Question

11.1. One reason why firms might want to pursue a strategic alliance strategy is to exploit economies of scale. Exploiting economies of scale should reduce a firm’s costs. Why would this mean that a firm pursuing an alliance strategy to exploit economies of scale is actually pursuing a cost leadership strategy?

Answer 1

In simple words, economies of scale refers to the method of reducing cost of production by producing any commodity at a very high level. By doing strategic alliance two companies can combine their operations to work more efficiently.

Thus, strategic alliance will help the combining group in two ways, first they can target more customers without effective competition and also they can reduce their cost from economies of scale. The further effect of economies of scale would be lesser priced products, that is, cost leadership in the market.