What is a strategic alliance?
A strategic alliance is an agreement between two companies to undertake a mutually beneficial project while each retains its independence. The agreement is less complex and less binding than aconsortium, where two companies pool resources to create a separate business entity.
A company may enter into a strategic alliance to expand into a new market, improve its product line, or develop an advantage over a competitor. The agreement allows two companies to work towards a common goal that will benefit both. The relationship can be short or long term.
- A strategic alliance is an agreement between two companies that have decided to share resources to carry out a specific project of mutual benefit.
- A strategic alliance agreement can help a company develop a more effective process.
- Strategic alliances allow two organizations, individuals, or other entities to work toward common or correlated goals.
- Strategic alliances diversify revenue streams, grant access to potentially hard-to-find resources, and can enhance a company's public image.
- Strategic alliances can also cause companies to spend resources resolving conflicts, fail to produce the expected results, or have a negative impact on a company's public image.
Understand strategic alliances
At the center of strategic alliances are companies that are striving to be better but may not have the resources to embark on certain ventures. Rather than trying to create market opportunities for themselves, companies can look to existing resources to tap into personal growth.
Consider Uber's huge customer base. While Uber may have an interest in making the ride experience as robust as possible, it may not be feasible for the company to build its own music repository with technological resources to play only on demand. For this reason, Uber turned to Spotify to establish a strategic alliance.
On the other hand, Spotify can boast of a strong technological product. However, you can look for opportunities to reach a broader consumer audience (which is exactly what Uber has to offer). By forming a strategic alliance in which Uber provides the customers and Spotify provides the technology, the two companies have come together to create a market opportunity that neither entity could have achieved alone.
Although less formal than other types of agreements, a strategic alliance is usually still subject to a contractual obligation that legally binds the actions of each member of the alliance.
Types of strategic alliances
There are three main forms of strategic alliances. These three types of strategic alliances vary in the degree of financial investment that each company makes in the agreed joint effort.
AconsortiumIt occurs when two companies agree to merge to create a completely new and separate company, of which each of the existing companies becomes the parent.
In 2012, Microsoft and General Electric Healthcare signed a joint agreement to create a new third company called Caradigm.Caradigm was created to develop and commercialize an open healthcare intelligence platform. The idea behind the joint venture was that Microsoft had the technical ability to make this platform work, while GE's healthcare IT division had the expertise on the healthcare side.
Strategic Capital Alliance
Aown capitalthe strategic alliance may have performance objectives similar to those of a joint venture; however, it is financed differently as one company makes an equity investment in another.
In 2010, Panasonic invested $30 million in Tesla.The purpose of the investment was to help build a stronger alliance between the two companies and accelerate the expansion of the electric vehicle market. As one of the world's leading battery cell manufacturers, Panasonic's skill set was a strong match for Tesla's ambition to incorporate proprietary packaging using cells from multiple battery suppliers.
Inequitable Strategic Alliance
A non-equity strategic alliance is formed when two entities perceive that there is mutual benefit and that a capital transfer is not required. As discussed below for Barnes & Noble and Starbucks, each alliance member simply contributes their resources to the alliance for the other party to take advantage of. A simpler contractual obligation is agreed for the two entities to pool resources and capabilities.
How do strategic alliances create value?
There are many reasons why a company may choose to enter into a strategic alliance. These reasons may include, but are not limited to:
- Improve short-term finances.Companies that want to make an immediate financial impact may find it easier to leverage another company's resources to improve their market position in the short term.
- Elimination of entry barriers.Companies may not have capital available to enter certain markets. Instead, they can use companies that have already made these investments for cheaper and faster access.
- Get better business insights.Companies may have no idea how a givenbusiness modelcan do. Instead of having to build an entire model and self-finance an experiment, companies can take advantage of strategic alliances to "test" how certain situations might play out and use that information for future decision making.
- Shared financial risk.If a business fails, both parties to a strategic alliance are likely to help pay for those losses. Instead of being solely responsible for failure, both parties can receive mutual assistance as part of the alliance agreement.
- Innovate beyond current capabilities.In the aforementioned Panasonic/Tesla alliance, this partnership created an innovative and cutting-edge agreement that brought together some of the smartest EV battery experts on the same team.
Strategic alliances are often formed between companies with varied business cycles or products. For example, companies with short cycles may look to companies that have made long-term investments to help rapidly develop a product that would otherwise require more time.
How to find a strategic alliance
Forming a strategic alliance requires creativity, vision of the future and good business sense. While many strategic alliances are not the same, each is based on common steps outlined below.
- Brainstorm potential partners.There are usually strategic alliances between companies from different sectors. Consider other businesses that may need your services or have a weakness where your business has a strength. On the other hand, consider the weaknesses of your own company and what types of entities can provide you with resources to help you fill your void.
