The followings are some arguments for strategic alliances with potential competitors:-
Firstly, ease of entry into a foreign market would be vital for companies who aim for investing in foreign market. Companies would attempt to expand their market when opportunities come. For instance, in 2004 Warner Brothers planned to expand its films production and distribution in China. It would be a challenge for them without a good understanding of local business conditions and not having "good connections" locally as they would have to go through a complex approval process for every film. Thus, instead of competing with local Chinese film producers, Warner Brothers did a smart move - forming strategic alliances with two Chinese partners which assisted in facilitating the local business operation (Hill, 2007).
Secondly, potential fixed cost and associated risk could be spread evenly among the allies. Auto mobile industry in Japan would be a good example for further discussion: with the advance development of auto mobile technology and rapid changing of consumers' standard towards cars, manufacturers struggled in producing auto mobile in high quality but low cost. In 1997 Japanese government announced a gas emission regulation which encouraged Toyota to engage with Fuji (parent of Subaru) as alliance to introduce the gas-electric Prius hybrid in sharing the cost and risk in conducting further research and development in Subaru hybrid. Eventually Fuji is able to take advantage of Toyota in making Subaru a success. Toyota could, in contrary, fully utilize the skills from Fuji and Subaru and enable itself in focusing its own core competency - battery technology (Hill, 2010).
To conclude, if major companies use "cost deduction" to enable themselves standing out among all other competitors, eventually they would be the ultimate loser in the market- imagine what would happen if Coles and Woolworth compete via cost deduction. It is, however, recommended that potential competitors would be better off when allied as they can take advantage of each other's comparative advantages as well as sharing capital investment and minimizing risk.
Harrigan, K. (1987). Joint ventures: A mechanism for creating strategic change. In A. Pettigrew (Ed.), The Management of Strategic