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1. Discuss the major factors that encourage the formation of strategic partnerships between companies.
The major factors that are needed to help establish a strategic partnership between companies are divided into four different categories and they are
Opportunities to enhance value by combining the competencies of two more organizations – when companies combine their competencies it allows both companies to offer a must better and more superior customer value.
Environmental complexity – Environmental and environments always present an escalating turbulence and diversity within one company but when the companies have partnered up they can utilize each other environmental strategies to offset their on in order resolves these issues. Companies need to respond quickly and they do so by using these two methods. “(1) Altering their internal organization structures and (2) establishing strategic relationship with other organizations” (Cravens & Piercy, 2013).
Competitive strategy – When two organizations work together it allows one or both organization to compete through the other organizations relationships and it continues to deliver the best value to the end-user.
Skills and resource gaps – The skills and resources are continuously involving and not just one organization can remain on top of the technology a developing products. When two organization partnership they can complement each other’s capabilities and remain focused technologies and the involving products. Some of the constraints that can impact organizations is the technology, financial, market access and information technology. (Cravens & Piercy, 2013).
Organizations that partner up other organization gain the most benefit by combining their resource and marketing skills that each other might be lacking and it allows both companies the opportunity to provide the best technology and support in order to present the best value and product to the end user.
2. Compare and contrast vertical and horizontal strategic relationships between independent companies.
Vertical and horizontal relationships differ primarily in the position of the partners in the alliance process and their potential contribution to the alliance effort. Vertical relationships arise due to the functional specialization of participants in the value chain. This includes product development and design, manufacturing, marketing, distribution and even customer service. The vertical channels of distribution link the areas of supply and demand. Vertical relationships may involve customer/supplier relationships or relationships among participants in the distribution channel. The distribution channel includes wholesalers, manufacturers, retailers and end–users.
In contrast, horizontal relationships occur with strategic alliances or joint ventures. The relationship partners are not linked primarily by their position in the value chain process which involves creating goods or services. Horizontal relationships exist primarily between organizations which manufacture a good or provide a service. Strategic alliance and joint venture cooperative relationships involve partners at the same level in the distribution channel. This makes the relationship horizontal.
3. Discuss the major factors that encourage the formation of strategic partnerships between companies.
Strategic relationships between companies can occur in order to gain access to markets, enhancing value offerings, reduce risks caused by technology advancing, offering of complimentary skills, learning and acquiring new information, and building close relationships with major market customers (Cravens, 2013). Over the years, companies have developed this strategy in order to offset costs of marketing and technology as well as combatting the competitive strength of some markets. Collaboration of companies can be based on collaborating on certain activities such as inventory programs to enact the just in time method, marketing programs to offset cost, and long-term supply contracts (Craven, 2013). While these collaborations can be extremely positive for the company, it can be a complex arrangement to management as well.
Often times companies will develop the strategic partnership to build economies of scale leading to a more abundance of resources and even expand the possibility of international success (D’Alimonte, 2014). It’s important to note resources may be alter based on other factors as well such as location and demographics. Many companies will begin partnerships in order to combat competitiveness of companies of the market. These partnerships can battle the competition by joining together at a time when technological and administrative complexity has increased (D’Alimonte, 2014). Companies might also experience a set of skills or capabilities it is missing and join with a complimented company to fill in these gaps and vice versa (D’Alimonte, 2014).
Companies acquire risk consistently, whether its financially, market value, or in the stocks. In order to build financial backing, a company will seek out a strategic relationship with another company. This strategic relationship will result in a share in the risk, whether in money or systems, that will alleviate some risk from both companies (D’Alimonte, 2014). In marketing, there is a risk involved including ensuring the target audience and the cost of the marketing campaign if the market is unsuccessful or successful. The partnership would eliminate the hit these ricks can take on a company.