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Outline the benefits and risks of a strategic alliance as a method of business expansion - Leaving Cert Business - Question 6 B - 2019
Question 6 B
Outline the benefits and risks of a strategic alliance as a method of business expansion. Explain one other method of business expansion.
Worked Solution & Example Answer:Outline the benefits and risks of a strategic alliance as a method of business expansion - Leaving Cert Business - Question 6 B - 2019
Step 1
Outline the benefits and risks of a strategic alliance as a method of business expansion.
Answer
Benefits:
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Voluntary Agreement: A strategic alliance is established through mutual consent, allowing both parties to benefit without merging operations entirely.
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Resource Sharing: The partners can exchange skills and reduce costs by accessing an established network of suppliers and distributors. This shared approach can facilitate quicker market entry and overall efficiency.
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Risk Mitigation: The risks are distributed between the partners, making it less burdensome than going solo, especially in unfamiliar markets.
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Strategic Flexibility: Alliances can provide an agile approach to market dynamics, allowing companies to adapt quickly to changes.
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Increased Resources: Collaborative ventures can bring additional capital, technology, and expertise, enhancing operational capabilities.
Risks:
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Loss of Competitive Advantage: Sharing resources and information may risk revealing corporate secrets, which could be detrimental to competitive positioning.
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Unequal Contributions: There may be disparities in resource contributions and management styles, leading to potential tensions or imbalances in the partnership.
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Temporary Nature: Strategic alliances can be fragile, as they are often formed for specific goals. Companies must be prepared for the possibility that alliances may dissolve.
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Management Challenges: Effective management is essential to ensure that both parties remain aligned and satisfied until the alliance concludes.
Step 2
Explain one other method of business expansion.
Answer
Mergers:
Mergers involve two businesses joining to create a new legal entity. In this process, companies not only combine their resources but also enhance capacity and market reach. By merging, businesses can quickly acquire experience and skills from each other, resulting in increased consumer demand almost immediately as market share amplifies.
Moreover, mergers can facilitate risk sharing, as the newly formed entity is often better positioned to withstand market fluctuations. However, it's critical for businesses to ensure compatibility to maximize the benefits of a merger.