Company Entry Strategies and External Alliances
The Company: Entry Strategies
A company’s organization encompasses more than just its internal structure; it also includes external alliances, which are contingent on the company’s overall strategy.
Types of External Alliances
Based on Relationship
Vertical: These alliances involve companies that have a relationship with either the supplier or the customer.
Horizontal Competitive: These alliances are formed by companies that are direct competitors.
Horizontal Complementary: In these alliances, companies engage in activities that complement each other.
Based on Contract Nature
A frequent classification of alliances is based on the nature of the contracts established between the participating companies. Some of the most important types include:
Long-Term Contracts on Specific Activities
This is the simplest form of cooperation, where two companies collaborate on specific activities through a long-term contract. These contracts foster an ongoing relationship that can encompass a wide range of activities. Complementarity between companies with similar weight in the agreement is crucial in these types of alliances.
Franchise
In a franchise agreement, one company (the franchisor) grants another (the franchisee) the right to market specific products or services within a defined geographical area and under certain conditions in exchange for financial compensation.
- Franchisor Perspective: Rapidly establishes a distribution network for their products without assuming the investment risk.
- Franchisee Perspective: Gains access to an established trademark, often with recognized prestige, for exclusive use in a specific geographical area.
Licenses
A license is a contract where one company grants another the right to use its intellectual property, such as patents, trademarks, designs, copyrights, know-how, and technical information, in exchange for consideration. License agreements can extend to broader arrangements, including the provision of materials or technical assistance by the licensor or commitments to share technological advancements related to the licensed technology.
Subcontracting
In subcontracting, one company (the main contractor) entrusts another (the subcontractor) with the execution of specific production activities, potentially including the complete manufacturing of its products. Reasons for subcontracting include cost reduction, short-term capacity constraints, or a lack of necessary resources. Subcontracting allows the main company to outsource certain rigidities, costs, or resource requirements, enabling them to produce at a lower cost while both companies focus on their core competencies.
Joint Venture
A joint venture involves two or more independent companies (parent companies) creating a third company (daughter company) to pursue a specific business activity. Parent companies contribute investments and sometimes personnel, sharing the profits generated by the daughter company. The key characteristic of a joint venture is the creation of a separate legal entity that operates independently while aligning with the strategic objectives of the parent companies.
Venture Capital
Venture capital involves a company (venture capital firm) providing long-term financing to another company (typically a startup or early-stage company) by acquiring equity (usually a minority stake with a temporary holding period) or subscribing to long-term debt. This funding typically supports innovation projects. Venture capital is considered a form of cooperation when the venture capital firm aims for a continuous partnership, contributing to the startup’s growth beyond simply seeking capital gains from selling its stake after successful R&D completion.
Consortia
A consortium is an alliance of several companies that formalize a long-term relationship through a contract. This contract establishes a mutual organization (the consortium) comprising all participating companies. Consortia are often formed to undertake large-scale, complex projects that exceed the individual capabilities of the participating companies.
Spin-off
In a spin-off, a large company encourages and supports its qualified employees to establish their own independent companies. This typically involves granting independence to a specific department or division within the company. The original company often subcontracts activities to the newly formed spin-off, establishing a vertical relationship based on complementarity between their respective operations.
Networks
Networks represent a cooperative structure characterized by multiple agreements between diverse participants, including companies, individuals, public and private institutions, and financial entities. Cooperation agreements form the basis of these networks, which are defined by their multiplicity and complexity of relationships. Networks can diminish the importance of traditional market structures by fostering lasting relationships with customers and suppliers. This necessitates a shift in strategic thinking, focusing on positioning within networks rather than solely on market share.