In the recent years, we have seen more and more partnerships sealed between two or more companies. Whether it’s for an efficient use of resources, a marketing strategy or other purposes, a strategic alliance seems to be the solution for various issues. Today we are going to look at a definition of this process, see what types are there, and how to create a successful one for your company.
Strategic Alliance – Definition
Also called strategic partnership, a strategic alliance refers to an agreement signed between two or more parties. The parties want to pursue a list of objectives that were previously agreed upon. It’s important to note that they remain independent organizations. Usually, this type of agreement is sealed when each one of the companies has business assets or a certain expertise to help the other.
One strategic alliance example would be an oil and natural gas company that may want to seal a strategic partnership with a research laboratory. Thus, they can develop some profitable recovery processes. Another example is a clothing retailer who seals a deal with a single clothing manufacturer to make sure they have a good quality and sizing, for instance.
What Makes an Alliance Strategic?
There can be plenty of agreements sealed between companies, but what turns one into a strategic alliance? Here are 5 criteria that should be considered.
- It helps the success of a core goal or objective for the business;
- It’s essential for the development or the maintenance of an essential competency or it works for another source for a competitive advantage;
- It cuts out a competitive threat;
- Ensures a strategic choice for the business;
- It cancels a significant risk.
Any alliance that meets at least one of the criteria mentioned above can be considered strategic. As such, you should manage it accordingly. The rest of the alliances are called conventional alliances.
Types of Strategic Alliances
1. Joint Ventures
This refers to an agreement between two or more companies that aim to form a single entity for a certain project. As such, each of the parties relies on an equity stake in what concerns the individual business, as well as the profits, expenses, and share revenues. This happens rarely between small companies, mainly because there are a lot of costs and commitment efforts.
Outsourcing has become popular in the 1980s and it continues to be a useful tool for plenty of companies. The globalization of manufacturing lets companies cut down on costs and offer their consumers goods and services at a lower price. Moreover, it is expected to cause economic expansion, thus leading to an increase in productivity and job creation. However, not all these effects are present every time.
3. Affiliate Marketing
In the recent years, there was a real boom in what concerns this type of alliance. Many people started to ask what is affiliate marketing and how can they use it for their business. With the help of the Internet, now you can track referrals accurately through the order processes. One example is Amazon, which was the pioneer of this type of strategic alliance. Now, they have tens of thousands of websites that actively promote their products.
4. Technology Licensing
This type of strategic alliance refers to a contractual arrangement. Trademarks, trade secrets, or intellectual property are licensed to external firms. It’s a low-cost method of entering foreign markets, for instance. However, you lose control over the technology, and third parties can exploit it.
5. Product Licensing
This works just like the technology licensing type mentioned above. The difference here is that the license offered applies only to manufacturing and selling a product. Usually, the license is given to an exclusive geographic area where the manufacturer can sell. This is a less risky method of expanding your product’s reach, as opposed to building your own base for manufacturing and distribution.
Franchising is a great solution if you want to roll out quickly a successful concept that would reach the entire nation. You need to pay a setup fee and then agree to more ongoing payments if you want a risk-free enterprise. One major downside to this strategic alliance type is that you lose control over the way in which franchisees run the franchise.
7. R&D (Research & Development)
Also called research and technological development (RTD), this type of alliance is based on innovative activities taken by corporations that aim to develop new services or products. It tends to fall more under the joint venture type, but it’s worth considering it separately.
Recruiting distributors is one of the best ways to market your product. Ideally, each distributor should offer you its own geographical area or a certain type of product. The success for each distributor can be measured with these two tools.
9. Distribution Relationships
Usually, companies set up strategic alliances because they want more customers. Thus, they set up cross-promotion agreements. For example, an insurance company can make an agreement with a bank to give a special offer to their customers if they include an ad on the bank statements they send out.
How to Seal a Successful Strategic Alliance
1. Choose a Proper Partner
Naturally, an inappropriate partner will lead to an unsuccessful alliance. For example, Pepsico partnered with Starbucks to create a popular drink, Frappacino. The move was successful for both because they chose correctly: Starbucks entered the bottled-beverage market and Pepsico had an innovative product.
2. Select What to Share
You don’t necessarily have to trust your partner to seal a strategic alliance. If you don’t trust them, you don’t have to share all the information. Just select what you want to keep for yourself. For instance, many competitive pharmaceutical companies still sign strategic alliances between them, coming up with new drugs.
3. Think of Risk and Benefit Analysis
The deal you sign must include risk and benefit analysis for all the sides involved. They don’t have to be equal, but everybody must be aware of it. Did you know that 30% of IBM’s $86 billion profit comes from alliances? It’s true, they decided to rely on this tactic a lot and have developed a professional process, approach, structure, metrics, as well as a strategic commitment to make it all work.
4. Be Realistic
It’s essential to have a clear understanding of what each of the parts must contribute and what can be derived from the common relationship. Naturally, you need to include what will change over time and how much this alliance will last. Have a solid plan and don’t create unrealistic expectations from your partner(s).
5. Ensure a Mutual, Flexible Commitment
We all want to seal partnerships with companies bigger than ours. However, this won’t always be possible, and it might not bring the results you’re hoping for. Depending on your goals, smaller enterprises can help you more than you think. Just be flexible in your thinking and ensure mutual benefits for all the parts involved.
Briefly put, a strategic alliance refers to two or more companies coming together to reach a certain goal. Naturally, the type of company can vary, just like the nature of the goals. What’s important is to pay attention when choosing your partners and be committed to the deal you signed if you want the best results.
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