Strategic alliance
A strategic alliance (also see strategic partnership) is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations.
The alliance is a cooperation or collaboration 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 specialization,[1] shared expenses and shared risk.
A strategic alliance will usually fall short of a legal partnership entity, agency, or corporate affiliate relationship. Typically, two companies form a strategic alliance when each possesses one or more business assets or have expertise that will help the other by enhancing their businesses.
Strategic alliances can develop in outsourcing relationships where the parties desire to achieve long-term win-win benefits and innovation based on mutually desired outcomes. This form of cooperation lies between mergers and acquisitions and organic growth. Strategic alliances occur when two or more organizations join together to pursue mutual benefits.
Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.
Terminology[edit]
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.[8]
Historical development of strategic alliances[edit]
Some analysts may say that strategic alliances are a recent phenomena in our time, in fact collaborations between enterprises are as old as the existence of such enterprises. Examples would be early credit institutions or trade associations like the early Dutch guilds.
There have always been strategic alliances, but in the last couple of decades the focus and reasons for strategic alliances has evolved very very quickly:[9][11]
In the 1970s, the focus of strategic alliances was the performance of the product. The partners wanted to attain raw material at the best quality at the lowest price possible, the best technology and improved market penetration, while the focus was always on the product.
In the 1980s, strategic alliances aimed at building economies of scale and scope. The involved enterprises tried to consolidate their positions in their respective sectors. During this time the number of strategic alliances increased dramatically. Some of these partnerships lead to great product successes like photocopiers by Canon sold under the brand of Kodak, or the partnership of Toshiba and Motorola whose joining of resources and technology lead to great success with microprocessors.
In the 1990s, geographical borders between markets collapsed and new markets were enterable. Higher requirements for the companies lead to the need for constant innovation for competitive advantage. The focus of strategic alliances relocated on the development of capabilities and competencies.
Using and operating strategic alliances does not only bring chances and benefits. There are also risks and limitations that have to be taken in consideration. Failures are often attributed to unrealistic expectations, lack of commitment, cultural differences, strategic goal divergence and insufficient trust. Some of the risks are listed below:[2][20]
The "dark side" of strategic alliances has received increasing attention across different management fields, such as business ethics,[21] marketing,[22] and supply chain management.[23]
Many companies struggle to operate their alliances in the way they imagined it and many of these partnerships fail to reach their defined goals. Some common mistakes are:
Importance of strategic alliances[edit]
Strategic alliances have developed from an option to a necessity in many markets and industries. Variation in markets and requirements leads to an increasing use of strategic alliances. It is of essential importance to integrate strategic alliance management into the overall corporate strategy to advance products and services, enter new markets and leverage technology and Research & Development. Nowadays, global companies have many alliances on inland markets as well as global partnerships, sometimes even with competitors, which leads to challenges such as keeping up competition or protecting own interests while managing the alliance. So nowadays managing an alliance focuses on leveraging the differences to create value for the customer, dealing with internal challenges, managing daily competition of the alliance with competitors and Risk Management which has become a company-wide concern. The percentage of revenues for the top 1000 U.S. public corporations generated by strategic alliances increased from 3-6% in the 1990s to 40% in 2010, which shows the fast changing necessity to align in partnerships. The number of equity-based alliances has dramatically increased in the last couple of years, whereas the number of acquisitions has decreased by 65% since the year 2000. For a statistically examination over 3000 announced alliances in the USA have been reviewed in the years 1997 to 1997 and results showed that only 25% of these alliances were equity based. In the years 2000 to 2002 this percentage increased up to 62% equity-based alliances among 2500 newly formed alliances.[3][9]
Life cycle of a strategic alliance[edit]
Analysis and selection[edit]
In the analysis phase performance goals for the partnership are defined. These goals are used to determine the broad operational capabilities that will be required. In the selection phase those performance goals are used as some of the criteria to evaluate and select potential alliance partners. In addition, partner selection criteria can be categorised as being either task-related, or partner-related.[26] Task-related selection criteria are associated with the operational skills and resources required for the competitive success of a venture. Partner-related criteria are associated with the efficiency and effectiveness of partner cooperation. The activities most often associated with the analysis phase are:[27]
