STRATEGIC ALLIANCE

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ERUKULLA SURESH (138919), NITW
Strategic alliance
A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon
objectives needed while remaining independent organizations. This form of cooperation lies
between mergers and acquisitions and organic growth.
Partners may provide the strategic alliance with resources such as products, distribution
channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or
intellectual property. The alliance is a cooperation or collaboration which aims for
a synergy where each partner hopes that the benefits from the alliance will be greater than those
from individual efforts. The alliance often involves technology transfer (access to knowledge and
expertise), economic specialization, shared expenses and shared risk.
Definitions and Discussion
There are several ways of defining a strategic alliance. Some of the definitions emphasize the
fact that the partners do not create a new legal entity, i.e. a new company. This excludes legal
formations like Joint ventures from the field of Strategic Alliances. Others see Joint Ventures as
possible manifestations of Strategic Alliances. Some definitions are given here:
Definitions including Joint Ventures
 A strategic alliance is an agreement between two or more players to share resources or
knowledge, to be beneficial to all parties involved. It is a way to supplement internal assets,
capabilities and activities, with access to needed resources or processes from outside players
such as suppliers, customers, competitors, companies in different industries, brand owners,
universities, institutes or divisions of government
 A strategic alliance is an organizational and legal construct wherein “partners” are willing- in
fact, motivated-to act in concert and share core competencies. To a greater or lesser degree,
most alliances result in the virtual integration of the parties through partial equity ownership,
through contracts that define rights, roles and responsibilities over a span of time or through
the purchase of non-controlling equity interests. Many result eventually in integration
through acquisition.

2.  An arrangement between two companies that have decided to share resources to undertake a
specific, mutually beneficial project. A strategic alliance is less involved and less permanent
than a joint venture, in which two companies typically pool resources to create a separate
business entity. In a strategic alliance, each company maintains its autonomy while gaining a
new opportunity. A strategic alliance could help a company develop a more effective
process, expand into a new market or develop an advantage over a competitor, among other
possibilities.
 Agreement for cooperation among two or more independent firms to work together toward
common objectives. Unlike in 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.
 Shared risk: The partnerships allow the involved companies to offset their market exposure.
Strategic Alliances probably work best if the companies´ portfolio complement each other,
but do not directly compete.
 Shared knowledge: Sharing skills (distribution, marketing, management), brands, market
knowledge, technical know-how and assets leads to synergistic effects, which result in pool
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Definitions excluding Joint Ventures
Goals of Strategic Alliances
 All-in-one solution
 Flexibility
 Acquisition of new customers
 Add strengths, reduce weaknesses
 Access to new markets+ technologies
 Common sources
 Shared risk
Advantages/Disadvantages
Advantages
For companies there are many reasons to enter a Strategic Alliance:
ERUKULLA SURESH (138919), NITW

3. of resources which is more valuable than the separated single resources in the particular
company.
 Opportunities for growth: Using the partner´s distribution networks in combination with
taking advantage of a good brand image can help a company to grow faster than it would on
it´s own. The organic growth of a company might often not be sufficient enough to satisfy
the strategic requirements of a company, that means that a firm often cannot grow and extend
itself fast enough without expertise and support from partners
 Speed to market: Speed to market is an essential success factor In nowadays competitive
 Complexity: As complexity increases, it is more and more difficult to manage all
requirements and challenges a company has to face, so pooling of expertise and knowledge
can help to best serve customers.
 Costs: Partnerships can help to lower costs, especially in non-profit areas like Research&
 Access to resources: Partners in a Strategic Alliance can help each other by giving access to
resources, (personnel, finances, technology) which enable the partner to produce it´s
products in a higher quality or more cost efficient way.
 Access to target markets: Sometimes, collaboration with a local partner is the only way to
enter a specific market. Especially developing countries want to avoid that their resources are
exploited, which makes it hard for foreign companies to enter these markets alone.
 Economies of Scale : When companies pool their resources and enable each other to access
manufacturing capabilities, economies of scale can be achieved. Cooperating with
appropriate strategies also allows smaller enterprises to work together and to compete against
large competitors.
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markets and the right partner can help to distinctly improve this.
Development.
Further advantages
 Access to new technology, intellectual property rights,
 Create critical mass, common standards, new businesses,
ERUKULLA SURESH (138919), NITW