- Draft Partnership Proposals.Strategic alliances must make sense to both parties; otherwise, one of the parties may not agree to the alliance if they feel it does not benefit them. Thus, you can find a strategic alliance by craftingfinancial budgetsand strategies. Then propose these plans to companies to gauge their interest. Companies are more likely to find a strategic alliance when the other company is receptive to an idea that has a proven plan to benefit both parties.
- Determine Goals.All parties to a strategic partnership must provide information about what the alliance's revenue, profit, and operating strategy will be. These goals should be well documented and include language about what should happen if either party fails to comply with the partnership agreement.
- Prepare the Plan.Once all parties are on board to form a strategic alliance, the formal plan is presented. This usually results in a series of legal documents outlining the contract between the two entities. This plan also acts as a road map for future decision making as the newly formed alliance moves forward.
Advantages and Disadvantages of a Strategic Alliance
Advantages of a strategic alliance
A strategic alliance allows a company to take advantage of opportunities that it could not otherwise take advantage of. This includes gaining new customers, getting involved in different markets, or selling different products. Each of these paths has the potential to increase a company's revenue and profitability.
Strategic alliances are also a way to diversify a company's activities.income streamand generate different opportunities to mitigate the financial risk of the entire company. Risk is also mitigated with the help of alliance members, as each entity may have resources that can be used to solve unique challenges or navigate unfamiliar business scenarios.
Finally, strategic alliances allow a company to operate differently than it normally would. That means using resources you don't have. This could be physical assets, access to markets, or labor with specific expertise. It can also mean that the company can take advantage of another company's market presence to gain a more positive public perception of its own company. Entering into an alliance with a company with a strong public reputation helps build brand trust and recognition of your own entity.
Cons of a strategic alliance
A strategic alliance is more likely to be successful if there is strong communication. This means that both parties must continually expend resources to manage the alliance to ensure that both parties agree. If the transmission of information or strategy fails, it will be more difficult for the alliance to succeed.
While strategic alliances may seem fair and romantic, they are often not equally balanced. One company will almost always naturally benefit more than the other, and there may not be a simple solution to balance trade. You can also develop an unnatural dependency on one side or the other in terms of the resources consumed or the experience you draw on.
Just as a strategic alliance can help improve a company's public image, a transgression by an allied company can cause harm. The reputation of one company may depend on the other, although they have no control over how the other company behaves in public. A similar difficulty can exist if there are conflicts between the members of the alliance; If there are strategic disagreements, resources may be wasted resolving interpersonal conflicts that would not exist without the alliance.
May result in winning customers, especially in unfamiliar markets
Can generate additional income and increase profitability
You can diversify a company's income stream.
Can reduce a company's operational risk due to the addition of unique assets
It can positively influence the brand and the perception of the company.
May require more work collaborating and communicating with larger teams(Video) What are Strategic Alliances?
It can result in one side getting a better deal than the other (even if it wasn't planned)
May result in conflict if alliance members disagree on long-term strategy
It can negatively influence the brand and the perception of the company
Examples of Strategic Alliances
The deal between Starbucks and Barnes & Noble is a classic example of a strategic alliance. Starbucks brews the coffee. Barnes & Noble stocks the books. Both companies do what they do best while sharing space costs for the benefit of both companies.
Strategic alliances can come in many shapes and sizes:
- An oil and natural gas company may form a strategic alliance with a research laboratory to develop commercially viable recovery processes.
- A clothing retailer may form a strategic alliance with a single manufacturer to ensure consistent quality and size.
- A website can form a strategic alliance with an analytics company to enhance its marketing efforts.
Why are strategic alliances important?
Strategic alliances are important because they allow a company to further benefit in areas that it could not for lack of personal resources. Whether forming an alliance to gain market entry, skilled labor, or limited source resources, successful companies work with other companies. This is important as it allows a company to personally benefit from leveraging another company's assets.
What is the difference between a partnership and a strategic alliance?
An alliance is a collaboration between two companies where each individual company is expected to benefit or benefit from the agreement. A partnership is a more formal type of arrangement in which partners merge to create a single shared economic interest.
What is the most important factor in a strategic alliance?
A strategic alliance is a relationship between two entities. Therefore, the most important factor of the alliance is the trust and collaboration between the two teams. There must be a mutual commitment to joint success for strategic alliances to succeed, and the alliance must be guided by clear strategic goals and conversations to ensure both parties are continually on the same page.
A strategic alliance is an agreement between two parties for their mutual benefit. Each side usually provides some type of resource that it allows the other party to use; By collaborating with another entity, both parties benefit in some way.
