Strategic Alliance Definition
A strategic alliance enables two organizations in resource sharing in order to meet the objectives of a mutually agreed upon project. As compared to a joint venture, such agreement bears less involvement and less binding. In joint venture, two organizations accumulate their resources in establishing an individual firm. However, in strategic alliance, both firms will have their sense of independence while accomplishing a better opportunity.
A Little More on What is a Strategic Alliance
A strategic alliance can enable an organization to work more effectively, expand into an exclusive market, or have a competitive edge over others. It helps both the organizations in achieving a specific yet mutual objective that will prove to be advantageous for both. This advantage can last either for short-term or long-term, and can take place formally or informally between the companies involved.
- A strategic alliance refers to an agreement that two organizations make for sharing their resources, and working towards a common goal.
- This agreement can improve the effectiveness of company’s operations.
- Strategic alliances let two companies, individuals, or institutions to accomplish mutual objectives.
The Purpose of Strategic Alliance
In spite of the strategic alliance being an informal collaboration between the two companies, every member or representative clearly knows his or her responsibilities. The manner in which the mutual objectives are achieved by both companies would determine the longevity of the partnership.
When two companies formulate a strategic alliance, it lets them grow naturally and more quickly as compared to if company operated on its own. A company that lacks in adequate resources for its growth or meeting its objectives, receives the same from the other company. For example, a small-printing firm, when collaborates with another similar firm, would have more speedy presses, lesser production costs, and more market share in the regional printing industry.
A joint venture may suffer from lack of flexibility in its operations, whereas strategic alliance offers a sense of dynamism to both companies. There is no requirement for the companies to combine their capital, and they can operate independently. However, they should ensure that the motive of collaboration is being achieved no matter what.
Strategic alliance would deliver best results when both companies’ practices vary in nature.
The Risks of Strategic Alliance
There are a few risks associated with a strategic alliance. Even if the contract’s terms and conditions are clear for both organizations, there can be certain differences in the way a business operates. And such differences can lead to conflicting interests of companies. Also, if one of the companies needs to offer crucial proprietary information to the other firm, there needs to be an element of trust between them.
In case, the companies have entered into a strategic alliance for a long time, both of them may need to rely on one another’s operations. However, situations may not stay pleasant between both of them in case, one company starts excessively depending on the other. One company would feel that the other company is taking undue advantage of its resources and support.
Real World Example
A strategic alliance can be formed between an oil and natural gas firm, and a research laboratory with a view to create recovery solutions that are more commercially feasible in nature. Another example could be of a clothing retailer and an apparel manufacturer, being alliances, for making top-notch outfits and various sizes. Also, a big website could enter into a strategic alliance with an analytics firm for making its marketing strategies better.