The Strategic Alliance – An Opportunity for Gaining Competitive Advantages
Associate Professor, Doctor of International Business Tania Gorcheva, Academy of Economics “D. A. Tsenov”; 5250 Svishtov; Bulgaria, 2 E. Chakarov St.; Department of International Economic Relations
Index words:Strategies of collaboration,”Business - environment” interaction, life cycle of cooperation, Alliance network.
Abstract: The “business - environment” interaction was the reason why we carried out a research intended to describe the benefits resulting from the acquisition of competitive advantages provided by the strategic alliance as a form of inter-corporate partnership. Thus the objects of the research are those modern companies that are trying to expand their market share through participation in strategic alliances and its subject matter is the strategic alliance as one of the most modern forms of inter-corporate partnership.
- Importance and actuality of the topic – research methodology
The dynamic market environment, the challenges posed by competitors, and the intensifying internationalization create a situation of uncertainty for the modern entrepreneur. The growing market risksdemand for a constant monitoring and evaluation of the market environmentand the competition levelin terms of the products offered by the competitors. Most entrepreneurs try to maintain the balance of their competitivenessby applying various strategies of collaboration withother companies and creating new organizational forms, which are to result in a synergy between the participants. Grouping and regrouping of the companies into partnership and coordination structures is not a new phenomenon in the world of market competition – what is new are the forms of their implementation such as the strategic alliances (SA).
The “business - environment” interaction was the reason why we carried out a research intended to describe the benefits resulting from the acquisition of competitive advantages provided by the strategic alliance as a form of inter-corporate partnership. Thus the objects of the research are those modern companies that are trying to expand their market share through participation in strategic alliances and its subject matter is the strategic alliance as one of the most modern forms of inter-corporate partnership.
Following the stages of formation of a SA and each phase’s characteristic activities we will try to test and verify the relations between the “time” and “space” factors. The space may be measured using the acquired market shares and the aspiration for market expansion.
The international economic framework, creating optimal conditions for developing different forms of cooperation including SA are:
- Process of deregulation and privatization in such strategic business areas as telecommunication, air transport, tourism a. a.;
- The trade liberation in the field of services – for example the WTO-Agreement is accepted by 69 countries, whose export share to the world trade is 90%;
- The process of globalization, which make the competition global and the markets without boundaries. For example in 1975 the volume of the international telecommunication exchange was 4 billion minutes, and in 1995 it was already 60 billion minutes[1].
The described conditions influence positively the development of the different forms of cooperation based on networks, incl. SA. Only in the period 1995-2000 the number of SA increased by 40% every year[2].
The main aim of the research is to test the building of SA in terms of the interaction “time-space” factor during the different phases of the life cycle of cooperation. The analysis is based on practical case studies. One of them is in the area of telecommunications – the alliance “UNISOURCE” on the European market and the other one – in the field of airline business.
2. Balance approach “stage-price” of the competitiveness when creating SA
There are different theoretical approaches in the scientific literature about the character and the order of the phases in the life cycle of the SA. With the aim to identify the phases in the life cycle of the development of the SA we will apply the category “chronology of alliance”[3]. The category shows the frequent way to compose the actions of cooperating.
Using the chronology of alliance we can identify the key factors, which have priority influence in the alliance development at every stage of cooperation emerging. This is the main advantage of the used chronology, because it gives us an opportunity to disclose the functioning of the SA and that is the point we need to analyze the interaction “time-space” in the functioning of the SA.
Table 1.
Chronology of alliance
Phases of the life cycle / Actions/Results / Next stage in the cooperationStarting phase (anticipation) / Clearing the fields of cooperation / -
Phase of engagement / Fixing the relation “action – resources” / -
Phase of valuation / Fixing the possible ways to improve the cooperation / -
Coordination phase / Fixing the keys of competitiveness / Metamorphosis
Phase of investment / Investments plan agreement / Metamorphosis on new stage
Stabilization phase / Sustainable development and incomes guarantees / Staying at the course
Decision phase / Planning the future development / Staying at/ or finishing the cooperation
Adapted by : Hagsstrom, P /T. Forbs, 1998.
Regarding these methodological construction we must find the answer to the question: Which competitive advantages the corporation gains, participant at SA, followed as a result from cooperative actions on every phase from the life cycle of the alliance.
Figure 1. Architecture of the alliance“UNISOURCE”
Adapted by : Mueller-Stewens, G.; Ch. Lichner, 2003.
The analysis focuses on two aspects of the SA development:
- Building “a critic mass of resources”, needed for the successful functioning of the SA;
- Gaining/losing expected competitive advantages.
