A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a co-operation or colloboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise),economic specialisation,shared expenses and shared risk.
Types of strategic alliances
Various terms have been used to describe forms of strategic partnering. These include ‘international coalitions’ (Porter and Fuller, 1986), ‘strategic networks’ (Jarillo, 1988) and, most commonly,‘strategic alliances’
. Definitions are equally varied. An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective’. There are seven general areas in which profit can be made from building alliances. Stages of Alliance Formation
A typical strategic alliance formation process involves these steps:
Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.
Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner.
Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high calibre negotiating teams, defining each partner’s contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood.
Alliance Operation: Alliance operations involves addressing senior management’s commitment, finding the calibre of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance.
Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere. There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances.
- Joint venture
is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.
- Equity strategic alliance
is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage.
- Non-equity strategic alliance
is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage.
- Global Strategic Alliances
working partnerships between companies (often more than two) across national boundaries and increasingly across industries, sometimes formed between company and a foreign government, or among companies and governments.
Sources of Competitive Advantage from a Global Strategy
A well-designed global strategy can help a firm to gain a competitive advantage. This advantage can arise from the following sources:
- Economies of scale from access to more customers and markets
- Exploit another country’s resources – labor, raw materials
- Extend the product life cycle – older products can be sold in lesser developed countries
- Operational flexibility – shift production as costs, exchange rates, etc. change over time
- First mover advantage and only provider of a product to a market
- Cross subsidization between countries
- Transfer price
- Diversify macroeconomic risks (business cycles not perfectly correlated among countries)
- Diversify operational risks (labor problems, earthquakes, wars)
- Broaden learning opportunities due to diversity of operating environments
Crossover customers between markets – reputation and brand identification