The term strategic alliances refer to cooperative agreements between potential or actual competitors. Strategic alliances can range from short-term contractual arrangements in which two companies agree to cooperate on a particular task or project, such as developing a new product, to formal joint ventures in which two or more firms have equity stakes. An alternative description (Davis 1999) states that it is any form of cooperative linkage entered into for strategic reasons, which may include research and development partnerships, cross-manufacturing agreements, and joint marketing. The linkage may or may not result in setting up a separate legal entity such as a joint venture.Firms set up strategic alliances in order to gain competitive advantage and may prefer it over outright acquisition because they are unable to for lack of financing or by reason of national barriers. Hill (2001) noted that one of the advantages of a strategic alliance is that it enables a firm to gain access to a specific market. Another reason is the need or desire to obtain technology or establish technological standards, from which it can derive benefit, or to acquire manufacturing capabilities, allowing firms to share in the fixed costs as well as the associated risks of developing new products and processes, as the required investment and the level of risk may be too huge for one company to undertake. A third reason is that it can bring together the skills and assets that neither company can develop on its own and would thereby gain through the complementarity of their resources and capabilities. In general, companies or business units form strategic alliances to reduce financial or political risk.
Strategic Alliances And Brand Differentiation In The Automobile Industry