Organizations may cooperate with other organizations in pursuit of their objectives. The term 'alliance' is an umbrella term for a wide range of cooperative arrangements that can encapsulate suppliers, buyers, and competitors. As such, it covers many collaborative organizational forms including franchising, management contracts, joint ventures, marketing, and purchasing consortia. Gulati (1998) defines strategic alliances as '.voluntary arrangements between firms involving exchange, sharing, or codevelopment of products, technologies, or services.' (Gulati, 1998, p. 293).
Primarily, alliances offer organizations a basis for creating a degree of stability in their external relationships and a method to secure access to resources or competences possessed by other organizations that support the attainment of strategic objectives. This might be in the form of particular operational expertise or knowledge regarding a particular market or competitive context. This is frequently the case where inter national hotel chains enter a new country in partnership with an indigenous hotel organization. Joining an alliance with local businesses permits firms to internalize market knowledge and expand local service capacity simultaneously.
Moreover, the new country often serves as a plat form that enables smooth penetration to neigh boring countries (Preble, Reichel, & Hoffman, 2000). Numerous international hospitality organizations like Hilton International or Sheraton form alliances with local chains in their penetration strategy to new markets. In this case, the major motivation involves exposure to local knowledge on the legal political environment; the market; trade policies; access to qualified local executives and employees; as well as sharing financial risk via joint investments in property (equity alliance). Such alliances also enable inter national hospitality organization to reap the benefit of economies of scale.
A recent trend in strategic alliances in hospitality involves agreement between an international hospitality organization, real estate investors, and hospitality managing corporations. In this 'triangle' shape of alliance, the hotel property is owned by the realtor; the hospitality chain grants its brand name and sometimes also access to international reservation systems; and the management company actually manages the hotel often according to the specifications of the brand recognized hospitality organization.
While alliances might be formed to achieve specific objectives and be dissolved on their attainment (i.e. joint ventures), or a more flexible open ended network (Jarillo, 1993) type arrangement (e.g. a marketing consortium) they can often be used as a prelude to a more permanent arrangement such as a merger or takeover. Franchises and management contracts when used as a means of 'technology transfer' are good examples of the former, while marketing consortia, such as 'Leading Hotels of the World' is an obvious example of the latter. According to Chathoth and Olsen (2003) alliances may function on the basis of formal or informal agreements and can be classified into two categories: equity and nonequity alliances. Equity alliances demonstrate a mutual financial commitment and often imply a long term commitment to the partnership. On the other hand, non equity alliance allows for greater strategic flexibility as partners may decide to terminate an agreement and either act on their own or form an alternative alliance without the need to deal with shared equity.
According to Preble et al. (2000) franchising has become the world's leading form of strategic alliance. Franchising enables the franchisor to penetrate new markets and increase market share either domestically or globally with limited financial investment. The need for such a form of alliance is also apparent from the franchisee side, often a single ownership operation that cannot take advantage of economies of scale. Clearly, the growing power of international hotel organizations leaves the single unit hotel without the adequate resources to attract guests, unless securing special non imitable resources.
Alliances epitomize what de Wit and Meyer (1998) refer to as the 'embedded organization perspective' and represent an alternative arrangement to internal hierarchies (stand alone firms) and market arrangements (external contracting). They are therefore seen as a solution to the problem of strategic coordination across the traditional boundaries of what we typically consider to constitute the 'organization.' In addition, the increasing prevalence of alliances high lights the need for hospitality organizations to proactively consider network level strategies in addition to the traditional focus upon business and corporate level strategies.
Similarly, designing a network of outsourcing may represent another form of strategic alliance. Specifically, numerous hotels sign agreement with suppliers to serve previously in house services supplied by the hotel. Food and beverage services, safety and security measures, and even cleaning services are outsourced. The internalization process of such services into the core services of the hotel represents a high degree of confidence in suppliers that are considered as partners in hospitality services. The network of inter organizational partnership is also evident in the case of regional or county wide marketing efforts.
Such partnerships (marketing consortia) are formed in order to share marketing expenses or promote a particular destination usually in the case of crisis or declining demand. Such alliances are based on the realization that sharing marketing efforts and resources may benefit all organizations that would be considered as competing under different circumstances. Another common alliance involves the creation of strategic marketing alliances where hotels, car rental companies, and airlines merge their reservation systems and marketing campaigns to protect or gain market share. Chen and Tseng (2005) examined alliances between hotels, restaurants, travel agencies, entertainment establishments, and credit card issuing banks. 'Partners having excellent resources' and 'the potential for mutually beneficial relationship' were the two major criteria used in partner selection. Clearly, the proliferation of Internet reservation systems and the growing usage of on line reservations often justify the formation of the various aforementioned consortia.
Different types of marketing consortia on a more modest, often on a regional, basis are evident in the case of rural tourism. The growing trend of small scale rural tourism, mainly 'bed and breakfast' operations and small tourist attractions, often formed to solve unemployment problems calls for the formation of alliances. Joint marketing efforts are used to create a shared 'brand' that distinguishes the region and to design packages of lodging and leisure activities that emphasize the competitive advantage of the region.
Chathoth and Olsen (2003) conceptualized strategic alliance as a process involving the governance the allying firms choose during their inception and evolutionary phases following steps: (1) the strategic alliance decision criteria, usually based on resource and capabilities, (2) organizational complementarily; and (3) governance of strategic alliances. In a previous work by Gulati (1998), five key issues were identified for the study of alliances: (1) the formation of alliances, (2) the choice of governance structure, (3) the dynamic evolution of alliances, (4) the performance of alliances, and (5) the performance consequences for firms entering alliances.
Chathoth, P. K., & Olsen, M. D. (2003). Strategic alliances: A hospitality industry perspective. International Journal of Hospitality Management, 22(4), 419 434.
Chen, H. M., & Tseng, C. H. (2005). The performance of marketing alliances between the tourism industry and credit card issuing banks in Taiwan. Tourism Management, 26, 15 24.
de Wit, B., & Meyer, R. (1998). Strategy: Process, Content, Context. London: International Thomson Business Press.
Jarillo, J. C. (1993). Strategic Networks: Creating Borderless Organization. Oxford: Butterworth Heinemann.
Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19, 293 317.
Preble, J. F., Reichel, A., & Hoffman, R. C. (2000). Strategic alliances for competitive advantage: Evidence from Israel's hospitality and tourism industry. International Journal of Hospitality Management, 19(3), 327 341.
BEN-GURION UNIVERSITY, ISRAEL