A strategic partnership is defined as formal arrangements between two or more companies that share common business objectives. It is an agreement two or more companies enter into and in which their business surpass day-today company dealings. A decision to participate in forming partnerships as opposed to other alternatives like acquisition or merger or internal development is forms a strategic choice. Basically, it is the seeking of competitive advantage with a different company via cooperation. How the strategic partnerships that have experience in local markets help make international expansion possible is thus discussed under.
Forming a strategic partnership with an existing company in the international markets boosts company’s growth strategies. The company will easily make expansion into unfamiliar territory. This is made easier and stress-free because of the already established market by the existing company and the existing economies of scale and a wider scope in marketing and distribution (Faulkner, 1995). The company is able to access new customer groups as well as accessing defined client groups because of the available established resources by the international partner. This enhances growth and an increase in market share.
Access of new technology to help offer best quality at the cheapest cost
As a result of collaboration with the international company, the company will be in a position to access the new technology at the cheapest cost possible. The company is collaborating with a company with an established resource base to offer needed technology. As well, the two companies are in a position of pooling their resources together to tap the needed technology for leading hospitality, real-estate development, and lifestyle company. With the transfer of technology at a cheaper cost, expansion is guaranteed (Faulkner, 1995).
Reduced financial risk and shared cost of research and development
The company will be in a position to share risks. Newly established markets do pose much uncertainty and instability for new entrants. Otherwise, collaboration with an international company makes the risks shared and thus reduced costs. Besides, high competitive nature of companies makes it impossible for new entrants and therefore forming a strategic partnership is a sure way to reduce the company’s financial risks and hence can easily expand its activities (Faulkner, 1995).
Shared knowledge and expertise
Forming a strategic partnership will allow ready access to knowledge and expertise in an area that the company is short of. This information, knowledge and the expertise can be used not only for the joint activities but also for the other projects and purposes. This implies that the company will be learning daily and a learning organization is a growing organization.
The company should next enter into a hospitality market. This will enable the company market its real-estate development and lifestyle activities to an established hospitality market where demand for real estate is high. The company is also in a position to acquire advantages in reacting to the hospitality conditions and emerging opportunities. To remain competitive and profitable in the market, the company should employ the following strategies.
International Licensing strategy
i. This strategy will allow the foreign company exclusive or non-exclusive right to manufacture the partner’s product a stipulated fixed term in a defined foreign market. The licensor in the home country gives full rights to the licensee in host country to use its resources in a productive way (Agarwal and Ramaswani, 1992).
This strategy is applicable for this case due to the following reasons.
ii. The company is in a position to obtain income for improved technical know-how and services.
iii. It is able to access markets not reachable by exports from its facilities.
iv. Expand and growth without incurring financial risks and large capital investment.
v. Able to retain already established markets initially closed by trade restrictions.
vi. The company is new in the international business and thus may be faced with many trade restrictions in the foreign market. By licensing, political risks associated with going international is minimized as the licensee is locally owned in the foreign market (Agarwal and Ramaswani, 1992).
The challenges from competition in the local market
Increasing competition in the local market is one of the major challenges that face companies at all stages. As the market expands and becomes more integrated, change accelerates while technology reduces. This lowers the scale advantage of the company. New local sources of competition emerge and the competitive pressure builds up. As more local firms venture into the domestic market, the company faces new threats and dangers. As the domestic market opens up to foreign competitors, greater awareness about the international opportunities is brought into focus, which in turn creates new sources of competition. This brings about the domestic price war, loss of control for the product quality, employees, operating costs, among others. With the advances in communication technology, competitor response speed accelerates. The local competitors take advantage of their lower operating and overhead costs as they rapidly divert into low-cost substitutes or clones.
How the company might respond strategically to the competition
The company may decide to differentiate its products so that it is able to beat competition. Another where the company needs to focus on is cost leadership. This would make it difficult to leverage the core competencies. Competition is mostly market-based and relies majorly on the quality of the products. The company can therefore rely on the delivery of superior quality products to its customers. The firm can also decide to use the rapidly advancing IT to its advantage. If the domestic market becomes price sensitive, the company can decide to be the low-cost supplier.
Yoshino, M. Y., & Rangan. (1995) U.S. Strategic Alliances: An Entrepreneurial Approach to Globalization. Boston: Harvard Business School Press,
Faulkner, D. (1995). International Strategic Alliances: Cooperating to Compete. McGraw-Hill Book Company.
Agarwal, S. & Ramaswani, S. (1992). Choice of foreign market entry mode: impact of ownership, location and internalization factors. Journal of International Business Studies. 23(1), pp. 1-27.