"Strategic" may be an overused word in business today, but in the world of corporate alliances, it carries a special weight. A strategic alliance is formed when two or more companies join forces to achieve a mutual benefit. The idea is to help both partners share knowledge, pool resources and add profit to their bottom lines. Show
What Are Strategic Alliances?Strategic alliances happen when two or more businesses work together to create a win-win situation. For example, Company A and Company B may decide to combine their distribution facilities so they can share mutual resources and cut the costs associated with shipping. You can form a strategic alliance with any company and for any reason. Often, businesses seek out strategic alliances in the areas of design, product development, manufacturing, distribution or the sale of goods and services, but you can enter into an alliance to further any business objective. Some Strategic Alliance ExamplesTo give you an idea of the scope and breadth of strategic alliances, here are some examples:
Types of Strategic AllianceJoint ventures (JV) are often called strategic alliances — and they are, although we are more likely to call them by their proper name. A JV is established when two companies, Company A and Company B, establish a subsidiary or child company, Company C, to perform the alliance's business goals. If Company A and Company B each own 50 percent of Company C, then it is a 50-50 joint venture. But, they can allocate the ownership in whatever percentages they wish. A similar structure is the so-called "equity alliance," where Company A buys an equity percentage in Company B (or vice versa). If Company A bought 45 percent of Company B's shares, for example, an equity strategic alliance would be formed. Most times though, when businesses talk about strategic alliances, they are referring to a much looser structure. A contractual strategic alliance is created when two or more companies sign a contract to pool their resources and seek mutual benefits together. This arrangement is less involved and less binding than equity purchases and JVs. Instead, the two companies remain autonomous, while exploring new opportunities together. Benefits of Entering into Strategic AlliancesCooperating with a good strategy partner can be a powerful way for small business owners to grow their businesses. Strategic alliances can get you more leads, more customers and more profits; they can also help you to cut costs. Here are just some of the ways a strategic alliance can add value to your business:
Entering into strategic alliances can also change the competitive environment. It is perfectly possible — and legal — for two companies to form an alliance to establish economies of scale, reduce prices to customers and push out competitors, thus gaining market share. Who Makes a Good Strategic Partner?The key word here is "strategic" — you need to find someone who works as hard as you do to achieve common goals. The idea is for all partners to benefit, and benefit equally, for the duration of the alliance. Another term for alliance here is "symbiotic relationship." If the alliance is not working for both partners, then it is not truly strategic. How do you know if a partner will be truly strategic to your business? Generally, it will meet one or more of the following criteria:
At first glance, you may not have much in common with a proposed strategic partner — few people would have imagines how successful a partnership between a coffee store and a bookstore could be. But if there's scope for you to give something, as well as getting back, then the relationship could be worth exploring. Risks of Strategic AlliancesNo business arrangement is entirely risk-free, and there are certain challenges to consider when establishing a strategic alliance:
Even a short-term alliance will require you to open your business and proprietary information to another party. Do this lightly at your peril. The bottom line is, there must be a great deal of trust between the two partners. What is strategic alliance and example?A prominent strategic alliance example is the partnership between Spotify and Uber. The strategic alliance between the two organizations allows Uber users to connect to Spotify and stream their favorite music while on a ride.
Why is strategic alliance important?Strategic alliances allow an organization to reach a broader audience without putting in extra time and capital. A franchise business is constantly searching for new, creative ways to increase its clientele and reach new potential customers, and forming a strategic alliance provides an opportunity to do that.
What is strategic alliance advantages and disadvantages?Strategic Alliance Vocabulary, Advantages & Disadvantages. |