair and Kenya Airways are examples of companies that have formed strategic alliances with big airlines to accomplish quick growth strategies while at the same time implementing huge projects.
Strategic alliances are new and upcoming trends in international business utilized by several organizations. In the year 2007, IBM and Kingdee Corporation of China formed a strategic alliance. It was after IBM and Lehman Brothers invested in the company to a tune of HK $ 132 million for a 7.7% stake in the company. Kingdee is one of the largest producers of proprietary software in China and it has had the intentions of expanding its market share beyond China and Asia. IBM on the other hand is a large American conglomerate with a huge global presence in the technology sector. The alliance between the two companies will be beneficial to the two companies in terms of developing their markets, obtaining technology and gaining a competitive advantage. China is one of the leading consumers of goods and services in the world today. The Chinese market is dominated by local companies such as Kingdee, a software company specializing in ERP technology (Nadas, 2008). Kingdee is a leader in the Chinese technology industry and thus its alliance with IBM will help the company to grow its markets outside China. IBM used the opportunity of partnering with Kingdee as a benefit that will allow the company to enter the lucrative Chinese market. This is because Kingdee will share knowledge on customers, markets and distribution networks with IBM. IBM will profit from its alliance with Kingdee in reducing the risks associated development of a new and common product for the ERP market in China (Freidheim, 2006). The strategic alliance between Kingdee and IBM will provide Kingdee with a chance to gain a technological edge in producing their products. This is because an alliance between the two firms will create synergies in the acquisition of knowledge and expertise in software development. Kingdee will gain immensely since IBM is a pioneer in different technologies within the software industry. As a result, the alliance will result in the creation of valuable resources for both firms (Miles, 2006, p.12-14).
The strategic alliance between Kingdee and IBM will reduce the financial risks for the two companies. This is because both companies will collaborate in research and this will reduce costs for developing new products. IBM is one of the largest corporations globally and thus it controls a lot of resources that could be utilized by Kingdee in collaboration with IBM in financing projects (Clegg, 2007). International trade has led to the growth of manufacturing and producing nations. One of the nations that have benefitted from this growth is China which has a huge labor force and resources to produce mass products at a low cost. The emergence of China has led to the growth of Chinese companies which have been recognized as being influential in international business. As a result, the Chinese economy has grown tremendously to the effect of attracting interest from a lot of offering companies (James, 2004). The Chinese companies have challenged the dominance of other American and European companies that have a long history in the business. Consequently, the Chinese companies have partnered with global companies for the purposes of growing their market share or gaining a technological advantage. For instance, the strategic alliance between Kingdee and IBM was geared toward enabling IBM to penetrate the complicated Chinese market and vice versa for the case of Kingdee (Hwang, 2007). Kingdee’s alliance with IBM will aid IBM in understanding the cultural aspect of the Chinese business environment. As a result, IBM will be able to launch and market its products easily to Chinese companies and consumers with a little bit of ease (Zhang, 2009). IBM could also benefit from deregulation based on the fact that IBM could indirectly sell their products and services through Kingdee due to regulatory challenges they face in China.
The biggest benefit that will be accrued from the Kingdee and IBM alliance is the creation of synergies between the two firms. IBM is a company that enjoys economies of scale and its partnership with Kingdee will extend Kingdee’s reach in the global software market. Kingdee’s specializes in a niche market of production of ERP software and thus the two firms will exchange technology leading to the creation of technological synergies. In the Chinese market, IBM is a small player and vice versa applies to Kingdee in the global market. As a result, their strategic alliance will ensure both firms gain entry into the respective markets. Competitive advantage is one of the reasons that necessitate companies to form strategic alliances. Kingdee and IBM will achieve a competitive advantage as a result of their alliance. According to Rond (2003, p.85), small businesses benefit from strategic alliances in areas such as distribution, production, research and development (Kobashi, 2009, p.52). Since both firms’ core business is in the technology industry then both of them will benefit a lot from outsourcing, research and development. Kingdee will gain a competitive edge in terms of the marketing power it will gain from IBM’s extensive market reach. IBM on the other hand will benefit as a result of outsourcing the task of ERP development to Kingdee. IBM’s market reach and financial might will benefit Kingdee in terms of marketing its products to the global market and regions where IBM has customers. The alliance between Kingdee and IBM is similar to the alliance between Kenya Airways and KLM, whereby the two companies collaborate on marketing and sharing information KLM, is a large European Airline and therefore it assists Kenya Airways in gaining competitive advantage by allowing the airline to access the European market.
In any organization of the enterprise, risks are averse and it requires good judgment to recognize that a risk is both a hazard and an opportunity. Many organizations especially large and complex organizations like IBM face hurdles in undertaking risky decisions while at the same time controlling exposure to losses. As a business student with passion and expertise in business, risk management is a new field that contends more learning. Determining risks is a difficult task and therefore several approaches need to be used in mitigating risks. Management trainees and professionals need to be sensitized and trained to acquire knowledge and capacity to tackle risks. Knowledge of different techniques of mitigating risks ensures risks are handled from different diverse operational fields (Frame, 2003). The management field should be enhanced with training on risk management. As the future of business becomes innovative and challenging, numerous risks will arise and therefore better techniques should be developed in combating risks. Organizations that mitigate risks will reap the benefits of developing markets and their staff towards sustainable development. Risk management is not a preserve of business but it encompasses various fields within different organizations (Frame, 2003). The field should prepare managers and regulators with a broad set of skills in dealing with risks facing current organizations. I do contend that risk management will assist in building management knowledge and capacity in my career.
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