Contents

1. SUMMARY .......................................................................................................................................... 3
2. INTRODUCTION: ............................................................................................................................... 4
3. LITERATURE REVIEWS: .................................................................................................................. 4
1. Strategic Alliance:.............................................................................................................................. 4
2. Mergers & Acquisition: ..................................................................................................................... 5
3. TYPES OF STRATEGIC ALLIANCES: ..................................................................................................... 5
3.1 Horizontal Strategic Alliance: .................................................................................................... 5
3.2 Vertical Strategic Alliances: ....................................................................................................... 5
3.3 Diagonal or Intersectoral strategic Alliances: ........................................................................... 6
3.4 Equity Alliance:.......................................................................................................................... 6
3.5 Non-Equity Alliance: .................................................................................................................. 6
4. Success Factors of Strategic Alliance ................................................................................................ 7
4.1 Strategy first: ............................................................................................................................. 7
4.2 Senior Management Commitment: .......................................................................................... 7
4.3 Strong Management .................................................................. Error! Bookmark not defined.
4.4 Choose Partner and Joint Upfront Planning: ............................................................................ 7
4.5 Understanding the roles: .......................................................................................................... 7
4.6 Plan at the end: .......................................................................... Error! Bookmark not defined.
4.7 Build Trust: ................................................................................................................................ 8
5. Failure Factors of Strategic Alliance: ................................................................................................. 8
5.1 Cultural Differences: ................................................................................................................. 8
5.2 Lack of Trust: ............................................................................................................................. 9
5.3 Lack of clear goals. .................................................................................................................... 9
5.4 Loss of control: .......................................................................................................................... 9
5.5 Rationale Risk .......................................................................................................................... 10
6. Mergers & Acquisition: An Alternate Strategy: .............................................................................. 10
7. Current Scenario: ............................................................................................................................ 11
8. Conclusion: ...................................................................................................................................... 12
9. References .......................................................................................................................................... 13
10. Presentation Slides: ........................................................................................................................ 16
 1. SUMMARY

Strategic alliance and mergers & acquisition are essential for business and have become an increasingly

popular methods and strategic option for various organization particularly for international organization.

In both the approaches, the firms combine their resources, capabilities and share their knowledge and

technologies to create a competitive advantage in the market and achieve the mutually desired goal.

However, the research shows that strategic alliance and mergers & acquisition have high success rate that

are measured in strategic and financial terms but many strategic alliances and M&A does not produce

significant results and fulfill expectation and eventually resulted a great failure. Therefore, the factor that

lead the firms to failure and disaster must be consider before the alliance is made for example when the

two firms come together, there would be great cultural differences, misrepresentation of competences,

lack of trust among people, ambiguities and uncertainties etc. Similarly, for a company to gain the

benefits outcomes from the alliance, the factor for achieving successful strategic alliance must be

measured. M&A is also another alternative way to gain the market power and establish new business

organically. Both M&A have slightly different meaning but both have the same results in terms of

operational control, and befits and risk allocation. strategic alliance and Merger and Acquisition both have

different benefits and weakness over each other and share some commonalities from geographic

expansion to gain the access of latest technology. However, in this dynamic business environment,

strategic alliance has some great advantages as compared to M&A for example, risk sharing, finite time,

flexible environment etc. The statistics obtained from a survey from CEOs of different firms shows that

they take more interest in initiating the strategic alliance and combine their business with different firms

to gain the market power as compare to merger and acquisition.

 2. INTRODUCTION:

In this globalization and fast growing competition of continuously developing market, more companies

are taking interest in Strategic alliances and M&A and consider these approach as an effective to gain the

marketplace. However, the complication and level of commitment associated with these approaches can

never be ignored. Today many firms successfully have made alliance with other company or established

merger or acquisition to achieve their goals and objectives and grow in market place, however there are

many companies had to face a great setback and failure from these approaches.

