Strategic alliances

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Part 1

Introduction

Strategic alliances and joint ventures emanate from an agreement between two or more organisations to pursue a set of established objectives while maintaining their independence. On the other hand, mega-mergers are created when two large organisations come together to create one corporation aimed at controlling a large share of the market. Economic commentators have different views on the significance of strategic alliances and joint ventures over mega-mergers. The effect of the recent financial crisis on businesses has been the key area of concern for economists. Some of the most common forms of strategic alliances and joint ventures around the globe include licensing, franchising, industry standard groups, affiliate marketing, cartels, and outsourcing. One of the most notable cases of strategic alliance was Lenovo and IBM. The critical importance of global strategic alliances and joint ventures include attainment of competitive advantage, economies of scale, easy entry into new markets, sharing of risk, and increased growth opportunities for both firms. Despite all these advantages, it must be underscored that strategic alliances and joint ventures did not come to replace mega-mergers. They mostly tend to complement them by making up some of the gaps existing among existing mega-mergers.

Strategic alliances and joint ventures are of critical importance because they facilitate the attainment of competitive advantage, lead to enjoyment of economies of scale, facilitate easier expansion into new markets, and promote risk sharing. It should also be underscored that the emergence of strategic alliances and joint ventures aimed at complementing mega-mergers and not to replace them.

Critical Importance of Global Strategic Alliances and Joint Ventures

The first critical importance of strategic alliance and joint ventures is the attainment of competitive advantage. Accordingly, strategic alliances and joint ventures have continued playing an instrumental role in ensuring businesses attain a competitive advantage in their markets (Austin, 2003). Competitive advantage emanates from the complementary strengths brought by each company in the alliance. Strategic alliances and joint ventures set the basis for effective competitiveness because of the independent operation of each business and the assurance of market control. They are likely to come with their customers into the alliances, hence, outdoing competitors in the market. Again, competitive advantage is achieved as firms in the strategic alliance pool together their resources for research and development of the market. Cebuc (2007) opines that they are able to get a better view of the market through combined market research projects that reveal the needs of customers. This ensures that they stay ahead of competitors who operate as a single entity. One of the most significant cases illustrating the attainment of competitive advantage is the strategic alliance between Hewlett-Packered and Microsoft. This alliance has played an instrumental role in ensuring that they achieve the required level of competiveness in the market. They invested over $250 million to simplify technology environments for their customers, hence, achieving competitive advantage (Bilal 2010). Strategic alliances and joint ventures have remained the best way to take over the market through combined projects aimed at satisfying customers. Therefore, strategic alliances and joint ventures play a vital role in leading to the achievement of competitive advantage in the market.

More so, strategic alliances and joint ventures are important because they lead to the enjoyment of economies of scale. Delaney (2010) agrees that pooling resources together ensures that companies in the alliance enjoy the advantages of large scale production. This is usually realised because of the decrease in the cost of production and marketing. An alliance between a large company and a small company is vital because it facilitates an exchange of capital for advantages such as innovations in the small company. Large scale production is achieved as these companies share technologies used in the production process, hence, reducing the overall cost incurred by the alliance. They are also likely to have access to the pool of trained employees with the required skills, hence, increasing their level of production. The creation of a large entity ensures that the alliance is able to move forward the realisation of the set objectives even as they operate independently. Economies of large scale are seen in terms of increased profits for the alliance and the ability of these companies to plough back the profit into the business (Feldman & Santangelo 2008). It sets the ground for increased innovations and technological application in the business, hence, ensuring continuous successes across the different markets they operate. The agreement to pursue a set of established objectives narrows the focus of both companies, thus, ensuring they focus on a principal large scale activity that is beneficial to both of them. Therefore, strategic alliances and joint ventures are important because they lead to large scale production and the subsequent enjoyment of its benefits.

Another critical importance of strategic alliances and joint ventures is the ease of expansion into new markets around the globe. Gaughan (2010) reiterates that strategic alliances and joint ventures between companies from different countries or continents make it easier for these companies to enter new markets, hence, increase their profitability. The most significant case study illustrating this benefit is the strategic alliance between Lenovo and IBM. Lenovo is a Chinese company while IBM is a company based in the U.S (Jiang 2007). This kind of alliance plays a vital role in leading to the acquisition of new markets around the globe. This is achieved as both companies learn the purchasing habits and reactions of consumers in different markets across the globe. It means they have the capacity to triple their profits in the course of their operations in the market. Apart from the purchasing habits, companies are engaging in a collaboration strategy to get the chance to understand the different distribution channels within the new market. This ensures they utilise most efficient means of product supply across their new markets. Globerman and Nielsen (2001) affirm that entry into new markets could be simplified through licensing, which ensures the local markets are fully tapped to its required potential. The cost of entering new markets is also reduced significantly because of the presence of local companies willing to offer support as per the provisions of the alliance. Thus, global collaborations are becoming important at the wake of each day because of their massive contribution to entry into new markets around the globe.

