Strategic Alliance

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A Strategic Alliance is a formal relationship formed 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 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 David C. Mowery, Joanne E. Oxley, Brian S. Silverman, Strategic Alliances and Interfirm Knowledge Transfer (1996) Strategic Management Journal, Vol. 17, Special Issue: Knowledge and the Firm (Winter, 1996), pp. 77-91, shared expenses and shared risk.

Benefits of Strategic Alliances Strategic alliances often bring partners the following benefits:

Access to their partner's distribution channels and international market presence
Access to their partner's products, technology, and intellectual property
Access to partner's capital
New markets for their products and services or new products for their customers
Increased brand awareness through partner's channels
Reduced product development time and faster-to-market products
Reduced R&D costs and risks
Rapidly achieve scale, critical mass and momentum (Economies of Scale - bigger is better)
Establish technological standards for the industry and early products that meet the standards
By-product utilization
Management skills

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’.

According to Yoshino and Rangan the Internationalisation Strategies can be categorized using the model displayed at the right side.

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-allocated resources elsewhere.

Risks of Strategic Alliances Strategic alliances can lead to competition rather than cooperation, to loss of competitive knowledge, to conflicts resulting from incompatible cultures and objectives, and to reduced management control (Chan and Heide, 1993). A study of almost 900 joint ventures found that less than half were mutually agreed to have been successful by all parties (Harrigan, 1986; Dacin et al , 1997 Spekman et al, 1996).

An alliance can fail for many reasons (Vyas et. al 1993; Duysters et al, 1999)

failure to understand and adapt to a new style of management
failure to learn and understand cultural differences between the organisations
lack of commitment to succeed
strategic goal divergence
insufficient trust
operational and geographical overlap
unrealistic expectations

External links

Association of Strategic Alliance Professionals, Inc. Professional organization that serves those who manage strategic alliances and corporate partnerships.

Footnotes