Strategic Alliance

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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 permanent 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, among other possibilities.

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 in nature, but each party’s responsibilities must be clear. Further, they may be in place for short or long periods of time depending on the needs and goals of those involved.

Often, strategic alliances allow involved organizations to pursue opportunities at a faster rate than if they functioned alone. It provides access to additional knowledge and resources that are held by the other party, which may ease the learning curve for the new pursuit, along with providing setup time and costs.

This strategy provides more flexibility than joint ventures, as the involved parties do not need to merge any assets or funds in order to proceed. Instead, they each remain autonomous in nature, which can help ease the function of the agreement when the two entity’s business practices are highly varied.

Risks of Strategic Alliances

Though the arrangement is generally spelled out clearly, the differences in how the businesses operate can cause some struggles. Further, if the alliance requires informing one party of the other party’s proprietary information, there may be a level of distrust within the corresponding leadership.

In cases of long-term strategic alliances, the involved parties may become dependent on one another. While the risk is lower if the dependency is experienced by both parties, the risk can increase significantly if the dependence becomes one sided, as this puts an advantage to one side.

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.