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What is a 'Strategic Alliance'?

A strategic alliance is an arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less binding than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity.

BREAKING DOWN 'Strategic Alliance'

A strategic alliance agreement could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor.

The Purpose of Strategic Alliances

Strategic alliances allow two organizations, individuals or other entities to work toward common or correlating goals. The idea is for all parties to benefit in the short term, long term or both. The agreement may be formal or informal, but each party’s responsibilities must be clear. Further, the agreement may be in place over the short or long term depending on the needs and goals of the parties involved.

Often, strategic alliances allow involved organizations to pursue opportunities at a faster rate than if the organizations functioned alone. An alliance provides access to additional knowledge and resources owned by the other party, which may ease the learning curve for the new pursuit and relieve setup time and costs.

This strategy provides more flexibility than joint ventures because the involved parties do not need to merge any assets or funds to proceed. Instead, parties remain autonomous, which can help ease the functioning of the agreement when the two entities' business practices are highly varied.

The Risks of Strategic Alliances

Although the arrangement is typically clear for both parties, the differences in how the businesses operate can cause conflict. Further, if the alliance requires informing one party of the other party’s proprietary information, there must be a high level of trust between the leadership of the alliance entities.

In the case of long-term strategic alliances, the involved parties may become mutually dependent. While the risk is lower if the dependency is experienced by both parties, the risk can increase significantly if the dependence becomes one-sided because one party will gain an advantage.

Example of Strategic Alliances

An oil and natural gas company might form a strategic alliance with a research laboratory to develop more commercially viable recovery processes. A clothing retailer might form a strategic alliance with a single clothing manufacturer to ensure consistent quality and sizing. A major website could form a strategic alliance with an analytics company to improve its marketing efforts.

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