Benefits of Strategic Alliances


Purpose and Benefits of Strategic Alliances

From a theoretical perspective, strategic alliances bring enterprises
numerous benefits as discussed below.

  • · Increase in capital for research  and product development and yet lower risk associated with new product  development. This facilitates innovation. Trust Bank wanted to develop a  sustainable product for export agriculture. It therefore created a strategic  alliance with Europort, a consortium of horticultural farmers, to create Trustea  (Trust Export Agriculture). In the deal at listing, Europort was offered some  Trust Holding shares and Trust acquired an interest in Europort. This created  mutual interests and assured Trust of a committed client base, thereby reducing  the main risk of product development, having no takers for the product. It was  assured of customers. The close relationship enabled Trust to acquire knowledge  of the structure of the agricultural market in general, giving it a competitive  advantage in crafting products relevant to the agricultural export market.
  • · Decrease in product lead times and  life cycles (time pressures).
  • · Ability to bring together  complementary skills and assets that neither company could easily develop on  its own. The Heritage Group, which owned Bard Discount House (100%) as well as  significant stakes in First Merchant Bank Holdings (FMBH) and udcH, championed  an equity-based strategic alliance of the three companies through a share swap,  creating African Banking Corporation (ABC), a huge investment bank. This  strategic alliance created synergies and complementary skills that made ABC a  huge regional bank. Subsequently the bank dually listed on both the Botswana and Zimbabwe Stock Exchanges.
  • · Access to knowledge, expertise and  complementary resources beyond company borders (technology and resource  transfer). The key to technological competitiveness is an ability to manage a  portfolio of technologies that have become increasingly complex and more  integrated. But the increasing complexity of technology, the rising costs of  R&D, and the need to integrate new technology quickly to obtain maximum  advantage have made it nearly impossible for companies to develop internally  all the technology they need. In the case of proprietary or highly specialized  technologies, alliances may be the only option, but even when internal  development is possible, technology alliances can be an attractive alternative.  Alliances are almost always the fastest and most cost effective way to gain  technological competence.
  • · Rapidly achieve economies of scale,   critical mass and momentum (-bigger is better).
  • · Expansion of channel and  international market presence. Trust Holdings and FML consummated a complex  strategic alliance deal which was meant to enable each organisation to enter  new foreign markets.
  • · Building credibility and brand  awareness in the industry. First Bank was an underrated bank until it acquired  controlling equity stakes in a building society and an insurance company. This  increased its brand visibility and credibility.
  • · Providing added value to customers  through value added services. Most banks created strategic alliances with  technology firms and cellular firms to provide value added services to their  clients e.g. bill payments through cell phones.
  • · Beating rivals in the rush to  market. Speed to market is particularly important. The greatest share of  profits usually comes at the beginning of a product’s life cycle. In some  highly competitive sectors, such as the financial sector, being late to market  can spell death for a product. If a company is sufficiently quick to market, it  can pre-empt competition and lock up market share. Since development and  perfection of technology is one of the most time-consuming aspects of product  development, outsourcing key technology can dramatically cut lead time.
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