Collaborative Arrangements
Collaborative Arrangements
Why Companies Collaborate
Firms opt for collaborative arrangements when exporting as an alternative may not be feasible. There are also financial considerations and companies may find it more advantageous to collaborate abroad to mitigate financial risk to the company.
Reasons for Collaboration:
To spread and reduce costs
To specialize in competencies
To avoid or counter competition
To secure vertical and horizontal links
To gain knowledge
To gain location-specific asset
To overcome governmental constraints
To diversify geographically
To minimize exposure in risky environments
To spread and reduce costs – When the cost of development or the investment is very high the benefit of collaborating with another company is realized by pooling their efforts together “to undertake activities that would otherwise be beyond their means”. (CH14, pg. 525)
To specialize in competencies – Through collaboration “a company may seek to improve its performance by concentrating on those activities that best fit its competencies. While depending on the other firm to “supply it with products, services, or support activities for which it has lesser competency”. (CH14, pg. 526)
To avoid or counter competition – When markets are not large enough to support multiple competitors, companies may find it more advantageous to collaborate rather than compete. Companies may also join together to rival the larger more established companies, “or companies may simply collude to raise everyone’s profits”. (CH14, pg. 526)
To secure vertical and horizontal links – There are potential coast saving and supply assurances from vertical integration. However, companies may lack the expertise and resources to wholly own all activities. Horizontal links may provide “economies of scope” in distribution. By having a full line of products to sell, “thereby increasing the sales per fixed coast of a visit to potential customers.” (CH14, pg. 526)
To gain
Why Companies Collaborate
Firms opt for collaborative arrangements when exporting as an alternative may not be feasible. There are also financial considerations and companies may find it more advantageous to collaborate abroad to mitigate financial risk to the company.
Reasons for Collaboration:
To spread and reduce costs
To specialize in competencies
To avoid or counter competition
To secure vertical and horizontal links
To gain knowledge
To gain location-specific asset
To overcome governmental constraints
To diversify geographically
To minimize exposure in risky environments
To spread and reduce costs – When the cost of development or the investment is very high the benefit of collaborating with another company is realized by pooling their efforts together “to undertake activities that would otherwise be beyond their means”. (CH14, pg. 525)
To specialize in competencies – Through collaboration “a company may seek to improve its performance by concentrating on those activities that best fit its competencies. While depending on the other firm to “supply it with products, services, or support activities for which it has lesser competency”. (CH14, pg. 526)
To avoid or counter competition – When markets are not large enough to support multiple competitors, companies may find it more advantageous to collaborate rather than compete. Companies may also join together to rival the larger more established companies, “or companies may simply collude to raise everyone’s profits”. (CH14, pg. 526)
To secure vertical and horizontal links – There are potential coast saving and supply assurances from vertical integration. However, companies may lack the expertise and resources to wholly own all activities. Horizontal links may provide “economies of scope” in distribution. By having a full line of products to sell, “thereby increasing the sales per fixed coast of a visit to potential customers.” (CH14, pg. 526)
To gain
References: 1. International Business 13e – Environments & Operations (Chapter 14), Authors; Daniels, Radebaugh, Sullivan 2. http://www.witiger.com/internationalbusiness/collaborativerelationships.htm 3. raptor1.bizlab.mtsu.edu/.../International%20Business/