Alliances can be divided into several groups according to their purpose (Delios et al., 2004; Inkpen, 2005; Rahman & Korn 2010):
• The purpose of economies of scale and specialization in production or services.
• Purpose of cross-promotion and sales.
• The purpose is to increase negotiating power in procurements.
The first group is the economies of scale of production and alliances based on specialization. These are usually vertical alliances, in which cooperative relations are based on the need to focus only on core competences, and to acquire non-core competences from the outside, in this case from alliance partners. Such alliances are found in the product based and technology industries. In the service sector, there are also alliances driven by economies of scale and specialization, but they are usually horizontal. Horizontal alliances aim to attract a larger number of users to their core service through the instruments of cross-selling and cross-promotion.
Ex. 5‑12 Purposes of alliancing
Keywords: economy of scale, negotiations, sales, alliances diversity
The second group is cross-promotion and cross-selling alliances. These alliances may themselves have a common brand, like airline alliances, but may not have a brand. If the alliance has a common brand, then it is advertised, and consumers are encouraged in various ways to choose the products of the manufacturer or service provider of brand alliance members. However, individual companies in the alliance seek to maintain and promote their own brands as well, so in such cases possible to find a dual-brand advertisements. If the alliance does not use a common brand, then the alliance partners promote each other’s goods through their own channels, use various loyalty programs. To motivate each other more, alliance partners often agree on a commission for the partner’s service or product sales, which can be a percentage of sales or a fixed amount for each product or service sold.
The third group of alliances is created with the goal of greater bargaining power and size. It is very difficult for small companies to compete with large international companies. A larger organization has a better bargaining position when making purchases of materials or services, and therefore often significantly outperforms its smaller competitors. By purchasing larger quantities and being market leaders, large companies basically start dictating the terms of the purchase transaction to their suppliers. Small local organizations in an alliance, while remaining independent, can collectively reach the size and scope of their large competitor. Such an alliance is in a much better position to negotiate the prices of services, raw materials or components from its suppliers. In the same way, the alliance may have a better position when negotiating sales of its products with international retail chains. It can be challenging for small organizations to enter with their products into some large retail chains or distribution channels, because the big players prefer to work with the larger ones. Being in an alliance makes it possible for small players to negotiate with large market players as equal partners.
alliances diversity
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Fundamentals of global business
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Jarzemskis A. (2025). Fundamentals of global business, Litibero publishing, 496 p.
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