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Discussion Question-Week 7

A strategic alliance has been called a “hybrid organisation.” How is this different
organisational form and what is its significance? Use examples from your own company or
one you know well.

TABLE OF CONTENT

1. Introduction

2. The formation of strategic alliances

3. Case Study

4. Conclusion

References

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1. Introduction

As for the firms involved in strategic associations or alliances it has already been recognized by
international business study that there are various favorable results for them like better return on
equity & investment and better success ratios in comparison to amalgamation by way of mergers
and acquisition or the organizations that are part of Fortune 500 list which don’t get into forming
inter-corporate associations (Buckley and Casson, 1988b).

The concepts of strategic alliances and organizational fields

As the companies look out for new competencies and competitive benefits even as steering clear
of market doubts and structural inflexibility, various inter-company arrangements appear.

A strategic alliance involves minimal two partner companies who (Child and Faulkner,
1998):
• Continue to be lawfully free even after the alliance is created.
• Share advantages and executive powers over the performance of allocated jobs.
• Make constant additions in a one particular or greater tactical segments like technology
or products.

2. The formation of strategic alliances

Strategic associations are considered as a new occurrence by various researchers, however inter-
company connections have been present from the time of existence of the company as a
manufacturing unit. Few illustrations can be as company and business owner attach with credit
organizations like banks and trade unions like the initial Dutch Guilds and with vendors of raw
materials like family farms, craftsmen and lone manufacturers (Buchko, 1994).

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3. Case Study

Air India and Lufthansa-Strategic Alliance

“Through the cooperation in the area of frequent flyer programs, customers on flights of both
airlines can collect and redeem miles for the respective programmes - Miles & More and Flying
Returns” (Auster, 1994).

With the tactical association among Lufthansa and Air India both of them have considerably
enhanced their market leadership standings on India – Europe – USA course (Giddens, 1979).
The alliance has been in place since 1st October, 2004. Within the capacity of a far-reaching
accord encompassing broad two pronged collaboration, Wolfgang Mayrhuber who was the
chairman of Executive Board of Deutsche Lufthansa AG and V. Thulasida who was the
chairman and MD of Air India signed a strategic alliance accord in Mumbai, India. Expanding
the offer of air travel from Germany and India is the aim of this association. Air India &
Lufthansa operate all the flights on code-sharing basis among both the nations. Newer routes are
updated (Buchko, 1994).

The IOSA Audit certification given to Air India by IATA places Air India in the group of more
than 12 Airlines which adhere to quality norms needed for being a part of Global alliances or
associations.

For Air India, India – Germany or Europe and India – USA are quite significant markets that it
strategizes to cater over Frankfurt in 10. International Civil Aviation Organization or IOSA is a
specific institution of the United Nations. The aim here is to create the rules and methodologies
of international air course plotting (Giddens, 1979).
IATA (International Air Transport Association)

IATA is the trade association that caters to airlines, customers, shippers, travel agents union with
Lufthansa. “Air India’s code would further more be bookable on the linking flights of Lufthansa
from Frankfurt to Berlin, Munich, Stuttgart and Düsseldorf to Amsterdam, Geneva, Zurich and
Lyon as well as to Washington, Denver, Detroit, Chicago and Los Angeles, in addition to the
code-sharing among Germany and India” (Buckley and Casson, 1988b).

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The MOU signed by Air India and Lufthansa on 26th August, 2003 has led to this collaboration
accord. In this MOU, further anticipated is the support in the segment of sales and marketing and
also collaboration in the medium range in other sectors like information technology. Lufthansa
that was operating one flight everyday from Frankfurt to Delhi, Mumbai, Chennai and Bangalore
and also operating three flights per week from Munich to Delhi will in addition operate six
flights per week between Frankfurt and Mumbai and also between Frankfurt and Delhi three
flights every week that are operated by Air India and could be booked with a code of Lufthansa.

From Delhi and Mumbai, Air India operated flights to 33 places consisting among others
Frankfurt, New York and Chicago. Air India was thinking of adding more aircrafts in addition to
the 33 wide bodied one’s that it already has so as to operate daily flights to Los Angeles and
Chicago. Air India had further intended to have everyday flights beginning 2005 March, between
London and Mumbai and London and Delhi and connect Bangalore with Frankfurt by four
weekly flights(Buckley and Casson, 1988a).

On the India-Europe-USA route, the Lufthansa – Air India accord lays the path for combined
expansion of flight services.

4. Conclusion

It can be concluded that strategic alliances are more than easy active ways for accomplishing
combined objectives straight away giving advantage to the associating firms. Strategic alliances
furthermore makeup every associate company’s corporate social capital, offering possible way in
to variety of assets owned by the other associate network partners. In the range of inter-firm
accords, associations offer chances for members to strike into the resources, learning and talents
of their associate members.

References:

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Buchko, A. (1994), “Barriers to strategic transformation: inter-organizational networks and

institutional forces”, Advances in Strategic Management, Vol. 10, pp. 81-106.

Buckley, P. and Casson, M. (1988a), “A theory of co-operation in international business”, in

Contractor, F. and Lorange, P. (Eds), Cooperative Strategies in International Business, Lexington
Books, Lexington, MA, pp. 31-54.

Buckley, P. and Casson, M. (1988b), “A theory of cooperation in international business”,

Management International Review, Special issue, pp. 19-38.

Child, J. and Faulkner, D. (1998), Strategies of Cooperation: Managing Alliances, Networks and
Joint Ventures, Oxford University Press, New York, NY.

Giddens, A. (1979), Central Problems in Social Theory: Action, Structure, and Contradiction in
Social Analysis, University of California Press, Berkeley, CA.