Question

Optimization of operations can occur when a firm joins with one or more partners to combine resources and capabilities.discuss the use of vertical complementary strategic alliances and horizontal complementary alliances to gain competitive advantages. Describe a situation in which one of those complementary alliances could result in a lack of optimization rather than competitive advantage.

Answer 1

Answer:

Horizontal complementary alliance- Under this alliance, companies from same market enter into alliance. In other words competitors join hands under such alliance. For example Alliance of Renault and Nissan. The alliance between such companies is done through cross holding agreement.

Use of horizontal complementary alliance

1. This alliance is used to improve the position of the company and market share in comparison to their other competitors.

2. Collaboration for Research and development helps in gaining competitive advantage.

3. Access to resources which they could not afford on their but now after collaboration have the ability to gain benefit of providing complex services at gain.

Vertical complementary alliance- Under such alliance companies operating at upward or downward level of production combine. For example- Car manufacturing company entering into alliance with engine making manufacturer.

Use of vertical complementary alliance

1. Companies use such alliance to produce their own products but do not have adequate knowledge or resources.

2. Deepens the relationship with the suppliers and help companies to lower their cost.

3. Suppliers are able to take part in product designing and its distribution.

Situation where one of these complementary alliances could result in lack of optimization-

1. Where one party is totally committed to such alliance but other is not so serious regarding achieving common goals.

2. When the parties become mutually dependent on each other

3. When companies under alliance are incapable of utilizing each other’s resources efficiently.

4. Where even after clear arrangement between the two companies, they are incompatible to collaborate.

5. Out of the two, company with greater power start to interfere in the operations of the other company.