Strategic alliances and joint ventures are important because they facilitate risk sharing between businesses hence promoting growth. Isoraite (2009) agrees that every business faces different risks depending on its size and area of operation. The combination of businesses from different countries through alliances is crucial because it ensures that they share risks, hence, improve in terms of their growth. Some of the most common risks include the financial and market risks. The coming together of these companies offers an effective solution to the existing risks by ensuring they are effectively solved through continuous collaboration (Mitchell & Hensel 2007). A larger company is able to save a smaller company from financial risks through capital provision to the business, hence, ensuring its stability. This is usually achieved in cases where the portfolios of the companies complement each other and assert similar interests in the market. Maynard (2013) reiterates that market risks could be shared through a collaborative marketing campaign that is able to reach the entire market in the most effective manner. This alleviates each of these companies of heavy market losses. Continued sharing of risks presents an effective opportunity for both companies to growth through shared technology, human resources, and financial risks. They are always in a better position to overcome most of these risks, hence, remain stable in the industry as they move toward the realisation of the set objectives. Shared technology helps in the solution of risks associated with the production process by leading to the production of quality products that are able to compete effectively in the market hence expanding both companies (Rao & Guru 2009).

Did Strategic Alliances Come to Replace or Complement Mega Mergers?

The argument on whether strategic alliances and joint ventures came to replace or complement mega-mergers still lingers in the economic circles as people put forward different arguments. However, Sitkin and Bowen (2013) are of the view that strategic alliances and ventures did not come to replace mega-mergers, but they came to complement them. Their aim is not to supplant mega-ventures but to address some of the conspicuous inefficiencies in such collaborations of global strategy.

As noted earlier, a mega-merger aims at creating a single business entity while a strategic alliance is an agreement to achieve a set of goals while operating independently. Therefore, this brings out the fact that strategic alliances and joint ventures came to complement the need to work toward similar objectives. Todeva and Knoke (2006) agree that this global strategy has a focus on global operations among different businesses that focus on collaborations. It complements operations aimed at realising similar objectives among businesses that come together. The only difference is that it emphasises on the independent of each business.

Gaughan (2010) reiterates that independent operations are believed to be more efficient in times of financial crisis because they relieve businesses from total failure. Both businesses are able to get the chance to survive in instances of financial crises because of the mutual sharing of risks and maintenance of independent operations. Therefore, the main aim of strategic alliances is to complement mega-mergers by bringing in a new form of working towards related objectives. The new form ensures they maintain their independence, as they move toward the realisation of their goals. One of the most significant cases of mega-mergers occurred between AT&T and Direct TV.

More so, it can be argued that strategic alliances and joint ventures came to complement global mega-mergers in terms of market acquisition. They did not come to replace the strategic of market acquisition that has been widely used by global mergers. Zamir et al. (2014) reiterate that global strategic alliances came to widen the focus on markets by making it easier for both companies to operate in different countries. This is especially because of each of these companies remains independent in its operations. It only simplifies the entry into the market through licensing opportunities that come with reduced costs between collaborating organisations. Strategic alliances offer effective and cost-efficient strategies of market access compared to mega-mergers that tend to embrace a blanket approach to the market (Kumar 2011). This means that it came to simplify the method of market access without necessarily replacing the presence of mega-mergers. This is also to ensure that businesses wishing to come up with alliances as part of their global strategy embrace the best approach that would lead to maximum benefits for both of them as they seek more profitable markets.

Conclusion

In conclusion, strategic alliances and joint ventures have been seen as the solution to effective global strategy. A keen analysis of each of these global strategies makes me an anti-merger individual. The rationale for this is that strategic alliances and joint ventures remain important in the success of businesses wishing to collaborate. Again, this position is supported by the rationale that businesses in strategic alliances have the capacity to survive in times financial risks compared to mega-mergers. Therefore, strategic alliances are more effective because they boost the competitiveness of the businesses through expanded resources and markets. Such businesses are always in the best position to outcompete single businesses. For instance, a strategic alliance between Reebok International and NFL has given Reebok the ability to compete effectively with its competitors such as Puma, as it has a regular to supply its products (Hecox 2007). Again, they offer an effective way to new markets for businesses willing to collaborate. It is for a reason that they get the opportunity to explore markets across different continents and countries by learning the purchasing patterns of customers in the market. Business risks are also shared easily through strategic alliances and joint ventures.