4.  Learning from partners and developing competencies that may be more widely exploited
 Sharing: In a Strategic Alliance the partners must share resources and profits and often skills
and know-how. This can be critical if business secrets are included in this knowledge.
Agreements can protect these secrets but the partner might not be willing to stick to such an
agreement.
 Creating a Competitor: The partner in a Strategic Alliance might become a competitor one
day, if it profited enough from the alliance and grew enough to end the partnership and then
is able to operate on its own in the same market segment.
 Opportunity Costs : Focusing and committing is necessary to run a Strategic Allia nce
successfully but might discourage from taking other opportunities, which might be benefitial
as well.
 Uneven Alliances: When the decision powers are distributed very uneven, the weaker
partner might be forced to act according to the will of the more powerful partners even if it is
actually not willing to do so.
 Foreign confiscation: If a company is engaged in a foreign country, there is the risk that the
government of this country might try to seize this local business so that the domestic
company can have all the market on its own.
 Risk of losing control over proprietary information, especially regarding complex
 Coordination difficulties due to informal cooperation settings and highly costly dispute
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 Diversification,
 Improve agility, R&D, material flow, speed to market,
 Reduce administrative costs, R&D costs, cycle time
 Allowing each partner to concentrate on their competitive advantage.
elsewhere.
 To reduce political risk while entering into a new market
Disadvantages
Disadvantages of strategic alliances include:
transactions requiring extensive coordination and intensive information sharing.
resolution.
ERUKULLA SURESH (138919), NITW

5. The success of any alliance very much depends on how effective the capabilities of the involved
enterprises are matched and weather the full commitment of each partner to the alliance is
achieved. There is no partnership without trade-offs, but the benefits of it must preponderate the
disadvantages, because alliances are made to fill gaps in each others capabilities and capacities.
Poor alignment of objectives, performance metrics, and a clash of corporate cultures can weaken
and constrain the effectiveness of the alliance effectiveness. Some key factors that have to be
considered to be able to manage a successful alliance include:
Unde rstanding: The cooperating companies need a clear understanding of the potential
partner´s resources and interests and this understanding should be the base of set the alliance
goals.
 No time pressure : During negotiations time pressure must not have an influence on the
outcome of the process. Managers need time to establish a working relationship with each
other, develop a time plan set milestones and design communication channels.
 Limited alliances: Some incompatibilities between enterprises might not be avoidable, so
the number of alliances should be limited to a necessary amount, which enables the
companies to achieve their goals.
 Good connection: Negotiations need experienced managers especially the managers from
the larger firm need to be connected very well so that they have the possibility to integrate
different departments and business areas over internal borders and they need legitimations
and support from the top management.
 Creation of trust and goodwill: The best basis for a profit-yielding cooperation between
enterprises is the creation of trust and goodwill, because it increases tolerance, intensity and
openness of communication and makes the common work easier. Further it leads to equal
and satisfied partners.
 Intense Relationship: Intensifying the partnership leads to the fact that partners get to know
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Success factors
each other better, each other's interests and operating styles and increases trust.
Further important factors
 Ability to meet performance expectations
 Clear goals
 Partner compatibility
 Commitment to long term relationship
ERUKULLA SURESH (138919), NITW

6. Using and operating Strategic Alliances does not only bring chances and benefits. There are also
risks and limitations that have to be taken in consideration. Failures are often attributed to
unrealistic expectations, lack of commitment, cultural differences, strategic goal divergence and
insufficient trust. Some of the risks are listed below:
Famous Strategic Alliances that Paid Off and Changed the World
Strategic alliances are an increasingly common sight in the modern business landscape. A study
by Booze-Allen & Hamilton showed 20,000 new alliances formed between 1987 and 1992. One
reason for this is the need for brand recognition in a crowded global market and because there
have been many success stories of strategic alliances that have helped companies take off.
Academics talk of the effectiveness of alliances in terms of game theory, these real life examples
are a testament to the success of such a bold business move.
Starbucks and Barnes & Noble
The coffee house and the bookstore. The two seem like a natural match. The patrons of both of
these types of establishments have a historic relationship and an entire culture that has formed
around designer caffeinated drinks and a laid-back bookworm disposition. Starbucks’ partnership
with Barnes & Noble, starting in 1993, has made the sight so common that university libraries
will often open their own internal coffee shops. Indeed, relationships have been the key to
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 Alignment
Risks
 Partner experiences financial difficulties
 Hidden costs
 Inefficient management
 Activities outside scope of original agreement
 Information leakage
 Loss of competencies
 Loss of operational control
 Partner lock-in
 Partner product or service failure
 Partner unable or unwilling to supply key resources
 Partner's quality performance
 Partner takes advantage of its position
ERUKULLA SURESH (138919), NITW

