The Importance Of Strategic Alliances

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With increased internationalization and competitiveness in the global economy, firms have to find new ways to remain competitive and strategic alliances emerge as an important avenue for firms to reduce information asymmetry and increase their competitive advantage. A strategic alliance can be viewed as cooperation between one or more firms where skills and resources are amalgamated in order to make the involved parties more competitive. As markets become more complex, dynamic and massive, firms join forces to create larger corporations. Such alliances are beneficial for firms looking to improve research, increase profits, decrease costs and expand globally. From the perspective of competition law, regulating such associations presents a challenge…show more content…
"Motives for the formation of these more recent alliances include the need to spread the costs, the risk of innovation, as capital requirements for development projects in industries such as pharmaceuticals, telecommunications and commercial aircrafts have risen" (Mowery 78). Alliances may also form because firms wish to strategically increase their market power and access other firms' capabilities. However, the most common motive behind forming strategic alliances is for companies to acquire new technological skills and capacities (Mowery 80). Competition law, or antitrust law in the US, is a broad set of rules and regulations designed to promote the free market and ensure that companies act independently in all business aspects. Competition law is enforced to promote consumer welfare - greater competition leads to greater innovation of products and services at a decreased cost which is in consumer interest. Companies too benefit from antitrust laws - competition provides incentive to excel and inhibits actions by other companies which would diminish the functionality of firms in the market (Businessperson 1). Companies engaging in price fixing, price signaling, output restriction or supplier…show more content…
It is impossible for a single airline company to cover every destination and there is not enough consumer demand to sustain regular service between most cities. Additionally, due to the emergence of low-cost carriers (LCCs) for short and medium distances, companies have to rely on the long, international routes for revenue, making the market for 'legacy' carriers even more competitive. To serve their customers more efficiently and to increase coverage and services, airline companies form commercial partnerships (Szakal 1), and improve their global reach by tapping into routes not yet serviced by LCCs and forming arrangements that can be 'ordinary', 'tactical' or 'strategic'. Ordinary alliances involve one airline outsourcing some of its work of a destination it visits infrequently to another carrier (Fan et al 350). Tactical alliances are agreements between two carriers over limited routes or regions to sell their capacity to each other and are formed by airlines to address specific shortcomings. Such alliances include at least one airline that is not a member of a larger 'global' strategic alliance (Star Alliance, SkyTeam and oneworld are groups that coordinate multilaterally to create a worldwide network of carriers) (Szakal
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