We can take a look on the architecture of the strategic alliance“UNISOURCE” (Fig.1.)[4]. The figure shows the development of the alliance in the period 1989-1995. During this period the alliance obtains a key role on the telecommunication market in Europe. If we observe the development of UNISOURCE – Alliance, we can find out that the alliance network runs through whole phases of the life cycle, shown in table 1. For example the duration of the anticipation phase is two years and the result is the building of JV. This venture becomes a basis for the following strategic cooperation. The period 1992-1994 is the phase of stabilization. During this phase it becomes clear, that the European market for intercontinental calls is exhausted. These prepare the entry to the “decision” phase and the participants agree the alliance merging with AT&T in 1995.
Figure2. Relation “space-time” in the context of AT&T UNISOURCE – Alliance
The emerging AT&T and UNISOURCE build a base for a global network, where the UNISOURCE with a limited share of resources gets a worldwide market influence. Figure 2 draws graphically the connection “space-time” in the context of the phases of the life cycle and market growth. As the figure shows after the metamorphoses stage the main target for the participant in the alliance getting the market growth. The entry of new partners and the market emerging provoke completely new problems and controversies in the alliance. The UNISOURCE – Alliance before emerging with AT&T had as priorities raising the incomes from communication services and improving the market influence. The large scale of partnership in the alliance sets a new strategy - improving the distribution.
In conclusion the alliance emerging can lead to a market growth, but not always successful in working in a network. The success of the alliance partnership depends on partner selection and on coordination regarding the targets of each participant and the phases of life cycle, starting the alliance.
Figure 3. Foundation for performance of strategic alliance between airlines companies
Destination / London-Sydney / Denver-Chicago-FrankfurtAgreement about the fly services / British Airways / Quantas / United
Airlines / Luft
Hansa
Fly number / BA 009
13.05-1945 / QF2
22.15-05.20 / 6613 UA
10.45-13.40 / LH 431
16.30-07.40
Information
Reservation
Transportation to the airplane
Check–in
Lounge
Fly /
Lounge
Terminal services/ Luggage office
Adapted by: Diegruber, J., 1999.
The research of the “time-space” factors of the implementation of the strategic alliances has raised the issue of the “company-environment” relation. The analysis has proved that it is important to monitor the implementation of the strategic alliance at every phase and to take into account the profits and losses incurred by each partner. The monitoring is implemented from the point of view of the environmental factors, the quantitative measurements of which allows us to determine whether the alliance is beneficial or should be discontinued.
3. Competitive advantages, framed in alliance network
We can find the most successful examples of the alliance network in the field of airline business. ``Nowadays the technology of providing services at a high level of quality provokes the necessity of partnership between the airline companies. One of the types of partnership is based on “Code Sharing”, shown in Figure 3. In the international praxis the airline exploitation in the same destination, based on “Code Sharing”, comes as a result of multi-partnership between the different airline companies. The multi-partnership aims to offer to the customers-passengers a better standard of services (incl. optimal connection ignoring the airplane change or the long waiting and etc.) and high level of comfort during the flight.
Table 2. Advantages from creating strategic alliances on “Code Sharing”
Expected advantages from partnership / Domineering of the advantages / Opinion differences about the advantage’s priorityRespect of flight security – imple-mentation of world wide standards / Limited dominance among the partners / Some existent differences
Comfort guarantee / Without dominance among the partners / Non existent differences
Flexibility of flight connections / Limited dominance / Non existent differences
Directly flying without changes / Strong dominance / Some existent differences
Equal standard of services / Strong dominance / Non existent differences
Issue: Diegruber, J.,1991.
This aim corresponds to the competitiveness as a result of the collaboration of all companies in the network, and that exactly is the genesis of the strategic alliance. All airline companies are expecting results from the strategic partnership on “Code Sharing”. Some of these expectations are shown in Table 2. From the table we can see that from all expected advantages as a result of the partnership the highest priority without difference in the opinions of the partners have the quality of customer’s service.
Table 3. Bonuses from the participation at the Code Sharing strategic alliances
Alliance partners / Year achievement / Bonuses/flown distanceAirlines companies / Participants / 1. Phase in the life cycle / 2. Phase in the life cycle / Multiplication ”Business class” / Multiplication “First class” / Bonuses
Air Company “А” / Yes / 30 000Miles / 60000
Miles / 2.0 / 3.0 / 3000
Miles
Air Company “В” / Yes / 20 000Miles / 35000
Miles / 1.25 / 1.50 / 2500
Miles
Issue: Diegruber, J. ,1991.
The passengers obtain a better service as a result of the functioning of the Code Sharing-Alliances and the airlines companies – partner at the alliance obtain some advantages. So we can find out that a double effect appears. The alliance airline companies can optimize the exploitation expenses, they can use completely the capacity of the airplanes, and they can perfect the timetables to the passengers flow. We can describe the double effect of Code Sharing-Alliances with the help of the bonus system, which is illustrated in Table 3.
