Impacts of Strategic Alliances

Introduction

The manufacturing industry is considered very important in the global economy at large. It faces stiff competition and has therefore undergone tremendous changes in preparation for the competition. New technologies have been developed giving rise to new products and designs. New processes and systems of manufacturing have also contributed to the transformation in the manufacturing industry. Having access to these new competitive technologies is made possible through International Technology Alliances. Partners in these alliances bear the risks together and share all the costs that are associated with the development of new products among themselves. Manufacturing facilities are exploited more effectively by the partnerships. Production capabilities are put to more effective use (Jose, 1999).

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In some cases, the agreement of an alliance may help in the exploitation of new potentials. Collaboration of these firms also helps to enhance the quality of products produced in the alliance. This is because, an alliance helps to boost innovativeness in organizations, which leads to better quality products, been produced. In other alliances, collaboration in the development processes yields to development of new products. Alliances also offer the firms an opportunity to spread the risk involved with the innovation process among its partners. This enables such firms to engage in many pieces of research. The alliances on the other hand are accompanied by many challenges. These challenges comprise of information exchange barriers mostly common in competitors firms where some companies withhold important research results to suffocate the research h process so that to hinder the other company from developing a new product. (Jose, 1999).

Problem definition

The issue under consideration in this discussion is how strategic alliances improve new product development.

Aims and Objectives

This report aims to evaluate how strategic alliances helps to enhance the development of products.

Objectives

The objectives for this report are:

  1. To identify how alliances improve the development process of a product
  2. To ascertain the problems experienced by alliances
  3. To establish lasting solutions for these problems to enhance products development by firm’s alliance.

Literature review

Reduced Development Cost

The development of products is a very costly process for many organizations. Huge expenses through the following ways accompany this process: payment of the raw materials, workforce and there is also high expense involved in the development of the products. Due to the frequent changes in the market demand, organizations are required to ensure their products are updated to sell in the current market. This, therefore, requires these manufacturing companies to often change their products requirements to meet the constantly changing market demand. (Gerwin2004)

This process entails a research project to be conducted to determine how best to modify their products to enable them to meet customers’ requirements. These researches are very expensive that only a few companies can afford on their own. As result companies are engaging in alliances to be in a position to meet the high cost required by these innovations. Even the big companies are currently opting for alliances to distribute the risks involved with these innovations among their partners (Gerwin, 2004).

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High-Quality Products

Through the sharing of the transaction cost, companies are now in a better position to engage in fundamental research of their products. This research leads to advancements in the companies’ products or technologies. The large budget enables these companies to engage in more researches, this is because the risk involved is shared among the companies within the alliance. Firms that have complementary knowledge can combine their specific knowledge and help them to develop new products or technologies. These new technologies or products are very difficult for any single company to establish.

This is due to the high cost and expertise that are accompanied by these innovations. Therefore the alliances of firms have greatly enabled organizations to engage in various researches that have enabled them to produce new high-quality products that they could not have produced on their own due to the high cost and skills needed for their development (Bonaccorsi, 1994).

Reduced Time To Market Products

Alliances of firms help companies to team up with other competing companies to enable them to develop new products faster. This is very vital due to the high decline in the price of products in the modern market even to 30% per year. Therefore collaboration of the firms in the development of products helps significantly to reduce the lead-time required in the process of products development. This in turn enables these firms to bring new products in the market rapidly and more efficiently. This enables such firms to establish sustainable competitive advantages over their competitor’s firms. This is because the other companies take a very long time to develop new products that meet customers’ requirements. This is because of the high cost involved in the innovation process and also the high skills needed to develop new products or technologies (Bonaccorsi, 1994).

Limitations

Alliances of firms can result in one of the following impacts on the innovations. The impacts can be neutral, positive, or negative. Knowledge exchange in alliances is very important. For positive innovation impact to occur in alliances there need to exist a close collaboration among the organizations involved in the merger. This kind of collaboration facilitates knowledge transfer within the people. This in turn ensures that innovation of product or technology is achieved in the alliance. Some method of collaborations has a neutral effect on the level of innovations. These occur in alliances that involve licensing collaborations. In such alliances, the only benefit that is realized as a result of the merger is the lowering of the cost of innovation through the sharing process. Most of the benefits in alliances are realized after a period of three to five years (Jose, 1999).

Therefore organizations that engage in alliances that do not last for this period mostly end up having negative innovation impacts. This is because competence building takes time and hence time horizon is a very significant factor in alliance building. Hence organizations should ensure that their alliances last for a considerable duration of time to bring a positive impact on their innovations. The negative innovation impact can also result due to some of the following reasons: When the transition of knowledge across organizations is difficult due to the corporate’ different cultures. This impends a smooth transition to take place. This is common in organizations that are competitors. In such cases, companies may fail to assign their best people in the alliance or hold some research results. This is due to the fear that their competitors will develop a new product (Dougherty, 1996).

There is the involvement of so many individuals in an alliance. This sometimes leads to the wastage of a lot of time when more attention is given to the management of the individuals rather than in the process of innovation. This is a common problem at the initial stages of alliances but the problem ceases with time. In some organizations that are involved in alliances this problem does not stop even after a long time after the alliance took place. This becomes a very serious issue as it can result in the realization of a negative innovation impact (Man, 2005).

Conclusion

The alliance of firms in the process of product development is very important. This is because the process enables the firms involved in the alliance to share the cost involved in the production process. Therefore companies are then able to participate in various researches projects on how to improve their products. This is because the alliances help these companies to finance their projects. Firms should ensure that they engage in alliances with those organizations they have overlapping functions. This is because the resulting alliance results in the development of new products or technologies. This enables these organizations to enter the market faster and more efficiently. Therefore establishing a good brand for their alliance. This good brand name helps these firms to enhance the marketing of their product. On the other hand companies should be very cautious when merging with companies whose line of production is different from theirs. This is important because there are a lot of conflicts in such alliances and most of them do not last long to leap their benefits. (Man2005)

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References

  1. Dougherty, D. & C. Hardy (1996) Sustained product innovation in large mature organizations: overcoming innovation-to-organization problems. Academy of Management Journal 39/5:1120 – 1153
  2. Gerwin, D. & J.S. Ferris (2004) Organizing New Product Development Projects in Strategic Alliances. Organization Science 15/1: 22 – 37
  3. Hippel, Eric von (2005) Democratizing innovation. Cambridge/London: the MIT press. Chapters 2 and 3.
  4. Jose M, A.G and Gonzalez P.de (1999) Strategic Alliances, Organizational learning and new product development: the cases of Rover and Seat.
  5. Man, A.P. de & Duysters, G. (2005) Collaboration and innovation: a review of the effects of mergers, acquisitions and alliances on innovation. Technovation 25: 1377 – 1387
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StudyCorgi. (2021) 'Impacts of Strategic Alliances'. 7 September.

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