Page 140 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes Merits
1. Less expensive
2. No need to set up manufacturing facilities abroad
Demerits

1. Not suitable for bulky, perishable or fragile goods
2. Import duties make the product expensive
3. High transportation costs
4. Cannot avail lower production costs in host country

7.5 Cooperation Strategies

Cooperative strategies such as strategic alliance and joint ventures are a logical and timely
response to intense and rapid changes in economic activity, technology and globalisation. Apart
from alliances between the firms operating within the same country, cross border alliances have
also become increasingly popular these days. Alliances generally come in three basic types-
joint ventures, strategic alliance, and consortia.
7.5.1 Joint Ventures

In a joint venture, two firms contribute equity to form a new venture, typically in the host
country to develop new products or build a manufacturing facility or set up a sales and distribution
network (Eg. Maruti Suzuki). The commonly cited advantages are:
1. Improvement of efficiency
2. Access to knowledge

3. Dealing with political risk factors
4. Collusions may restrict competition
Merits
1. Two partners bring complementary expertise to the new venture
2. Both parties share capital and risks.

3. Helps to meet host country regulations
Demerits
1. Two partners may fail to get along

2. The firm has to share profits with the partner
3. Host country culture may pose problems

7.5.2 Strategic Alliances

This is a collaborative partnership between two or more firms to pursue a common goal. Each
partner in an alliance brings knowledge or resources to the partnership. Such an alliance is
generally formed to access a critical capability not possessed in-house.

Example: Boeing and Airbus formed a strategic alliance to develop a bigger aircraft.
Merits and demerits are same as joint ventures, which are also a form of strategic alliance.

134 LOVELY PROFESSIONAL UNIVERSITY