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Strategic alliances

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Strategic alliances are formed by new companies or companies that wish to extend their activities to other countries. They are important in that organizations are able to share risks, benefit from technology transfer, and share costs such as advertising expenses. However, there are various challenges that these organizations face.

A small firm that forms strategic alliance with a larger firm faces challenge in that the larger firm may dictate what is to be done. In some cases, it may be difficult to reach an agreement on various decisions since the smaller firm may not be ready to venture into some risky businesses (Levi, 2008).

Another challenge of having strategic alliances is cultural differences. Operations in the two organizations may become difficult in case the two companies originate from different countries. This means that the way one company carries out its activities may be different from the way the other company does its activities. As a result, companies may face conflicts that may interfere with business activities (Levi, 2008).

Strategic alliances require a lot of commitment from both organizations. This is in terms of financial resources and time allocation. Smaller firms may face difficulties if they are required to contribute huge sums of money.

A disadvantage with strategic alliances is that firms receive fewer profits than they would have received if they operated separately. This is because the profit gained in a financial year is shared among the organizations in the strategic alliance. The rate of return of the invested funds may be less than expected due to this sharing (Underhill, 1996).

Vested outsourcing and strategic alliances are similar in a way in that both involve partnership between two organizations to achieve certain goals. Both companies have equal rights in the partnership. The difference between the two is that the major aim of vested outsourcing is to reduce the operational costs in the two organizations. Reducing these costs leads to increased profits, which benefits both firms in the partnership. Vested outsourcing also aims at effectively serving the customers to ensure their satisfaction.

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