As the competition is on an increase, all the MNEs want their international market presence. To this end, as already noted in the reasons to go international, business firms must be competent to acquire, outsource, or internalize specialised assets, technical knowledge, organisational competencies, finance, production, supplier and customer network, and market intelligence on a global scale.
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And in today’s competitive environment, firms have to attain these competencies at a faster pace and at lower cost than its competitors. Since no firm, including mega business firms, can generate all these capabilities by itself, what is required is to go in for cooperative competition like strategic alliance. To get in strategic alliance is the third path to leverage its advantage in international competition next to international marketing and outsourcing.
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In brief the objectives of strategic alliances can be described as under:
i. To Enhance Capability and Competence:
Alliances may be specifically used to combine and to enhance the knowledge, technology, experience, skill and competence of the partners. Such blending may yield synergy or critical mass. Nissan sources Maruti’s A-Star small car from its Manesar factory and sells them as Nissan Pixo in Europe. The government of India preferred a joint venture between SAIL (India) and POSCO (Korea) over Arcelor-Mittal, the world’s largest producer in this sector and technology was that POSCO offered its patented FINEX technology.
ii. To Enhance Value Creation:
Participants may enhance value generation by means of the sharing and joint use of knowledge, experience, resources and competence. And also the unnecessary and/or wasteful duplication of resources can be avoided. Maruti and Volkswagon have planned joint action in product development and manufacturing in India.
iii. To Leverage Resources:
Hamel and Prahlad have suggested that strategic alliances may be used to
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Concentrate resources
Accumulate resources
Complement resources
Conserve resources
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Recover resource
iv. To Enhance Market Position And Achieve Business Development:
Alliance may be used to achieve expansion and growth whilst at the same time maintaining their individual identity. The process of organic development of the wider presence may take too long.
v. To Achieve Globalisation:
Strategic alliances may be used for getting market access and international business growth, access international networks and distribution, and to establish regional or continental manufacturing or distribution using large scale, world class quality facilities whose scale and cost would be beyond the resources and capability of any one of the partners.
vi. Risk Management:
Strategic alliances may be used to maximize the inputs of competence and experience to projects that are novel, uncertain or ambiguous. Since these projects carry the maximum risk, alliance help in spreading risk to all partners.