The purpose of this report is to investigate and identify the main causes that lead a firm to success or

failure when the firm tends to adopt these alternative approaches of business growth. Moreover, different

type of strategic alliances is also highlighted in this report to give the clear understanding of different

cooperation that are being made by the contemporary business. A systematic approach of creating a long-

lasting relationship in the alliance is also discussed. another inorganic approach i.e. merger and

acquisition is compared with strategic alliance and examine the benefits and weakness of the approaches.

3. LITERATURE REVIEWS:

1. Strategic Alliance:
Strategic alliance is the agreement for cooperation among two or more companies, working on the same

horizontal level in the market, share the resource to accomplish the mutually beneficial goal. Generally,

the two firms create an alliance and a reliable chain supply relation to carry out new efficiencies and to

expand the revenue, market value, industry reach and internal knowledge.

This alliance does not create a new entity but collaborate, while remaining distinct and apart. The

partners may offer different assets and resources such as, products, product cost, supply channel,
intellectual property, development capabilities, expertise, or equipment. The alliance often provides

technology transfer, shared expense, and shared risk as well. (Mower, et al., 1996).

2. Mergers & Acquisition (M&A):

On the other hand, M&A are the deal or transaction where the businesses ownership or companies or their

operating entities are combined or shifted to consolidate of companies. (Sherman & Andrew, 2010).

M&A are used combinedly but both have different meaning. Mergers refers when two firms, often the

same sizes, decide to move forward, merging their identities into a new single company. The companies

withdraw their market stocks and in place, a new company stocks issued. while in case of Acquisition,

one company takes over another company or targeted company and create a new owner. The purchased

company ceases to exist while the buyer continues to trade its share (Krishnamurti, et al., 2008).

3. TYPES OF STRATEGIC ALLIANCES:

3.1 Horizontal Strategic Alliance:
Horizontal strategic alliances between the two companies are formed when they are present in the

same business area or industry. or in other word the partners in this alliance are used to be

opponents and decided to combine their business to enhance their position in the market. This

horizontal strategic alliance is usually formed due R&D purpose, improve the strategic

competitiveness and share the risk. (Bronder & Christoph, 1992). This mainly focuses on

technology development and long-term productivity.

3.2 Vertical Strategic Alliances:

Vertical alliances are a cooperation with non-competitor alliance in which the partnership involves at

different levels of the value chain. A collaboration between manufacturer and supplier is a common

example of vertical strategic alliance. This type of alliance is more active when the partners in

alliance trust each other. Trust allows the partner to learn from each other to benefit the firm and

when the trust established for long period it also helps to share the technological knowledge between

partners. The help each other to improve the performance and the alliance becomes more successful

(Ireland, et al., 2012) .

 3.3 Diagonal or Intersectoral strategic Alliances:
In diagonal or intersectoral strategic alliances are formed from other industries or in other word, the

cooperation between the two partners are neither related to horizontal nor vertical chain. In this type

the partners are directly involved in business but have totally different market.

Figure 1 Directions of strategic alliances and potential partners Source (Buzady, 2005)

3.4 Equity Alliance:

This type of alliance is formed when one organization buys an equity ownership into another (Culpan

& Refik, 2002). or in other words the equity alliances is a collaboration in which two or more firms

hold different percentage of the alliance company and create a competitive advantage by sharing

capabilities and resources. This may also be called cross-shareholding and this becomes more

complex when several firms involved.

3.5 Non-Equity Alliance:

In non-equity, strategic alliance, the firms form a contractual relationship between them and combine

some unique form of resources and capabilities (Hitt, et al., 2006). This type of alliance usually has

low commitment and formality which make it more unstable for complex project than equity alliance.

Although many firms use this alliance in different manners such as supply contracts and licensing &

distribution agreements (Miller & Folta, 2002).

4. Success Factors of Strategic Alliance
Alliances formed a relationship between the organization to achieve mutually relevant goal. But there

always some strategy and factors that are important at every step of alliance.

