Many foreign companies were entered into the Indian market after liberalization of Indian market but many big MNCs were unsuccessful in their venture. Give reason why the foreign companies should think about creating str

Most firms enter into alliances out of need. According to an executive, "With alliances, we can do more for less- Whatever the needs driving alliance formation, managements must take the time to analyse why an alliance is the best strategy". The president of an automotive industry had once explained, "Understanding why you need a partnership is the most critical step. Sorting out the whys in the equation will in turn dictate the answers to key issues such as with whom you want to collaborate, how the partners will combine their strengths, and how the venture will be structured and managed." Some of the reasons for creating strategic alliances are given below: Growth strategies and entering new markets: In today's fast paced environment companies simply do not have the time to establish new markets one-by one. Therefore, forming an alliance with an existing company already in that marketplace is a very appealing alternative. Partnering with an international company can make the expansion into unfamiliar territory a lot easier and less stressful for a company. Obtain new technology: All companies cannot provide the technology that they need to effectively compete in their markets on their own. Therefore, they can team up with other companies who do have the resources to provide the technology or who can pool their resources so that together they can provide the needed technology. Both sides receive benefit from the partnership. Technology transfer is viewed as being significant to the success of a strategic alliance. Reduce cost by outsourcing: Another reason for forming strategic alliances is to outsource business functions, which can include, marketing, production, accounting, sales, or virtually any other process, to a company which can do it better and cheaper. Indeed, many companies are forming alliances looking for the best quality or technology, or the cheapest labour or production costs. Reduce financial risk and share costs of research and development: Some companies may find that the financial risk that is involved in pursuing a new product or production method is too great for a single company to undertake. In such cases two or more companies agree to spread the risk among all of them. Achieve or ensure competitive advantage: Alliances are particularly alluring to small businesses because they provide the tools businesses need to be competitive. For many small companies the only way they can stay competitive and even survive in todays technologically advanced, ever-changing business world is to form an alliance with another company or companies. Small companies realize the mutual benefits they can derive from strategic alliances in areas such as marketing, distribution, production, research and development, and outsourcing. By forming alliances with other companies, small businesses are able to accomplish bigger projects more quickly and profitably, than if they tried to do it on their own. Knowledge transfer: Companies enter into alliances because there is knowledge required to create something new. An example here is the Senso alliance between Philips and Sara Lee. Each of the parties was lacking the knowledge the other had. Philips is good in creating household appliances and Sara Lee knows all about coffee. Together they were able to bring a balanced coffeemaker to the market with dedicated Senseo coffee supplies. Market development: Companies can enter into alliances to be able to develop new markets, whether it be geographic extensions or new market segments. Efficiency: Companies can also form strategic alliances to focus on cost reduction and increasing efficiencies. Satisfy customer demands: Customer demands in many markets are changing. For example, in office automation, customers now prefer a "systems solution" and want to rely on a single company to service all equipment. So, companies can enter into strategic alliances to satisfy new customer demands. Use excess capacity: A large number of companies have used the strategic alliances to soak up excess capacity of manufacturing units they have.