Reasons to form business partnerships, alliances and joint ventures

From cost reduction to increased competitiveness, a business alliance may be what you need...if you are prepared for it

Research suggests that, in an attempt to survive and grow in today’s rapidly changing and highly competitive environment, businesses are increasingly resorting to strategic alliances to strengthen their competitive position. The most likely reason for the remarkable growth of alliances is increased globalization, which requires businesses to penetrate various markets. Other reasons include cost reduction and exploitation of economies of scale, the ability to provide a wider range of products/services, organizational learning and development of new skills, sharing and mitigating risks and accessing new technologies.

The rationale for alliance formation can be explained by a number of theories of organizational behaviour The main facets of each theory are outlined below.

Transaction cost theory

Companies form strategic alliances in order to minimise their costs and/or risks. Forming a strategic alliance helps to reduce the turbulences of the market place and risk, thus enabling the firm to adapt to an uncertain world (Williamson 1979).

Resource dependency theory

Few companies are self sufficient in the resources they require and must therefore depend on others for important resources. A deficiency in one or more strategic resources (core competencies) is seen as the driving force for collaboration as a means of reducing uncertainty and managing this dependency (Glaister 1996).

Organisational learning theory

This theory differentiates between tacit and specific knowledge. Whereas specific knowledge can be transferred through licensing, tacit knowledge is that knowledge embedded in an individual, which can only be transferred by learning alongside the individual (Kogut 1988), and which cannot be bought or licensed (Levitas, Hitt and Dacin 1997). Strategic alliances provide a suitable platform for acquiring such knowledge.

Relationship marketing theory

This refers to the tendency of firms in industrial markets to form strong relationships with their customers and suppliers (Arndt 1979). The focus of relationship marketing is that firms act in order to provide superior customer value.

Strategic behaviour theory

This theory proposes that companies form cooperative agreements to meet their strategic objectives, such as enhancing their competitive position or market power, and maximising profit (Kogut 1988).