7. Starbucks’ meteoric rise as the global king of coffee retail – their growth has been less about
aggressive advertising and more about alliances, echoing the kind of word-of-mouth growth that
helps local companies expand.
Disney and Hewlett-Packard
This partnership goes all the way back to the beginning of Hewlett-Packard (HP) itself, and back
to the heyday of Walt Disney himself. Formed in a garage by the eponymous co- founders, the
company’s first successful product was an audio oscillator purchased by Disney to certify the
Fantasound system installed in theaters for its 1940 film Fantasia. Flash forward to the digital
age. We find HP supplying a good amount of Disney’s IT infrastructure, becoming a core partner
to its efforts at “imagineering.” HP helped to develop the Disney World ride Mission: Space.
Northwest Airlines and KLM
An airline is a truly daunting and dizzying logistical beast. The sheer number of personnel,
schedules, routes, mechanical concerns, materials, and union rules that must be met with is
staggering. It is not a surprise that many airlines collapse and merge. This is why Northwest
Airlines and Dutch airline KLM began a strategic alliance in 1993 that eventually grew into an
alliance with other major airlines. In the 1990s deregulation of transatlantic flights led to
increased traffic but lower ticket prices, meaning a decrease in revenue for airlines. The alliance
between KLM and Northwest meant a strategic sharing of routes and joint operation of flights,
leading to better use of seating capacity and revenue growth.
Whatever your plans for growth and the unique value you bring to the market, 3rd Eagle can help
you form alliances that will bring success to you and your partners.
According to "An Overview of Strategic Alliances," Apple has partnered with Sony, Motorola,
Phillips, and AT&T in the past. Apple has also partnered more recently with Clearwell in order
to jointly develop Clearwell's E-Discovery platform for the Apple iPad. E-Discovery is used by
enterprises and legal entities to obtain documents and information in a "legally defensible"
manner, according to a 2010 press release.
Eli Lilly
Pharmaceutical giant Eli Lilly has been forming alliances for nearly a century, according to its
brochure, Power in Partnerships, and was the first in their industry to establish an office devoted
to alliance management. Lilly currently has over one hundred partnerships around the world
devoted to discovery, development, and marketing. For example, Lilly partners with the
Belgium-based company Galapagos to develop treatments for osteoporosis. Lilly also partners
with Canada's BioMS medical group in a licensing and development agreement for a novel
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Apple
ERUKULLA SURESH (138919), NITW

8. treatment for multiple sclerosis. In Japan, Lilly is partnering with Kyowa Hakko Kogyo Co.,
Ltd., to bring a targeted cancer treatment to market. Lilly will have the exclusive license to
develop and sell the product worldwide except in Japan, and the two companies will share rights
in certain Asian countries.
FACEBOOK: In July 2011, Facebook announced a strategic alliance with Skype, which had
been recently acquired by Microsoft. This allowed Microsoft to quickly move into the social
networking space, Skype received access to a large number of new users and Facebook could
leverage Skype's technology to enable video chat without making the investment in building it.
By contrast, Dow Chemical formed a joint venture that same month with Japanese firm Ube to
create a factory for a particular high-tech battery. They will share the technology and the risk of
new product development.
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References:
http://en.wikipedia.org/wiki/Strategic_alliance
http://www.3rdeagle.com/blog/strategic-alliances/famous-strategic-alliances-that-paid-off-and-changed-
the-world
http://smallbusiness.chron.com/examples-successful-strategic-alliances-13859.html
http://smallbusiness.chron.com/difference-between-joint-venture-strategic-alliance-
11922.html
ERUKULLA SURESH (138919), NITW