A strategic alliance is an arrangement between two companies to undertake a mutually beneficial project while each retains its independence. The agreement is less complex and less binding than a joint venture, in which two businesses pool resources to create a separate business entity.What are strategic alliances in business examples? ›
- Spotify And Uber. A prominent strategic alliance example is the partnership between Spotify and Uber. ...
- MasterCard And Apple Pay. ...
- Chevrolet And Disney. ...
- Vodafone India And ICICI Bank. ...
- Barnes & Noble And Starbucks. ...
- Equity Strategic Alliance. ...
- Non-Equity Strategic Alliance. ...
- Joint Venture.
- Gain new client base and add competitive skills. ...
- Enter new business territories. ...
- Create different sources of additional income. ...
- Level industry ups and downs. ...
- Build valuable intellectual capital. ...
- Affordable alternative to merger/acquisitions. ...
- Reduce risk.
In a strategic partnership, two businesses intertwine their efforts in a certain area, such as marketing, supply chain, integration, technology, finance, or a combination of these.What are the main reasons for strategic alliances? ›
- Forming economies of scale.
- Enhancing competitiveness.
- Dividing risks.
- Setting new standards for technology.
- Entering new markets.
- Overcoming the competition in a market.
- Step 1: Identify Potential Partners. ...
- Step 2: Research Potential Partners. ...
- Step 3: Make the First Call. ...
- Step 4: The First Meeting. ...
- Step 5: Identify Specific Opportunities. ...
- Step 6: Establish Revenue/Profit Goals. ...
- Step 7: Develop an Agenda. ...
- Step 8: Present the Plan.
: a bond or connection between families, states, parties, or individuals. a closer alliance between government and industry. : an association to further the common interests of the members. specifically : a confederation of nations by treaty. the alliance of Western nations.What is an example of an alliance today? ›
Some examples of alliances that the U.S. is in include NATO — the North Atlantic Treaty Organization (with 28 other countries), NORAD — the North American Aerospace Defense Command (with Canada), ANZUS — the Australia, New Zealand and U.S. Security Treaty, and the Moroccan-American Treaty of Friendship — which is ...What is an example of the alliance system? ›
Similarly, in World War II (1939–45) Great Britain and the United States allied themselves with the communist Soviet Union in order to defeat Nazi Germany. A new level of alliance building in Europe was reached in the late 19th century, when enmity between Germany and France polarized Europe into two rival alliances.What are the benefits of good strategic management with relevant examples? ›
- Discharges Board Responsibility. ...
- Forces An Objective Assessment. ...
- Provides a Framework For Decision-Making. ...
- Supports Understanding & Buy-In. ...
- Enables Measurement of Progress. ...
- Provides an Organizational Perspective. ...
- The Future Doesn't Unfold As Anticipated. ...
- It Can Be Expensive.
The three different types of partnership are: General partnership. Limited partnership. Limited liability partnerships.What are the five example of partnership? ›
- GoPro & Red Bull.
- Pottery Barn & Sherwin-Williams.
- Casper & West Elm.
- Bonne Belle & Dr. Pepper.
- BMW & Louis Vuitton.
- Uber & Spotify.
- Apple & MasterCard.
- Airbnb & Flipboard.
A business merger, created using a Business Merger Agreement, is one of the most formal and permanent ways for two companies to collaborate with each other. A merger is a legal agreement between two companies to combine and become one single company.How do you manage strategic alliances? ›
- Create an Alliance Strategy That Meets Organizational Objectives and Needs. ...
- Establish and Follow Alliance Processes. ...
- Perform Due Diligence. ...
- Create Flexible Teaming Agreements. ...
- Create Measurement Processes. ...
- Drive Toward Joint Profitability.
- #1 Joint Venture. A joint venture is established when the parent companies establish a new child company. ...
- #2 Equity Strategic Alliance. ...
- #3 Non-equity Strategic Alliance. ...
- #1 Slow Cycle. ...
- #2 Standard Cycle. ...
- #3 Fast Cycle.
In business, an alliance occurs between two companies that work together on mutually beneficial projects. These agreements are also called strategic alliances, and they usually involve cooperation in the development, creation, marketing, and sale of products or services or other objectives.What are alliances explained? ›
An alliance is a relationship among people, groups, or states that have joined together for mutual benefit or to achieve some common purpose, whether or not explicit agreement has been worked out among them. Members of an alliance are called allies.What is an example of global strategic alliance? ›
Snapchat & Square's Snapcash: Yet another great example of global strategic alliances in business. Square provides the trustworthiness of secure money transfers as well as a young, hip, complementary brand image for the target market of this service.What kind of business is alliance? ›
Each alliance is a joint venture where two or more entities work together to achieve a shared goal while remaining separate and independent.What makes a good example of a strategic plan? ›
Objectives include baseline performance, targeted performance, and established dates for achieving the objective. Any example of a strategic plan must include objectives, as they are the foundation for planning. In this example, our objective is to increase client satisfaction from 82% to 90% by December 31st.