Table 4. Market share based on extended agreements
Continents /Destinations / North America / Latin America / Europe / Asia/ PacificMarket share, in % / 45% / 3.99% / 25.20% / 22.12%
Star Alliance / United Airlines/
Air Canada / Varig / Luft hansa/SAS / Tai Airways
Alliance-British Airways / American Airlines/Canadian Airlines / British Airways / Qantas
Alliance Northwest /KLM / Northwest/
Continental Airlines / KLM/ Al Italia
Qualifyer Group Delta Air Lines / Delta Air Lines / Swissair/
Austrian Airlines/
Sabena, AOM,
Alliance – Singapore Airlines / Singapore Airlines/
Ans.Australia
/Air New Zealand
Collored fields - Alliances based on “Code Sharing”.
Adapted by : Alexanrova, A.; 2002, (Rus.)
The table shows how the bonus system works. The bonus system gives us information about the relation “flown distance-advantages for passengers and for alliance partners”. Some researchers, analyzing this relation have discovered a double effect of the bonus system framed in alliance net[5]. They have found empirical arguments that confirm the double effect. So confirming these researches we can maintain, that the bonus system offers a convincing proof of the multiple advantages of the network in the international airlines business.
Discovering the double effect of the bonus system we took for analysis only one side of the competitive advantages of the Code Sharing –Alliances. The other side, as we maintained in the previous paragraph, focuses the relation “number of members-market share” in the alliance network. Figure 4 shows, what is the relation in a case of network of two Code Sharing-Alliances: Star Alliance and the alliance centered on the British Airways Company[6]. Those companies have the biggest market share on three continents. One more aspect of the networking, based on Code Sharing, is the support system between the particular alliances. So figure 3 shows, that Star Alliance are building a support system with Canada Air Company and United Airlines to extend the market share on the continent of North America. British Airways have the support of American Airlines and Canadian Lines and have achieved market extension, too. The support system functions according to an informal agreement between the airline companies, and the principal function of the alliance net is based on a formal agreement. The result of combining the formal and informal agreements in airlines business is the market extension of the alliance influence.
As a conclusion we can assert that the extended partnership based on the principles of the strategic alliances, offer to the companies-participants a lot of advantages. The alliance members cannot simply gain competitiveness as a result of collaboration. The functioning of the alliances changes the market environment and creates better opportunities for the customers.
Complete literature references:
Alexandrova, A., International tourism and transport lines, Moscow, 2002, p.453, (Rus.).
Bearden W.; R. Netemeyer, Scales Related to Innovativness, SAGE-Publishing, London/New Deli, 1998.
Diegruber, J., Erfolgsfaktoren der nationalen europaeischen Linien und der Verkehrsgesellschaften; St. Galen (Herausgeber), Muenchen/Koeln.
Gerybadze, A., A New Framework for Analyzing Globalization of R&D and Innovation in Transnational Companies. Proceedings of the 7th IFTM Conference, Nov. 3-7, 1997, Kyoto.
Hagsstrom, P., G.Helmud, The Dynamic Firms, Paper at Prince Beril Symposium, 12-14 June1994.
Mueller-Stewens, G.; Ch. Lichner, Das internationale Allianssystem um AT&T Unisource, Springer Verl,. Berlin/Bonn, 2003.
Lorange, P., Roos J., Building Successful Strategic Alliances, in: Long Range Planing, Vol. 25, No. 8, 1992.
Netzer, F., Strategische Allianzen - Nachfrageorientierte Problemfelder ihrer Gestaltung, Frankfurt am Main, 1999.
NienoJ.; M. Oesterwelt; in: Technology Management and International Business, vol. 43, No. 1, Are Large Firms Internationalizing the Generation of Technology? ; 1992.
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[1]Netzer, F., Strategische Allianzen - Nachfrageorientierte Problemfelder ihrer Gestaltung, Frankfurt am Main, 1999, S. 214.
[2] OECD: Science, Technology and Industry Outlook, 2000, Paris.
[3]NienoJ.; M. Oesterwelt; in: Technology Management and International Business, vol. 43, No. 1, Are Large Firms Internationalizing the Generation of Technology?; 1992, pp. 41-47.
[4] Mueller-Stewens, G.; Ch. Lichner, Das internationale Allianssystem um AT&T Unisource, Springer Verl,. Berlin-Bonn, 2003, S. 128.
[5]Bearden W.; R. Netemeyer, Scales Related to Innovativness, SAGE-Publishing, London/New Deli, 1998, pp. 84-88.
[6]The alliance net Star Alliance includes the following companies: Lufthansa; SAS; Thai Airways and Varig. Supported companies are Air Canada and United Airlines. The alliance net around British Airways count tree members except BA – Northwest /KLM, Qualifyer GroupDelta Air Lines. (Alexandrova, A., International tourism and transport lines, Moscow, 2002, p.453, (Rus.).