Alliances and Corporate Level Performance
Firms use corporate level cooperative strategies to help diversify its products or markets served. Three corporate level cooperative strategies most commonly used are diversifying alliances, synergistic alliances, and franchising. Diversifying and synergistic alliances enable firms to grow and improve their performance by diversifying its operations. A diversifying strategic alliance is a corporate level cooperative strategy in which firms share some of their resources and capabilities to diversify into new products or market areas. (Hitt, Ireland, & Hoskisson, 2010).
Highly diverse networks of alliances can lead to poor performance by partner firms. A synergistic alliance is a corporate level cooperative strategy in which firms share some of their resources and capabilities to create economies of scope(Hitt, Ireland, & Hoskisson, 2010). It creates synergy across multiple functions or multiple businesses between partner firms. Franchising is a corporate level cooperative strategy in which a firm uses a franchise as a contractual relationship to describe and contract the sharing of it resources and capabilities with partners (Hitt, Ireland, & Hoskisson, 2010).
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Based on my evaluation I think franchising can enable a firm to achieve its corporate strategy goal. A franchise is a contractual agreement between two legally independent companies whereby the franchisor grants the right to the franchisee to sell the franchisors products or do business under its trademarks in a given location for a specified time period. Franchising can enable a firm to achieve a corporate strategy goal because partners work closely together. The franchisors main responsibility is to develop programs to transfer to franchisees the knowledge and skills that re needed to compete successfully at the local level (Hitt, Ireland, & Hoskisson, 2010). Franchises provide feedback to the franchiser regarding ways the units can become become more efficient. The franchisor and the franchisee work together to develop ways to strengthen the company’s brand name to create competitive advantage in local firms. Firms use corporate level strategies to create additional value. Firms like McDonald’s, Burger King, and the Hilton are examples of franchised firms with value. These are names most people are familiar with. Franchising can be used in fragmented industries.
It enables companies to gain large market share by consolidating independent companies since no one firm has a dominate share. In the United States alone, more than 2,500 franchising systems are located in more than 75 industries and those operating franchising outlets generate roughly 1/3 of all US retail sales (Hitt, Ireland, & Hoskisson, 2010). Franchising is an alternative to mergers and acquisitions which can be costly. Franchising is expected to account for significant portions of growth in emerging economies in the 21st century (Hitt, Ireland, & Hoskisson, 2010).