Strategic Alliance

Strategic Alliance

Strategic Alliance, as defined by Wheelen and Hungar, is when companies come together and go beyond the normal company dealings but don’t enter into a partnership or merger. The alliance entered into a formal contract that also allows them to enter into a joint venture or exchange equity. Strategic alliance brings positive changes in the business culture. In recent years, more than 20,000 corporate alliances have been formed worldwide.

Different forms of Strategic Alliance by Coopers and Lybrand

1. Joint marketing and promotion
2. Joint selling and distribution
3. Technology Licensing
4. Research and development contracts
5. Other outsourcing purposes

Some of the other strategic alliance by Technology Associates and Alliances:

1. Marketing and sales alliances
2. Product and manufacturing alliances
3. Technology and know-how alliances

However, the alliances can be formed as a hybrid amongst the above three. Collaborative marketing is a cross of marketing and sales and product and manufacturing alliance. Through such alliances, the competition between the companies is increased, and it can also correct some internal business problems.

Driving forces of Strategic Alliances

1. To enter into new markets

It is challenging and a slow process to open a new market. By allying with a company that currently caters to that marketplace, makes the business expansion easier and less stressful. Budweiser, a brewing company, gave its right to brew to different countries in Japan, Mexico and Canada. This helped Budweiser quickly rather than setting up their own breweries in a foreign land.

2. Partnering for new technology or better quality or reduced cost

Adopting advanced technology requires a lot of cash flows and the workforce to operate the same. Hence, many companies come into a strategic alliance where both of them can be benefitted with technological resources. Many companies have started outsourcing their account department to those companies who are best-in-the-market. Companies are interested in alliance in different functions such as advertising and sales, production with other companies who can deliver better production or quality or reduce the overall cost.

3. To ensure competitive advantage

There are small and essential tools which the businesses must use to be competitive in the market. To survive in the market, LI/Saltzman Architects has a team of six architects and the company specializes in historic restoration. To compete against big players of the market, this company alliances with other companies based on the project.

To win in the marketplace worldwide, collaboration is the key to fulfil the needs of the hour.

Understanding the critical role of CXO and senior management in the strategic alliance

The critical successful rate which drives strategic alliance to a successful one depends on the CXO’s of all the companies. Their commitment, coupled with strategic planning, formulation, implementation, design, management and monitoring, can go a long way to benefit the alliance.

One of the biggest challenges faced in having a successful strategic alliance is to overcome management’s fear of loss of control. Many companies that come to Japan for strategic alliance want to go for 51% stakeholding. This number ensures significant holding and power over the brand and development. However, the strategic partnership works on mutual efforts, commitment and enthusiasm.

It is important to note that successful strategic alliance do not work on ownership or control but by equal partnership just like it happens in a marriage. There shouldn’t be a lack of trust, and the strategic alliance shouldn’t be a shortcut to enter into a new marketplace.

Companies like Xerox have demonstrated excellent leadership qualities by creating executive titles such as “Senior Vice President, Corporate Strategic Alliance, Vice President worldwide alliance”.

Strategies are notably successful when the two different companies have a similar philosophy, ideas and strategies which otherwise could result in tragic results. If the two managements have different personalities, the ideology, it can result in no communication further leading to a costly battle to settle the contract.

Factors that influence the Strategic Alliance

Relationship between the senior managers: As explained, the role of top management drives the success rate of the strategic alliance. The second factor is the implementation of the strategies in the alliance. It requires an environment to be created where slowly the alliances are implemented, and then the level is increased to complexity.

HP and Lotus have demonstrated excellent strategic alliance skills as HP has developed more than 400-pages binder with tool kits, checklist, case history, SOP and policy which helps the manager to implement the alliance structure steadily. It also developed training for all managers. Lotus is also known for its strong leadership management which has made this alliance successful.

Planning: Another essential aspect which has to be developed so that the vision of the alliance can be established and implemented. In the planning aspect, the companies can lay down their goals, concerns, strength individually. By having a clear idea on the same, the alliance can then work together to bridge the gaps at the initial stage. It also requires the senior management to define both the internal and external value of the alliance. This further helps them in strategic planning to meet their targets

Clear defined roles: Many companies face a problem during partnership as they are not fully aware of their roles. The degree of ownership, decision making must be clearly defined. If the partners know who will decide the front, then there won’t be any uncertainty or misunderstanding. Hence, the alliance can be maintained amicably.

Coopers and Lybrand have mentioned that strategic alliance can work beneficially for them who give-in equal partnership. Under any situation, none of the companies must be left out or not be benefitted from the alliance.

Many companies have not been able to meet their specific targets due to their failure of commitment. The companies require to look at the alliance as an essential tool to maintain a competitive advantage in the marketplace.

US companies have been significantly benefited through a strategic alliance with Japan and European companies. It has reduced the production cost, access to a new marketplace, increased manufacturing skills. The companies can be benefitted about the improved customer-client relationship, sales, marketing, refined work culture.

When properly managed, the companies can bear all the challenges about the uncertain market today. Strategy alliance is the best mechanism that companies can use to break through these challenges.