Strategic Alliances are becoming more and more prominent in the business world, but only a few succeed. The key to success, involves professionalism, candid communication, clarity of thoughts, harmony in intention and actions in accordance, a win-win strategy, confidence on both sides, commitment, time-bound task executions, taking responsibility, and addressing solutions amicably when challenges are faced.
Alliances as they have been traditionally understood – one company providing expertise for another or assistance with logistics at times of need – can be very successful if put into place correctly (and sometimes even when not). But what many corporations overlook is that there’s an art in making partnerships work well: it requires clear lines drawn among partners from day one about who will do what, how decisions will be made together on major projects/initiatives, etc., which means being honest early on rather than trying to cover up mistakes later so you don’t lose face or appear weak to others and transparency goes.
Let’s dive into it.
Different Types of Strategic Alliances :
Strategic Alliance, is usually an agreement between two companies to get something done and is traditionally less formal than a merger or a joint venture. They work well when both organizations are able to share successes, risks, and burdens equally on major strategic projects or initiatives. One business can provide expertise for another or assistance with logistics at times of need. This is not essential for the companies to work together, so you can choose whether you want to go this route.
Types Of Strategic Alliances
A Joint Venture is a business arrangement where two or more parties cooperate to achieve a common goal that would otherwise be unachievable. Both of you will combine your efforts and resources to create not only exclusive but also expanded capabilities for the enterprise, which will provide an improved value proposition/customer experience to customers but at a reduced cost for both firms.
An Equity Alliance is a relationship between two businesses where one business may finance the other, but with less than 50% of ownership interest. It will also provide funding for research and development or marketing efforts in exchange for equity (ownership) in the company.
Non-Equity Alliance :
A non-equity alliance is where the two businesses agree on a specific goal or project, but neither one will get equity in the other. This type of strategic alignment is generally used when you want to keep your organization separate and bring people together for common good like developing some products or services jointly, sharing expertise, etc.
Each of these types of alliances is selected based on the scope and needs of the goal. Just like choosing partnership organizations is mission-critical, selecting the right type of partnership can mean the success or failure of a project.
Five key components of a successful strategic alliance:
- Identify clear goals of partnership – clearly define what both partners want to get out of the business arrangement in terms of resources, products/services, or knowledge they will gain.
- Identify mutual benefits and risks – carefully consider how much each partner can benefit from each other’s area of expertise and share responsibilities for success (especially in the event of failure).
- Set ground rules – agree on how problems or disagreements will be dealt with if they arise and outline all areas of responsibility for your alliance.
- Appoint a liaison – name one person from each organization to be the single point of contact who can answer any questions that arise during the course of the alliance.
- Establish metrics for success – develop a tracking system to show how the partnership is performing and how much each partner is getting out of it in terms of value exchange or return on assets. Track metrics clearly so that both partners can understand where they are succeeding and where they need improvement.
If you’re heading toward an alliance, make sure you develop and execute a solid plan that will minimize your risk.
Advantages and disadvantages of strategic alliances:
Strategic Alliances for Competitive Advantage
- Easy to start and maintain – because they are not as formal, strategic alliances are easier to form and dissolve than other types of business associations.
- Can ease regulatory requirements – companies tend to work more closely together in this type of association which provides them with opportunities for efficiency gains and economies of scale.
- Reduce your risk – because you are not putting all your eggs in one basket by creating an alliance with another business, it gives you some protection against performance and economic risks.
- Facilitate speed to market – strategic alliances can increase innovation which will lead to faster time to market for new products or services. This also will help you to meet changing market conditions more easily.
- Access to new technologies – strategic alliances can provide access to other organizations’ technology and capabilities which may be needed by your organization but are not within your own scope of expertise.
Disadvantages of Strategic Alliance
- Strategic alliances are not permanent – unlike mergers and acquisitions, these types of business associations last for a preset period of time which is usually defined in the agreement. This can be good or bad depending on how well your partners cooperate during this time.
- Forming strategic alliances may lead to resistance – because forming these types of business relationships means you will have to share your resources, customers, or knowledge with another organization, it may cause some in your company to resist the idea.
- Strategic alliances can be difficult to manage – because there are more parties involved than in other types of associations, it can be hard for managers to monitor what is going on and keep everyone moving in the same direction.
- Strategic alliances can lower your competitive advantage – as more and more companies form these types of business partnerships, what was once unique to your organization may no longer be a differentiating feature.
- Strategic alliances may compete with existing product lines – if you are competing within an industry, these types of business associations may create overlap with respect to your current product lines and services.
Strategic alliances are a great way for businesses to gain access to the expertise they need or want without completely giving up their independence. Just make sure you go into the association with an eye toward protecting your long-term interests by ensuring that both parties continue to benefit throughout the life of the association.
Here are some real-life examples of alliance agreements:
- Coca-Cola and Monster Energy drink signed a 10-year agreement to distribute each other’s products in Japan. During this time, both companies will share certain technologies and knowledge that they have acquired during their tenures as market leaders, and they will help to promote each other’s products at music, sporting events and other venues.
- In the automotive industry, Toyota Motor Corporation created a partnership with Shanghai Automotive Industry Corporation (SAIC) in which both companies would share knowledge regarding hybrid electrical vehicles.
- Apple’s Strategic Partnership Agreement with Google allowed Google to use iTunes online store, and even though it did not last very long, this type of alliance created a lot of interest with respect to the potential possibilities for future business partnerships.
- 3M has formed alliances with several other companies such as Nexteer Automotive Holdings in order to gain access to their technology for 3M’s own automotive industry products.
- In 2011, Microsoft and Nokia entered into a strategic partnership in which they would work together to create smartphones and other mobile devices for the next ten years.
Organizations will always be looking for ways to differentiate themselves from their competitors in order to achieve a competitive advantage. Business associations are one of the most common ways that companies seek to improve their position within an industry, but if you want your alliance strategy to be successful, you have to make sure that it is of mutual benefit for both parties. When the benefits of an association are mutual, companies are likely to gain access to a broad range of resources that they would not have been able to obtain on their own. The existence of strategic alliances can lead to increased competition within an industry, so businesses need to carefully consider whether or not joining another company is in their best interests.
MV Synergy Solutions enables and supports Strategic Alliances. We identify and facilitate opportunities for Joint Ventures, Buy Back Agreements, Technology Transfers, Private Labelling contracts, and Under License Manufacturing.
Contact us to learn more about Strategic Alliances and how we can help you.
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