Why are strategic alliances popular and why do companies enter into these agreements?
These are cooperative agreements between potential or actual competitors, often between firms from different countries.They can be anything from joint ventures to short-term contractual agreements. The perks are that they facilitate entry into a foreign market, as a local business partner can provide the necessary experience to do so successfully.
They also allow firms to share the fixed costs and possible risks of developing new products or processes, and are way to bring together complementary skills and assets that the firms could not develop on their own.
Ultimately, it makes sense to form an alliance that will help the firm establish technological standards for the industry that will benefit the firm. What speaks against it is that it gives competitors a low-cost route to new technology. Unless a firm is careful, it can give away more than it receives in the end.