a).Firm I and firm II have formed a strategic alliance where firm II buys the products of firm I. The alliance is mutually beneficial to both firms though there are risks involved. Firm I agrees to build a new plant next to firm II primary facility. The agreement between the two firms is that, firm I builds a new plant close to firm II primary facility so that it can be easy for them to purchase the products of firm I. Firm I is at a greater risk as compared to Firm II. According to the alliance, Firm II seems to be benefiting more than Firm I. Firm I will incur the cost of building a new plant so that they can specifically sell their products to Firm II. The benefits of having Firm I build their plant close to Firm II primary facility is for them to minimize costs of transport and also to supervise the production to ensure it meets their standards. This is likely to cause problems when it comes to selling of the products to Firm II which is the major customer. Problems with setting the price will arise and firm II is likely to control the prices of the products from Firm I (Gerybadze, 1995). The alliance is likely to encounter strains in case firm II establishes a buyer for the same products as those of firm I that are being sold at a cheaper price. In this case, Firm I will incur huge losses with the loss of their major buyers.
b).Firm A and Firm B have formed an alliance for them to capture new markets. Both firms wish to sell their products to each other’s home countries. In the case of Firm B, selling its products in the home country of firm A does not require many regulations which mainly involve the government. On the other hand, Firm A requires contracts from the government of Firm B for it to capture the market. As explored by Ajami & Goddard (2006) there are risks involved in capturing new markets especially those related with the culture of a certain country. The government could also have strict regulations for those who wish to sell their products in that particular country. Though Firm B might face the risk of cultural difference making it hard to penetrate the market, Firm A is at a greater risk because the sell of its products is not as immediate as that of Firm B in the home country of Firm A. The regulations that might be imposed by the government may make it impossible for Firm A to sell its products in the home country of Firm A.
c). The strategic alliance formed by firm 1 and firm 2 is aimed at sharing of technologies between the two firms. This is a good venture since the new technology that is meant to be incorporated in the products of firm 2 might yield them a huge profit as compared to their profits before the alliance. In return, the profits realized by firm 2 are to be shared with firm 1 which owns the new technology. However, there are risks involved which are mainly derived from trust (Ireland, Hoskisson & Hitt, 2008). The new technology given to firm 2 by firm 1 is untested and could be bound to fail putting the firm out of business. The other issue is that firm 2 might not share their profits with firm 1 if the new technology is a success. However, firm 2 is at a greater risk because use of the new technology could lead to production of goods that are either substandard or those that do not fit the preferences of the consumers. For them it is a greater risk because competitors might use this move to their advantage in case the use of the new technology is not a success. Firm 2 runs the risk of compromising their products or being put out of business while firm 1 runs the risk of loosing one of their new technologies.
References
Ireland, R., Hoskisson, R. & Hitt, M. (2008). Understanding Business Strategy: Concepts and Cases. New York: Cengage Learning. Print.
Gerybadze, A. (1995). Strategic alliances and process redesign: effective
Management and restructuring of cooperative projects and networks. New York: Walter de Gruyter. Print.
Ajami, R. & Goddard, J. (2006). International business: theory and practice. New York: M.E. Sharpe SharpeLtd. Print.