Part 2

Introduction

Milton Friedman argued that a business’s main responsibility is to make profits. He emphasized on the profit motive because of its significance in facilitating the success of a business in its entire operations. Increasing globalisation and Foreign Direct Investment (FDI) have led to many businesses from developed countries moving into developing markets. It is crucial to note that different countries have differing legal factors that need to be fulfilled after the establishment of businesses by multinational firms. The current turnaround in globalisation and FDI plays a vital role in leading to the expansion of businesses into developing countries in Africa and Asia. In light of the increasing globalisation and FDI, I do not agree with Friedman’s philosophy of focusing on profits and ignoring the ethical part. The key objective of any business should not be only making profit, as this tends to be unsustainable in the future. Moreover, I strongly disagree with Friedman’s philosophy because companies relying on it will ignore worker safety and welfare, will ignore pollution rules in developing countries, will promote child labour in developing countries, will ignore the welfare of the community, and will mean the absence of regulators in the business environment. A business is a legal entity meaning and owes a responsibility to all its stakeholders. This means that it should not only focus on the profit motive, as this limits its attainment of other responsibilities in its capacity as a legal person. Friedman’s philosophy tends to encourage companies from developed countries to perpetrate unethical behaviours in developing countries in the course of their investments.

Friedman’s philosophy is disputable because it undermines employee safety, pollution standards in developing countries, the fight against child labour, community welfare, and the role of regulators.

Arguing against Friedman’s Philosophy in Light of Increasing Globalisation and FDI in Developing Countries

Firstly, Friedman’s philosophy is disputable because it undermines the safety and welfare of employees in developing countries. Mullerat and Brennan (2005) opine that the current increase in globalisation has made it easier for many multinational corporations to move to developing countries with the assurance of cheap labour that reduces the overall cost of production. Adhering to Friedman’s philosophy means these companies should only come to developing countries to exploit the available cheap labour and generate profits for their own prosperity (Ferrero et al. 2012). However, this is not practical because employees play a vital role in the creation of profits within any given organisation. Again, following this philosophy will make work environments risky as organisations do not consider coming up with safe environments for the performance of their employees. Schwartz (2011) notes that Friedman’s principle is disputable, as it cannot apply to the emerging globalisation and FDI where employees have to be treated in an ethical manner for them to perform effectively. It is always crucial for companies to appreciate efforts of their employees by rewarding them in the most effective manner. Multinational corporations entering developing countries would be encouraged to neglect the welfare of employees in instances where they are to implement Friedman’s philosophy. Argandona (2011) asserts that ignoring the safety of employees and their welfare in terms of appropriate salary payment leads to the loss of morale and makes it difficult for employees to deliver effectively. Thus, Friedman’s position that companies should only focus on profits is unrealistic and disputable because it does not recognise individuals behind the profits. It is vital to appreciate employees by providing a safe working environment without any form of exploitation.

Secondly, the increasing level of globalisation and FDI in developing countries makes it difficult for anyone to agree with Friedman’s philosophy because of its ignorance of the contribution of companies to pollution. According to Smith (2003), multinational corporations are widely moving into developing economies. It must be appreciated that these companies have the capacity to breach pollution laws in these countries in instances where were to follow Friedman’s philosophy. In tandem with FDI in developing countries, most multinationals will only move into these countries with the aim of earning profits without caring about their effect on the environment. Friedman’s philosophy tends to emphasise that practices such as pollution are allowable in any given country (Bowie 2012). However, it is the responsibility of companies to shift from their profit motive to environmental responsibility.

Companies are supposed to ensure that they are operating in clean environment. They are supposed to adhere to pollution standards and laws established in developing countries because this is would facilitate their overall growth and attainment of more countries. Watson and Prevos (2009) warn that overlooking aspects such as pollution and dedicating the objective to profitability will negate operations in the company, as there would be demands for its immediate closure. A business will only be accepted in a developing country in cases where it has a straight record in terms of pollution and the safety of the environment. Overlooking pollution laws are always perceived lack of responsibility on the part of the company, and it might not be allowed to operate in the country (Carroll & Buchholtz 2014). Encouraging companies to pollute the environment while focusing on profits, discredits the entire concept of globalisation and FDI that are aimed at facilitating development in developing countries. Overall, Friedman’s philosophy encourages companies to pollute the environment with impunity and this is not sustainable to their operations. They are supposed to show some sense of respect by adhering to pollution laws without necessarily focusing on the attainment of profits.

