STRATEGIC ALLIANCE:

1. This strategy seeks to enhance the long-term competitive advantage of a company by forming alliance with its competitors.

2. The objective of this alliance is to leverage critical capabilities, increase the flow of innovation and flexibility in responding to market and technological changes.

3. Similarly, a company may enter a foreign market by forming alliance with a company in the foreign market for marketing or distributing its products.

4. Strategic alliance, more than entry strategy, is a competitive strategy.

5. It enables companies to increase resource productivity and profitability by avoiding unnecessary fragmentation of resources and duplication of investment and efforts.

6. Such alliances are normally used in pharmaceutical, computer, nuclear and telematics industries, which have high fixed costs in research and development and manufacturing and high and fast changing technology.

7. The automobile industry has been witnessing several alliances for overseas operations.

8. An alliance in the telematics sector which essentially brings together two separate streams of technology related to information gathering and processing and also related to information transmission.

9. An example is IBM’s agreements with STET, Italy’s state owned Telecommunication Company and Nippon Telegraph and Telephone to develop computer communications services and a joint research venture with Ericson (Sweden) to explore the linking of data-management technology with digital switching technology. 10. It is also observed that within the service sector strategic alliances are less common, but those between hotels, airlines and tour operator’s and between accountants and management consultants are increasing.

COUNTERTRADE:

Countertrade is a form of international trade in which certain export and import transactions are directly linked with each other and in which import of goods are paid for by export of goods, instead of money payments. Countertrade refers to a variety of unconventional international trade practices which link exchange of goods, directly or indirectly, in an attempt to dispense with currency transactions. It has been used by a number of companies as an entry strategy.

Countertrade takes in different forms:

i. One of them is a Barter which refers to direct exchange of goods of equal value with no money and no third party involved in it.

ii. The another form is buy-back agreement under which the supplier of plant, equipment, or technology agrees to purchae goods manufactured with that equipment, or technology.. Under this scheme, the full payment may be made in kind or part may be made in kind and the balance in cash

iii. The third form is compensation deal under which the seller receives a part payment in cash and the rest in goods.

iv. The fourth form is counter purchase agreement under which the seller receives the full payment in cash but aggress to spend an equivalent currency of money in that country within a specified period.

Eg: Pepsi Cola’s trade with the USSR. Pepsi Cola was paid in Rubles for the sale of its products in the USSR but spent this amount for purchase of Russian products like Vodka and Wine. ➢ Many countertrade deals involve more than two parties and the process becomes complex.

➢ In several cases the buyer is not in a position to offer in exchange goods which the seller really needs.

➢ Counterdeals were also used by the Japanese trading house as a means to boost their business with hard currency strapped China and the former USSR.

➢ These trading houses can take massive and complex countertrade deals in their strides, as they possess pattern and can mobilize everything from technology to finance.

➢ A significant volume of international trade is covered by countertrade. More than 100 countries in the world have been practicing countertrade. It accounts for one-fouth of the world trade.

➢ Counter trade has been growing with government patronage.

➢ It has been made mandatory by a number of countries including Indonesia, Malasiya, South Korea, and Australia in case of public sector purchases above certain specified value. Other countries also encourage their importers to settle transactions on countertrade basis.

➢ Indian public sector companies like STC and MMTC are active in countertrade.

➢ Government of India has set up a special cell in the Ministry of Commerce to monitor and develop appropriate opportunities available to boost India’s exports through countertrade.

➢ Companies in advanced countries resorted to countertrade for selling absolute products, increasing the sale of capital goods and increasing their business.

➢ Many developing countries regard it as an easy route to export, but they often stand to lose in terms of price.