4.1 Strategy first:

Alliances is an approach to encompass new strategic opportunities and adopts different sources of

growth and efficiencies but each alliance has some complex and unique aspects. A well

understood strategy helps to achieve a successful alliance (Anon., 2016). The strategy is made by

considering the bigger picture of market trends and competitors activities. It facilitates the clarity

of competences, resources, and strategic priorities.

4.2 Senior Management Commitment:

It plays a key role in ultimate success of the strategic alliance. The strategies, that has result of

alliance, must have substantial impacts on the firms and therefore it must be managed,

scrutinized, and implemented with the full cooperation and commitment of the senior

management (Kathawala & Yunus, 2001). Lacking their commitment, the alliance could not

generate the desired output. Moreover, the capital, assets, production, marketing and labor

resources could not be utilized for the alliance.

4.3 Choose Partner and Joint Upfront Planning:

Fining a right partner needs a careful screening and can take time in understanding and plan

collaboratively (Bykzkan, et al., 2008). A successful alliance needs a competent partner,

sharing similar goal and interest. Examining the partners track record and their culture or way of

working, help to ensure a long-lasting and high quality relationship.

4.4 Understanding the roles:

A successful alliance can only be formed when partners clearly understand their role and duties in

the alliance. (Stewart & and Allyson, 1996) concluded some question in fig 2 that must be sorted

out before the alliance is made. Globally many companies faced a serious problem and failure
 because the roles and amount of control in operation management and market were not clearly

defined.

Figure 2Question concerning the role of the partner source: (Stewart & and Allyson, 1996)

Therefore, the extent to which each partner share the control of operation and decision making

power must be determined before establishing the alliance.

4.5 Build Trust:

Establishing trust is vital for the strategic alliance. Studies show that trust between the alliance

partners play an important role in increasing the likelihood of the alliance success (Hitt, et al.,

2006). It is also another way of regulating and controlling partners behavior (Dyer & Chu, 2003).

From (J. H. Davis, 2000), trust is an asset for an alliance firm which can be a worthful, rare,

imitable and non-substitutable. Hence the firm has a competitive edge which prioritize

trustworthiness.

5. Failure Factors of Strategic Alliance:

Execution of strategic alliance becomes more difficult if the organization does not consider the

challenges and barriers upfront. According to (Hambrick, et al., 2001) two-third of the cooperative

strategies contain serious disputes during the first two year and 70% of them fail. Following are some

reason of alliance failure,

5.1 Cultural Differences:

Cultural differences are one of the biggest problem many firms are facing. The first thing arise in

cultural dispute is language barrier. On the daily basis people from each firm work together and it

is very essential for the firms that are alliance, to be able to understand and communicate with
 each other. It is also a main cause of delays and frustration (Kathawala & Yunus, 2001). Another

problem the firms face is operations. Different culture operates in different behavior. For

instances, most companies in US determine performance based on revenue and market share, on

the other hand Japanese companies evaluate by the strategic position and factor that involves to

improve it. (Daniels & Radebaugh, 2001).

5.2 Lack of Trust:

There is always need a high degree of mutual understanding, trust and transparencies between the

members of the firms. Many alliances have become unsuccessful due to lack of trust and

understanding. In international cooperation trust is comparatively more difficult to establish than

domestic. A trust deficit within the organization greatly affects everything from the negotiation

process to the development of the strategies. Moreover, the lack of trust make the organization

more rigid and shaky.

5.3 Lack of clear goals.

Many alliances are formed with unclear reasons which lead to the disaster. Today many

companies initiate alliance just to combat their rivals. Cooperate management considers this type

of activity discourages the competitor of concentrating their own companies. moreover, many

companies make alliance to solve the internal problems and company thinks that increase the

numbers fix problem quickly. This thing however increase the problem of the company because it

is already facing crises and combining with another company make the salutation worst (Kilburn,

1999).

