Complete 8 pages APA formatted article: Need and Potential Risks of Strategic Alliances. Alliances can be ‘equity alliances’ or ‘non-equity alliances. specifically, joint ventures may involve a hierarchical control from a parent entity (Hennart J., 1988). Prior experience and robust infrastructure are considered during alliance partner selection. The success of a corporate alliance is measured in terms of the value addition imparted due to the combined activities of the parties involved. This is achieved through a well defined ‘Alliance Strategy’ which involves a proper design, appropriate monitoring, governance and performance management processes. I would like to elaborate on the ‘KLM and Northwest Alliance’, which was the first integrated airline alliance in history. The association between the two airlines began in 1991 with joint ‘code – sharing’ and went on to form a major ‘Trans-Atlantic Joint Venture’. A peculiar characteristic of this joint venture was the absence of a new legal entity. KLM and Northwest entered into an ‘Open Sky agreement’ and ‘Anti-trust immunity’ in 1993 and thus formed a globally renowned unit. As is true with most alliances, this contract was designed specifically to support and strengthen the competitive advantages of the partners (Liana M., Nicoleta B, and Dana P., 2009). KLM Royal Dutch Airlines, incorporated in 1919, was based out of Amsterdam. KLM was a regional leader but wanted to expand its network to many cities in the US. A company cannot be solely viewed as an individual unit. rather, it is subject to interactions with various other bodies, constantly striving to foster good inter-organizational ties and relations. Around the late 1980s, due to liberalization and de-regulation of markets, free competition prevailed in the European airline industry. KLM realized the need to collaborate and co-operate with airlines based out of other countries, in order to maximize their global connectivity. KLM invested in a detailed process of partner selection and finally zeroed in on Northwest Airlines due to its international reputation, vast experience with the passenger as well as cargo transport and its dominance in the US market. A strong proposal was made to develop collaboration between an American and a European carrier to achieve competitive costs, expansion of their network and greater revenue. Northwest Airlines began its operations in 1926 and was a medium-sized airline carrier, focussing more on flights in the United States to Asia, but rarely to the European regions. Despite their stronghold in the US regions, Northwest had, by then, earned poor points for service quality and did not have the funds or infrastructure to individually scale up on mega proportions. Northwest realized the need to explore wider opportunities in Amsterdam, the European sector and expand their operations accordingly. Contrary to KLM, Northwest did not go through a very fine partner selection process and chose KLM as its alliance partner owing to their pre-existing ownership in Northwest. It is acknowledged that the main theoretical motivations for the formation of joint ventures include a reduction in transaction costs, strategic competitive positioning or market power and a quest for organizational learning and knowledge development (Gulati, 1998). It is on a similar model that the two airlines, KLM and Northwest, came into an alliance in a bid to enhance&nbsp.revenue, expand and grow to be a global market power.


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