You can develop strategic thinking in your everyday life. For example, you go on a trip and pack our things, thinking ahead and assuming what you need to take in case of bad weather, an illness, losing documents or money.What are the 5 effective strategies of managing by example? ›
- Clarify your vision. One thing that clarifies your vision for your company is setting well-defined goals. ...
- Gather and analyse information. ...
- Develop a strategy. ...
- Execute your strategy. ...
- Evaluate and control.
A partnership business, by definition, consists of two or more people who combine their resources to form a business and agree to share risks, profits and losses. Common partnership business examples include law firms, physician groups, real estate investment firms and accounting groups.What is an example of a business relationship? ›
Business relations may include customers, vendors, potential customers, banks, stockbrokers, the media, and service providers. Municipal, state, and federal government agencies are also included in a company's business relations network.What is an example of partnership situation? ›
For example, let's say that Fred and Melissa decide to open a baking store. The store is named F&M Bakery. By opening a store together, Fred and Melissa are both general partners in the business, F&M Bakery. It is important to note that each general partner must be involved in the business.What are key partners examples? ›
- Strategic alliances between non-competitors.
- Strategic partnerships between competitors (referred to as coopetition)
- Joint ventures to develop new business.
- Buyer-supplier relationships to assure reliable supplies.
Bill Hewlett and Dave Packard (Hewlett-Packard)
During this time, they became firm friends and decided to start a business together. According to legend, they tossed a coin to decide whether they would call the one of the world's most well-known partnership businesses Hewlett-Packard (HP) or Packard-Hewlett.
- The Wright brothers gave us all wings. ...
- James Watson and Francis Crick illuminated the structure of life. ...
- John Lennon and Paul McCartney held our hands. ...
- Larry Page and Sergey Brin brought the internet to our fingertips. ...
- Ben Cohen and Jerry Greenfield made life taste a little sweeter.
- Routinely Reach Out to Important Contacts.
- Offer Help Before You Ask for Help.
- Ask for Feedback.
- Find Ways to Connect with Less Valuable Contacts.
- Educate, don't sell.
But no matter the business or the country of origin, a key measure of alliance success is how well they are supported at an organizational level. Current research shows that those companies that consistently generate greater levels of alliance value have one thing in common: a dedicated alliance function."
The parties agree a form of contract which sets out all the agreed terms between them. This will include matters such as operational roles and responsibilities, and ownership of any assets, including intellectual property created during the course of the collaboration.What is the most famous strategic alliance? ›
One of the most well-known examples of a strategic alliance is the Starbucks and Target partnership. In fact, you've probably seen this strategic alliance example several times.What type of strategic alliance is Starbucks and Barnes and Noble? ›
Barnes & Noble doesn't sell coffee. Starbucks doesn't sell books. But by partnering strategically, these businesses have created a successful user experience by which both companies gain more customers and increase their revenues. It's an excellent example of a symbiotic relationship.What is the most common type of strategic alliance? ›
Non-equity strategic alliances
In a non-equity strategic alliance, partners pool resources toward a mutual business objective in a more informal agreement. There are no child entities or shared equity. For this reason, non-equity strategic alliances are one of the most common.
There are three types of strategic alliances: Joint Venture, Equity Strategic Alliance, and Non-equity Strategic Alliance.What strategic partnerships does Starbucks have? ›
Strategic partnerships and acquisitions with Evolution Fresh, La Boulange, Teavana, Danone, and Green Mountain Coffee Roasters have allowed Starbucks to penetrate highly lucrative international markets. The products are centered on health conscious consumers.What is an example of equity strategic alliance? ›
For example, suppose the company buys 45% of the equity in a target company, and this trade will give the acquiring company significant influence in the Target Company. Both companies are said to have formed a strategic equity alliance.What is another name for a strategic alliance? ›
Strategic alliances, also known as strategic partnerships, are long-term, multi-department commitments with clearly defined goals for both companies.Does Amazon have a strategic alliance? ›
Amazon.com Enters Strategic Alliance With Living.com to Create a ''Home Living'' Store At Amazon.com.Which 4 organizations are part of the strategic alliance? ›
The four member organizations are the Board of Certification, Inc. (BOC), the Commission on Accreditation of Athletic Training Education (CAATE), the National Athletic Trainers' Association (NATA) and the NATA Research & Education Foundation (NATA Foundation).
By creating a strategic alliance Starbucks and Nestle are able to continue to produce and hopefully increase their revenue. With the added funds from Nestle and Unilever, Starbucks will invest back into their coffee shops and increase their stock value making the company and its investors happy.