Thirdly, I do not agree with Friedman’s philosophy because it tends to approve practices such as child labour in developing countries, and this contravenes the principles of globalisation and FDI in developing countries. With Friedman’s philosophy, multinational companies moving to developing economies are supposed to recruit employees without considering their ages. Cheers (2011) is of the opinion that this philosophy supports the use of child labour in the creation of a company’s profits. It tends to encourage companies to move toward the adoption of cheap labour in developing countries. In light of the increasing globalisation and FDI in developing countries, Friedman’s philosophy fails to meet the threshold of corporate social responsibility and the main objectives of a business. Businesses should not use any form of child labour in their production processes and assume that they have no time for ethical practices (Griseri & Seppala 2010). Developing countries around the world have put up systems that protect their children with the aim of ensuring that they are not exploited by multinational companies coming in through FDI. This ethical principle has to be part of any business that aims at succeeding in its operations within developing countries. Utilising child labour in any form of production or marketing of the company’s products is illegal and should never be allowed. Accordingly, Friedman’s philosophy tends to open gaps in the recruitment system by allowing businesses to use any form of labour as long as they achieve their profit motive. Smith (1990) argues tht companies working with children in their production activities may not even make the required level of profits because of the negative reputation they are likely to build around the world. Globalisation has made the entire world a global village, and such practices will be easily detected from all corners, hence, negating the ability of the business to make profits as its main objective.

Additionally, Friedman’s philosophy is disputable in the contemporary globalised world because it ignores the aspect of social marketing that is done through empowering the society. It is obvious that the society forms a significant part of any business. According to Hampson-Jones (2007), a business is only able to succeed in instances where it has been accepted by the community. Nevertheless, Friedman’s philosophy encouraged businesses to push on with the profit objective without looking at the existing needs within the society. The current rate of globalisation and FDI in developing countries will make it difficult for such a business to succeed, as it would be thrown out by the society. It is always vital for a business to provide quality goods to its customers who come from the society to ensure it is fully accepted (Mackey 2006). Providing substandard goods aimed at generating profits will lead to the ultimate collapse of the business. Again, a business has the responsibility to ensure the society has access to social amenities including water resources, schools, and other community empowerment projects. A business that cannot participate in such activities in developing countries is always perceived irresponsible and not worthy to operate in the community. Marcoux (2000) is of the view that the high level of negativity toward such businesses reduced the amount of profits generated by these businesses in the course of their operations. Therefore, it is global knowledge that a business is supposed to be socially responsible to the society because this is a vital form of social marketing. Ignoring this aspect as suggested by Friedman’s philosophy will make it difficult for any kind of business to succeed in the contemporary world full of innovations and investments in developing countries. Therefore, businesses should come up to help communities because this is the first step toward their profit-generation success.

Lastly, Friedman’s position is not agreeable because it directly discredits the role of regulators in the wake of globalisation and FDI in developing countries. Martin and Mertens (2013) emphasise that multinational companies are gradually moving to developing countries where there are different regulators focused on enhancing business practice. For instance, there are trade unions that fight for employees and environmental agencies that focus on pollution control within the country. Horrigan (2010) points out that adhering to Friedman’s position means companies should not be obliged to follow the standards put in place by these regulators. It ignores the crucial of regulators in the economy by prioritising the profit motive for business. In tandem with the increasing level of globalisation and FDI in developing countries, all companies are supposed to observe the provisions of regulators in the economy. A company does not risk anything in instances where it appreciates the existence of these regulators by fulfilling their required standards (Schaefer 2008). For instance, employees should be treated in the required manner to avoid legal actions from employee unions. Similarly, pollution must be minimised at all levels to ensure that costs of litigations are alleviated within the organisation.

Focusing on the profit motive while ignoring the existence of regulators, will present a challenge for any business wishing to succeed in its activities. Success will not come easily for such a business because of continuous complaints of non-compliance and dedication to the profit motive. In fact, profits will plummet with increasing complaints and fines relating to the irresponsibility of the business and the ignorance of different regulators. Therefore, it is vital for a business to recognise the existence of regulators and adhere to all the standard set by regulators instead of focusing on the profit motive while ignoring their presence in the business environment.

Conclusion

In conclusion, Friedman’s philosophy that a business’s main responsibility is to generate profit is arguable because it fails to recognise that a business is a legal entity with responsibilities. In light of the increasing level of globalisation and FDI in developing countries, I strongly disagree with Friedman’s philosophy. This philosophy is disputable because it fails to recognise the need for safe working and welfare promotion among employees. There is no sense in making profits while ignoring the position of employees in the organisation. Again, this philosophy perpetrates child labour because of its firm against ethics in business. Child labour is unethical and should never be used as an excuse for profit generation within organisations. The current movement of FDI into developing countries will not make sense in cases where children are used as cheap labour for production and marketing purposes. Again, this philosophy ignores the significance of the society to any given business. A business owes responsibility to society in terms of development projects and the provision of quality products. This is a form of social marketing, and it ensures the business is able to earn maximum benefits. Pollution will also be increased in cases where Friedman’s philosophy is adopted. This is because many businesses will not care about the contribution of their activities to environmental degradation. Overall, Friedman’s position is disputable because of its promotion of practices that will not give a business lasting success in the market. These practices harm the business reputation hence limiting its ability to generate profits.

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