Agriculture Reference
In-Depth Information
Finally, allies can direct their combined competitive energies into building competitive
advantage and defeating a mutual rival.
Disadvantages of strategic alliances
There can also be disadvantages to forming strategic alliances. First, establishing effective
coordination between independent companies is both challenging and time consuming. How
are responsibilities divided? How will returns be divided? These questions, and a hundred
more like them, must be answered in a successful alliance.
Second, there may be language and cultural barriers to overcome, as well as attitudes of
suspicion and mistrust. This issue includes the need for mutually shared goals. If two alli-
ance partners have different objectives from the alliance, the seeds for long-run problems
have been planted.
Third, the relationship may cool at some point in the future and the desired benefi ts may
never be realized, but information may have already been shared. This commonly occurs
when there is management turnover among the alliance partners. The situation and person-
alities that were part of the original deal change over time, and the new management team
may look at the world—and the deal—differently.
Finally, a fi rm may become too dependent on another fi rm's expertise and capabilities
and fail to develop its own internal capabilities. Firms must be careful with respect to what
they do themselves, and what they depend on from a partner. In the animal health example
above, the alliance may be a wonderful move for the animal health fi rm. Or, it could leave
them vulnerable in three years if a competitor purchases their alliance partner and they have
no internal e-business capabilities.
A strategic alliance is an attractive organizational form for those fi rms that want to pre-
serve their independence rather than merge with another fi rm when trying to either remain
competitive or enhance their competitive position. This form of organization enables those
fi rms to collaborate with other fi rms to enhance their own capabilities, develop new prod-
ucts, and compete more effectively. However, as mentioned above, there are also disadvan-
tages that should be seriously considered before forming a strategic alliance.
Taxation
As discussed earlier in this chapter, proprietorships, partnerships, Subchapter S corporations
and limited liability companies pay taxes on their business profi ts at the personal
rate. Corporations, however, have a separate tax rate for corporate profi ts. If the corporation
distributes dividends to shareholders, then these individuals also pay personal income
tax on this amount. Hence, many corporate profi ts are subject to double taxation—fi rst,
the corporate profi ts are taxed, and then the dividends (paid from after-tax profi ts) are
taxed again.
A proprietorship completes either Schedule C or Schedule F (farms and ranches) to report
business income, expenses, and profi t or loss. This amount is then carried forward to the
individual's Form 1040 where it would be taxed at the individual rate. Likewise, partners
and members of a limited liability company complete Schedule K to tabulate their profi t
distribution from the business and carry this forward to their Form 1040 to pay personal
taxes on their share of profi ts from the business. The partnership and LLC must complete
Form 1065 to show all partnership income and profi t distributions. Also, S-corporation
shareholders report income from the corporation on their Form 1040.
