What Is a Strategic Alliance?
Through a strategic alliance, two companies will decide to share resources to accomplish a specific, mutually beneficial project. This type of agreement is less involved and less binding than a joint venture, where the two businesses pool resources in the creation of a separate business entity. Each of the two companies will maintain their autonomy in a strategic alliance while gaining a new opportunity.
Strategic Alliance Explained
A strategic alliance can help a firm offer a more effective process, grow into a new market, or develop an edge over a competitor. The arrangement allows the two businesses to work toward a common goal that will be of benefit to both. The gained advantage may provide a short- or long-term benefit and may be formal or informal between the two partners.
- 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 agreement could help a company develop a more effective process.
- Strategic alliances allow two organizations, individuals or other entities to work toward common or correlating goals.
The Purpose of Strategic Alliances
While the strategic alliance can be an informal alliance, the responsibilities of each member are clearly defined. The needs and benefits gained by the partnered businesses will dictate how long the coalition is in effect.
The results of forming a strategic alliance can include allowing each of the businesses to achieve organic growth at a quicker pace than would happen if they acted alone. The partnership could provide access to resources and knowledge that one company owns but the other does not. As an example, if a small printing company allied with another that could provide access to high-speed presses, the small business could reduce their cost of production and capture more of the local printing business.
Strategic alliances are flexible because they avoid some of the hindrances that a joint venture would include. The two firms do not need to merge capital and can remain independent of one another. The alliance should not replace the goal of the mission of either business.
The results of forming a strategic alliance can include allowing each of the businesses to grow at a quicker pace than would happen if they acted alone. The partnership could provide access to resources and knowledge that one company owns but the other does not. As an example, if a small printing company allied with another company that could provide access to high-speed presses, the small business could reduce their cost of production and capture more of the local printing business. The best functioning of the deal happens when the two business practices are quite varied.
The Risks of Strategic Alliances
A strategic alliance can bring risks. While the agreement is usually clear for both companies, there may be variations in how each firm goes about business. This difference can create conflict. Further, if the alliance requires one party to give proprietary information to the partnered business, there must be trust between the two allies.
With a long-term strategic alliance, both parties may also become dependent on one another. If one firm is more dependent than the other, it could cause additional friction as one side gains an advantage over the other.
Real World Example
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.