5.4 Loss of control:

When one company forming an alliance with another, it loses some degree of control over the

way it perceived. This thing not only affects the internal business environment but create

uncertainties in the business.

5.5 Rationale Risk
This problem arises due the opportunistic behavior of the partner and lack the commitment to the

alliance. This behavior undermines the main purpose of the alliance, decreases the partners

resources, distros information, and provides insufficient product and services.

6. Mergers & Acquisition: An Alternate Strategy:

The primary goal for M&A to gain market power. The power usually depends upon the size of

the firm, its resources and competences to compete in market place (Wright & M.Kroll, 2002).

M&A is also the fastest way for the company growth by acquiring necessary resources to

accomplish competitive goal. In the acquisition, the acquirer pay the premium of other company

or resources but the overall cost would be as low as compared if company go for the internal

growth only. Moreover, synergy is also one of the most common reason, firms opt mergers and

acquisition. Synergy works on the principle of 2+2=5 phenomenon. The value of the two firms

created through mergers would be greater than the individual firms (Saxton & Dollinger, 2004).

however, in case of alliance, the synergy does not work in the same manner.

M&A are mostly done by the firms by the need to cut the cost. Cost saving results from the

elimination of extra services cost like human resources, information technology, accounting etc.

These cost saving cannot be done in alliance.

The development of new product internally and introducing it into the market require heavy

investment time, resources and return isnt quickly predictable. Acquisition is method used by a

firm to gain access of new and existing product that are new to firm. M&A offers more

predictable returns faster as compared to the internal product development process (Hitt, et al.,

1996).

Acquisition helps to diversified the firms. In acquisition, it is relatively easier for firm to develop

new product and introduce it in market which is different from its product line (Bergh, 1997).
Figure 3 Key differences between alliances and M&A Source: (Anon., 2016)

7. Current Scenario:
Currently many companies are make or willing to make strategic alliance or merger/Acquisition. Per the

survey conducted by PwCs 19th annual global CEO survey (Anon., 2016), 49% of the companys CEO

made or willing to make strategic alliance in 2016 slightly less than in 2015. However, in US, 59% CEO

were expecting to initiate alliance in the coming 12 month.

Figure 4 CEO expecting to make alliance or M&A globally and in US Source: (Anon., 2016)
Figure 5 CEO planning to share their pool of alliance partner Source: (Anon., 2016)

8. Conclusion:
The global competitions in the market are increasing day by day, therefore, to improve the market value

and enhance the productivity, strategic alliance are well accepted by firms. strategic alliance has become

an essential part of the competitive landscape and therefore, the literatures of strategic alliance has

received much attention by the scholars. Following are the benefits of the alliance strategic alliances and

mergers and Acquisition both are the alternatives ways of organic strategic growth and are widely

acquired when business diversification is required and establishing new business organically is not

feasible. Both the methods have some advantages, disadvantages and share some commonalities. M&A

has some advantages over alliance, for example M&A makes a unilateral management but alliances form

a cooperator management and the failure of this collaboration can destroy the trust and lead to disbanding

of the alliance. However, Alliance in some case have some great advantages over M&A or even joint

venture. For example, strategic alliance share benefits and risk equally between the participants. On the

other hand, in M&A a single or individual company that acquired the other firms must face the entire risk.

Similarly, the strategic alliance is finite in nature and need to be reviewed on the regular basis to ensure

that the alliance in moving on the right track and meet each firms goal and objectives. Moreover,

strategic alliance is more informal and flexible than M&A because the firms in alliance share the same
desired goal. In the same manner, Strategic alliance offers a firm to enter new market and gain access to

new technologies with relatively low investment. Strategic alliance also provides an environment where

the firms continuously transfer their skill and knowledge because it allows a firm to connect with

experienced partner that are already present in the targeted market (Weston, 2001).

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10. Presentation Slides: