Loading the player...

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.

RELATED TERMS
  1. Strategic Joint Venture

    A strategic joint venture is a business agreement between two ...
  2. Strategic Management

    Strategic management is the management of an organization’s resources ...
  3. Shared Equity Finance Agreements

    When two parties purchase a primary residence because one party ...
  4. Party Wall

    In real estate, a party wall is a shared wall that separates ...
  5. Operating Cash Flow Demand - OCFD

    A measure of the amount of operating cash flow needed to meet ...
  6. Third Party Beneficiary

    A third party beneficiary is a person who will benefit from a ...
Related Articles
  1. Investing

    Battling Foreclosure: The HOPE NOW Alliance Strategy

    Hope Now was formed to help prevent foreclosures. Are the organization's strengths enough to overpower its weaknesses?
  2. Investing

    American Airlines and Qantas Airways Proposal Tentatively Denied (AAL, VA)

    A proposal for American Airlines and Qantas Airways to expand their alliance has been denied by the U.S. Department of Transportation.
  3. Investing

    BMW, Intel, Mobileye Ally to Build Autonomous Cars

    A new alliance has been formed in the effort to bring the world self-driving cars: German carmaker BMW Group is joining forces with Intel (NASDAQ: INTC) and Mobileye (NYSE: MBLY). The companies ...
  4. Investing

    Party City Holdings: How It's Fared Since Its 2015 IPO (PRTY)

    Learn about Party City Holding's performance as a public company. Investors would have lost much more than the Russell 2000 Index by investing after the IPO.
  5. Investing

    VMWare Inks Another Big Cloud Partnership

    To the surprise of no one who follows either VMWare (NYSE: VMW) or Amazon Web Services -- rumors have run rampant the past week -- the two have made  their strategic alliance official. The partnership, ...
  6. Investing

    Now You Can Pick Up FedEx Deliveries at Walgreens

    Walgreens Boots Alliance (NASDAQ: WBA) has partnered with FedEx (NYSE: FDX) to make it easier for people to get their packages picked up and delivered. The two companies have signed a long-term ...
  7. Small Business

    Business Development: The Basics

    Find out what business development consists of. Learn about the basic strategic ideas, initiatives and activities aimed towards making a business better.
  8. Investing

    Walgreens/Rite Aid Deal Gets Price Cut, Extension

    The price of the long-simmering buyout of Rite Aid (NYSE: RAD) by fellow pharmacy giant Walgreens Boots Alliance (NASDAQ: WBA) has dropped. In a joint press release the two companies announced ...
  9. Small Business

    The Buy Side of the M&A Process

    Mergers and acquisitions can anywhere from months to years, depending on the complexity of the deal and the companies involved.
  10. Insights

    Long Haul Unicorn: China's Truck Startup Wins $1B Valuation

    China freight service, Truck Alliance Inc., has raised $115 million, giving it a $1 billion valuation.
RELATED FAQS
  1. What are the primary advantages of forming a joint venture?

    Understand what the advantages of a joint venture are and discover what make this business strategy a good alternative to ... Read Answer >>
  2. What are the primary disadvantages of forming a joint venture?

    Learn the disadvantages to forming and maintaining a joint venture partnership, including factors business owners should ... Read Answer >>
  3. How do companies balance labor supply and demand in human resources planning?

    Find out what it means for a company to balance labor supply and demand, and learn how human resources planning can strategically ... Read Answer >>
  4. What is the difference between a bill of exchange and a promissory note?

    Learn what bills of exchange and promissory notes are, along with notation of the primary differences between these two documents. Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center