Final answer:
Firms tend to opt for equity alliances when they become somewhat established and have strategies likely to lead to profits. Equity alliances provide firms with financial capital and access to expertise, resources, and market opportunities.
Step-by-step explanation:
When firms become somewhat established and have strategies that are likely to lead to profits in the near future, they tend to opt for equity alliances. Equity alliances refer to partnerships where two or more firms invest in each other and share the risks and rewards associated with their joint projects.
This type of partnership is chosen when firms need financial capital to support their growth plans but are unwilling or unable to raise funds solely through debt financing. By forming equity alliances, firms can access the capital they need while also benefiting from the expertise, resources, and market access of their partners.
For example, a technology startup that wants to expand its reach in a foreign market may form an equity alliance with a local company that has established distribution channels and market knowledge. Through this alliance, both firms can leverage their strengths and gain a competitive advantage.