Why would a company seek an alliance over some other form of market entry?

When a company seeks to gain entry into a new market,
there are many obstacles that it faces. They include factors like existing players
having economies of scale; when a new company makes an entry it usually starts off on a
small scale. There are large capital requirements in setting up entire production
facilities. Existing customers of companies already in the market and producing similar
goods to the new company may find the switching costs associated with moving custom to
the new company are too high to warrant a shift. New companies would also have to spend
a lot of resources in setting up completely new channels of accessing raw materials,
distributing their products, etc. In many cases, especially where the entry of foreign
companies is involved, there could be several restrictions placed by the
government.

An alliance is a good way of navigating around
several of these problems. The company already in the market will have a sound
production mechanism with access to suppliers and distributors; it has a customer
loyalty; and is largely free from government regulations.

A
new company seeking market entry can use these strengths in an alliance. They can in
turn infuse funds for the combined entity to expand and bring in new research and
technology to improve products and efficiency. An alliance saves a new company from many
of the risks associated with entry into a new market while allowing enjoyment of the
benefits.