The applicable alliance for business

As I mentioned before in my previous blog that we could not say which alliance is better to do since it can be different according to some situations and conditions when we start-up new businesses or when we conduct our own businesses. It will really depend on some conditions, such as capital, resources, and the market.

Before doing alliances and choosing which one is the most applicable, we need to answer what type of business that we are going to run. Is it starting a new business or growing a business? It is really important to know about the purpose of our businesses before making alliances. This starting point is to arrange some strategies for our businesses. Based on Grikscheit & Cag (2002) in their articles, when we want to build alliances, we need to think about strategy first since alliances are just tactic to help fulfill the strategy.

When we are in the condition of starting a business, and we are going to start a new business. I think franchise is better to do since we do not need to think about how to build the technology at the first time. Through franchise, we can will not get difficulties to build new brand anymore. Here, the contract is signed between the company (franchisor) and the individual who buys the business unit (franchisee) to sell a given product or run business under the company’s trademark. One example can be given is Mc. Donald which has a lot of franchises around the world. People like to do this alliance because of its known technology in the company and long payoff for this technology. But, franchise agreement requires continuing royalty from franchisee. So, franchisor needs to have detail contract and monitoring costs as well in order not to be failure.

But, if the condition is growing a business, we can build joint venture alliances with another company. This condition can be fulfilled if we think that our company has a potential market, but we are lack of human resources and capital to expand our business as well. By doing joint venture, we can hope that the company will become big. We will have more capital, more human resources and of course better technology to run the business. Vickers (1985) also mentioned that joint venture can be effective for small innovations. Vise versa, if we think that we do not have potential market, we can think to do merger with another company.

Besides, licensing agreement can be used as efficient cost-sharing mechanisms. It can be done if the company wants to get fast access to advanced technology rather than to create the technology.In licensing agreement, there is technology acquisition, which a firm agrees to pay a firm for the right either to manufacture of to sell a product. A company can put the name of their besides the licensed company if they make this licensing agreement. Unilever is one of big company, which has the authority to give license to some companies around the world. This type of alliance has disadvantage that the firm selling the right can lose the right to control its prices and marketing. The contract does not mention clearly about what is to be sold and what the licensee is to receive for licensing the product.