Strategic Alliance

According to Business Dictionary,  Strategic Alliance is an “Agreement for cooperation among two or more independent firms to work together toward common objectives.   Unlike a joint venture, firms in a strategic alliance do not form a new entity to further their aims, but collaborate while remaining apart and distinct”.  It is also an arrangement between two companies who have decided to share resources in a specific project.

According to Investopedia a Strategic Alliance is less involved than a joint venture where two companies typically pool resources in creating a separate entity.  Strategic alliance is also when two or more businesses get together for certain period of time.  Their businesses are not in direct competition, but have products or services that are similar with the same target audience.

Strategic alliance can be formal or informal. The terms used are just routine collaboration, partnering or partnerships.

• More than a person/company joining together to reduce expenses and improve revenue/profit.
• There is also sharing of people, expertise, technology, property, markets or capital investment.
• It is also aligning with the overall strategy of your business.

Some examples of Strategic Alliance:

• Vertical Alliance:  Here the relationship is between two different industries.  It  more often happens in service industries - viz., civil engineering joining hand with landscaping, or interior design, design firms, etc.  As a team they can bid together for big projects  with their expertise.
•  Horizontal Alliance: Companies in the same industry join to achieve scale, for seasonal change adjustments, and to use expertise for niche areas.
• Administrative Alliance: An organization enters into an agreement with another for provision of administrative services, space or products.  The main purpose is to share functions, reduce cost, and to improve operational efficiency.
• Joint Programming or Business Network Alliance: Two or more organizations form a joint venture/alliance for the purpose of a joint program.  They combine their skills and abilities effectively.
• Merger Alliance: Two or more organizations joining together to merge since they have similar products/services, objectives and goals.  It involves dissolution of one company or both for a newer organization.

What is important is to understand that the desired objectives and the kind of relationship wanted are achieved.  Once this is established, then an appropriate agreement can be prepared.

Strategic Alliances have proven to be very successful in reaching new markets, new clients or to pursue a new idea, the objective being higher  profitability.

Questions:

• What do you understand by Strategic Alliance?
• What are the various types of strategic alliance?