Strategic Alliance
A strategic alliance is an arrangement between companies, which involves sharing of resources, skills and expertise for mutual benefit. Firms that come together through this means maintain their autonomy while enjoying the benefits of the alliance. This implies all the parties involved can retain their brand names, although they work as a team. Through the process, businesses are able to gain entry into new markets, exchange skills and resources and also attain a competitive edge above other players in the industry or market.
For companies to form an effective and profitable alliance, they should be dealing in the same or related products and also have a similar target market. The agreement to come together is usually for a particular duration of time and aimed at meeting certain objectives, which are clearly outlined by the parties in advance. However, the success of the alliance depends on various factors like the purpose of the venture, market conditions, and commitment of the parties among others.
Reasons for forming a Strategic Alliance
There are various reasons why businesses may choose to get involved in a strategic alliance. One of the main reasons why many business entities form such alliances is to tap into the resources of others. Through the sharing of resources, the businesses are able to consolidate their resources for better performance in the market.
In some occasions, businesses also form alliances in order to gain entry into new markets that they would not have achieved on their own. Besides, the alliance can also be formed in order to facilitate the creation of new products and services.
A strategic partnership can also be formed for risk sharing. Although the parties remain autonomous from each other, the risks are to be shared by all. In this way, a business which has not been doing well in the market can easily gain resources from an accomplished one for better performance and increased revenues.
Types of Strategic Alliances
There are various kinds of strategic alliances that businesses can be involved in depending on their needs and goals. However, the main ones are joint ventures, equity, non-equity strategic alliances.
Equity Strategic Alliances
In this form of alliance, agreements are supplemented by equity investments, making the companies involved shareholders in both entities. Since the investments are made partially, every firm in the alliance reserves the right to its decisions.
Non-Equity Strategic Alliances
These are alliances ranging from close ties with suppliers, innovation networks, licensing of technology, Research and Development and IPRs. Such arrangements are informal and based on a ‘gentleman’s agreement. Examples can include alliances between industries and learning instructions or even the government.
Joint Ventures
In a joint venture, the parties involved create a separate and new entity in which they make contributions for equity and other resources like intellectual property, brands among others. The firms agree to share their revenues, expenditure and control of the newly formed entity.
Basic procedures on how to form a Strategic Alliance
In order for a company to enter into a strategic alliance with another, it must start by defining the type of partner that is required, including its characteristics. Proper evaluation must be done on the strengths and weaknesses of the potential firm in order to determine if it can be of benefit in the alliance.
It is important that you list some of the potential partners from which you can do the selection. In order to make the best choices, you should carefully study and understand the operations, policies and goals of every shortlisted potential partner.
Make contact with a few companies that you think may be useful in the alliance. This can be done through letters or one-on-one interview with the managers and shareholders. In the event that you are successful in getting an ideal partner, rules and terms of the alliance should be well outlined before signing of the agreement.
A strategic alliance can be a better avenue for business expansion and increasing revenues. However, it should be noted that such alliances also have merits and demerits that must be carefully studied in advance. A successful alliance is built on the strengths of each party, which is involved in the arrangement.
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References
http://www.investopedia.com/terms/s/strategicalliance.asp
http://smallbusiness.chron.com/strategic-alliances-23997.html
http://www.tradeready.ca/2014/fittskills-refresher/8-reasons-forming-strategic-global-business-alliances/
http://tbmdb.blogspot.co.ke/2009/08/strategic-alliances-important-part-of.html