Alliance Network

An Alliance Network is a collaboration between two or more firms that band together on a loose, non-contractual basis. Many firms do not manufacture their products themselves but have a complex network of companies that supply them with complex products. Collaboration often involves the manufacturing process and the R&D process, such as in Pharmacy or exploration of new geographic markets. Driving forces behind this growing phenomenon are customers' growing demand for customization, service, and speed, fierce global competition, outsourcing of non-core activities, and on the other hand, the enabling technologies of the internet and advance planning systems. It has become difficult for a single company to compete against these networks in many industries. Examples include many automotive assemblers (Ford, GM, Toyota) who order complete dashboards from suppliers, computer assemblers (HP, Dell, Compaq) who integrate complete ordered main boards along with some peripherals, clothing (Nike, Benetton), and IKEA.[1]

Alliance networks may differ from each other in many ways. Any network may consist of a few or many companies. They also differ in size and composition, the level of internal competition and cooperation within the group, configuration, and finally,, the method of partner selection. Decision-making in the context of these factors is regarded as the main challenge for network managers since, to a great extent, it determines the way the company competes and its resultant effectiveness. A characteristic feature of alliance networks is duality, which means the simultaneous presence of internal competition and cooperation (Lei 1993). In the case of competing companies, this duality is called co-opetition. The complexity of cooperation and competition is based on the simultaneous implementation of two contradictory logics of the relationship between companies, i.e., trust, which is a symptom of common interests and conflict of interests, characterized by conflict and confrontation (Cygler 2007). This raises a paradox: companies cooperating in the network have to trust each other, share information and experience, and remember at the same time that they are dealing with their competitors. Internal competition in alliance networks is determined both by the number of companies performing similar functions in the market, as well as by the mutual relations between them. Some network members will prefer a limit of the number of members up to a given number, which reduces internal competition within the group. Others will accept full competition within the network, allowing for complementary operations. Internal competition has two different effects:

  • It increases the flexibility of the network, introduces innovations, and ensures the security of supplies. However, it may also break up a business so thoroughly that no company can sufficiently achieve economies of scale or earn a reasonable profit.
  • It determines the boundary between optimal and excessive competition. Partners can prefer a higher order (this applies to companies that are exposed to internal competition) or use the competition between suppliers or buyers within the network (Gomes-Casseres 1994).[2]

See Also

Alliance and Relationship Management


Further Reading