WHAT IS STRATEGIC ALLIANCES  (SA)?

A strategic alliance is an arrangement between two companies to undertake a mutually beneficial project while each retains its independence. The agreement is less complex and less binding than a joint venture, in which two businesses pool resources to create a separate business entity.

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A company may enter into a strategic alliance to expand into a new market, improve its product line, or develop an edge over a competitor. The arrangement allows two businesses to work toward a common goal that will benefit both.

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The relationship may be short- or long-term and the agreement may be formal or informal.

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KEY TAKEAWAYS

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• A strategic alliance is an arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project.

• A strategic alliance agreement could help a company develop a more effective process.

• Strategic alliances allow two organizations, individuals or other entities to work toward common or correlating goals.

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Understanding the Strategic Alliance

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While the strategic alliance can be an informal alliance, the responsibilities of each member are clearly defined. The needs and benefits gained by the partnered businesses will dictate how long the coalition is in effect.

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The effects of forming a strategic alliance can include allowing each of the businesses to achieve organic growth more quickly than if they had acted alone.

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The partnership entails sharing complimentary resources from each partner for the overall benefit of the alliance.

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Advantages and Disadvantages of a Joint Alliance

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Strategic alliances can be flexible and some of the burdens that a joint venture could include. The two firms do not need to merge capital and can remain independent of one another.

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A strategic alliance can, however, bring its own risks. While the agreement is usually clear for both companies, there may be differences in how the firms conduct business. Differences can create conflict. Further, if the alliance requires the parties to share proprietary information, there must be trust between the two allies.

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In a long-term strategic alliance, one party may become dependent on the other. Disruption of the alliance can endanger the health of the company.

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Example of a Strategic Alliance

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The deal between Starbucks and Barnes&Noble is a classic example of a strategic alliance. Starbucks brews the coffee. Barnes&Noble stocks the books. Both companies do what they do best while sharing the costs of space to the benefit of both companies.

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Strategic alliances can come in many sizes and forms:

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• An oil and natural gas company might form a strategic alliance with a research laboratory to develop more commercially viable recovery processes.

• A clothing retailer might form a strategic alliance with a single manufacturer to ensure consistent quality and sizing.

• A website could form a strategic alliance with an analytics company to improve its marketing efforts.

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