Strategic Alliance

Description of Strategic Alliance. Explanation.

Definition Strategic Alliance. Description.

A Strategic Alliance is a significant long/term partnership and collaborative agreement entered into by two or more companies to pursue a set of agreed upon critical goals while remaining (legally) independent organizations. These collaborations can come in many shapes and sizes, including contractual and equity forms. It normally is a synergistic arrangement whereby the participating organizations each brings different strengths and capabilities to the alliance. Main motives for the formation of strategic alliances can be organizational, economic, strategic and political.

Steps in the formation of strategic alliance. Process

Strategy Development. This stage involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.
Partner Assessment. This exploratory stage involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner.
Contract Negotiation. This stage involves determining whether all parties have realistic objectives, forming high caliber negotiating teams, defining each partner’s contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood.
Alliance Development. This stage involves addressing senior management’s commitment, finding the caliber of resources devoted to the alliance, linking of budgets and resources with strategic priorities, and measuring and rewarding alliance performance.
Alliance Execution. Operation and relationship management.

Forms or Types of Strategic Alliances

The following list of overlapping forms and types of strategic alliances is provided by Todeva, E. and Knoke, D. in Strategic Alliances & Models of Collaboration, Journal of Management Decisions, 43(1), 123-148:

Cooperative - A coalition of small enterprises that combine, coordinate and manage their collective resources.
Supply Chain - Based on long-term procurement contracts between firms.
Sourcing Agreement - Including outsourcing and subcontracting various business functions and operations. Compare: Kraljic Model.
Joint Venture - Equity and non-equity based agreements between two parent companies that establish a new legal entity.
Licensing - Knowledge-based agreements transferring patented information for the use, manufacture, and distribution of products and services.
Franchising - Contract-based organizational structure for entering new markets based on the transfer of a business concept with corresponding operational guidelines from a franchisor to a franchisee for a fee
Management Contract - Used by business to acquire certain management services, such as facilities or warehouse operations or fund management.
Turnkey Contract - Consortia formed for the construction of new, large (production) facilities that consist of investors, governments, engineering firms, contractors and include responsibilities for the provision of resources, technology, know-how, and management during the development, installation, and subsequent exploitation phases.
Industrial Cooperation Agreement - Large contractual business networks based on joint multiparty strategic control and sharing responsibilities for performance outcomes. May include a multitude of specific alliance forms.
Countertrade Agreement - Large multiparty agreements supported by governments, where payments are agreed in the form of barters, offsets, counterpurchases, and buybacks.
R&D Consortium - Interfirm agreements for collaboration in research and development.
Business Association and Standard Group - Multi-firm membership and participation organizations that make strategic decisions.

Strategic Alliances Forum (3)

Possible Types of Strategic Product Cooperation Agreements
"An associate has developed a product which has attracted the interest of one of my clients to be incorporated into one of their products as an essential component. This would transform my client's product into an industry leader position.
Myself and the associate would like to work out an arrangement that would be fair to both of us and are considering the following options.
1. He produces himself and sell to me as needed.
2. I produce and pay him royalty per piece.
3. He grants me a licence to manufacture at a negotiated fee.
4. I purchase the patent from him outright.
5. Joint venture.
Any comments on the relative merits of the various options or suggestions on additional options?"

Gaining Acces to International Markets
"Licences may be used to gain access to foreign markets.
Another way to enter global markets is to setup an operation in a foreign country. However, managers must recognize what works in their home country, could not work elsewhere. There can be a lot of political, economic or cultural differences. Make sure your business strategy recognizes these customs, preferences and economic conditions in other countries."

Generic Criteria for Strategic Partnering
"Would love to see more on how to assess potential partnership opportunities for a business --- i.e. what criteria make the right 'fit' for a partnership?"

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