Free Essay: Governing Mechanisms of Strategic Alliances

There are three governing mechanisms used in a strategic alliance. They include non-equity alliance, equity alliance and joint venture. Each of these governing mechanisms has their benefits and downsides. The nonequity alliance is an agreement between two firms, and it is usually in the form of the supply agreement, contract agreement, licensing agreement or any other type of contract (Gomes & Tarba, 2011). The primary benefit associated with it is that it does not allow for any interference in the management. This makes it be easily be entered quickly and be dissolved easily by the members. Because of this nonequity alliance is very flexible and therefore it can be drafted within a decidedly shorter time. Since nonequity alliances are not permanent, it does not strengthen the ties between the partners which can easily result in the lack of trust and commitment of members. On the contrary equity alliance is also the fundamental governing mechanism of strategic partnerships. It is a mechanism where one partner is allowed to have partial ownership.

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Equity Alliance is very rare as it demands large investments. The benefit of this alliance is that it used to signal the commitment of members. Furthermore, it allows the sharing of tacit knowledge between the partners thus allowing other members to know how to perform specific tasks within the organization. These kinds of experience are gained through active involvement in organization activities. The downside of an equity alliance is that it is tough to form and terminate (Gaughan, 2010). It allows many kinds of interferences in the management because all the partners are allowed to participate actively in the administration. Equity alliance also has another essential governing mechanism usually called corporate venture capital which is mainly used by well-established business organizations. This makes it only to allow the use of stable firms which can offer adequate finances for its operations. As a result, it influences stronger ties and strengthens trust between various partners as compared to the non-equity alliance. It is also capable of opening significant opportunities for the incorporation of current technologies that can be used in ensuring that the business becomes successful. Equity Alliance is therefore used as a stepping stone into which various firms merge for a common goal. In most cases, they are used for trial purposes, and this makes it an essential instrument for assessing viable business investment. The only problem it has is that it requires large cash outlay to start and this makes it difficult to form. At the same time, it is very rigid, and this makes the members take a long time to build it.

The joint venture is another form of governing mechanism of a strategic alliance. It is a business organization formed when two or more firms come together. It is considered a long-term commitment because the partners are required to contribute equity to it. The benefits of the joint venture are many. In a joint venture, there is sharing of both explicit and implicit knowledge among the partners in business (Cartwright, 2012). This is because the partners are allowed to interact with each other freely at a personal level. It is also useful when interring into foreign lands. It is therefore essential for accessing new markets in other countries. The joint venture has a solid tie, foster commitment between the firms involved. Any disadvantage is that it requires a significant amount of money to form and again it bears a risk of sharing the proceeds of the business without considering the partner that works harder than others.

References

Cartwright, S. (2012). Managing Mergers Acquisitions and Strategic Alliances.

Gaughan, P. A. (2010). Mergers, Acquisitions, and Corporate Restructurings. Hoboken, NJ: John Wiley & Sons.

Gomes, E., Weber, Y., Brown, C., & Tarba, S. Y. (2011). Mergers, Acquisitions and Strategic Alliances: Understanding the Process. London, United Kingdom: Macmillan International Higher Education.