Rationale for Business Alliances

There are various principles or rationale for business alliances. The business alliances are encouraged by a will to apportion risk and acquire the accessibility to emerging markets, decrease expenses, take over or get out of a business and obtain opportune regulative handling.

Following are the different types of rationale for business alliances:
Accessibility to new markets:
The expenses related to the accessibility to an emerging or nascent market can be discouraging simply due to the reason that substantial expenditure is necessary for product promotion, advertisement, storage and supply. In order to sort out this difficulty, a firm can participate in a business alliance for selling its commodities and services with the help of the distribution outlets, sales department or the website of another company.
Sharing resources and risks:
Formulating unique technologies may be a highly risky and costly task. In addition, this type of effort necessitates combining or grouping of the technical skills of various firms. Therefore, the companies of advanced technology sectors create business alliances in order to pool various know-hows, arrange for sufficient financing, and work out satisfactory risk allocation devices.
Cost reduction:
The business alliances facilitate in decreasing expenditure by sharing or consolidating of factories and plants in case of collaborative production functions and reciprocally advantageous buyer-suppler associations.
Favorable regulatory treatment:
Administrative bodies, for example, the Department of Justice in the United States usually regard the joint ventures as more positive choices in comparison to the mergers and acquisitions .
The opening for acquisition or exit:
A strategic alliance or a joint venture can be a preceding event for acquiring or taking over another firm. Instead, it can be utilized as a method for leaving a business.


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Last Updated on : 27th June 2013

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