Strategic Alliances

Organizations often join forces to achieve a shared goal, which might be more difficult for
them to achieve individually. A strategic alliance can be defined as an official and legally
binding arrangement between two organizations to undertake a project which is mutually
beneficial to one another, each of them retains its independence. The nature of the strategic
alliance can vary great from one situation to another, as there can be different ways in which
companies can form an alliance to achieve their goals. Typically, a strategic alliance is most
commonly seen when an international market player wants to enter a new market. Forming a
strategic alliance can help them gain access to the new markets, develop new product line,
access to advanced technologies, etc.

Understanding Strategic Alliances

In a strategic alliance, the responsibilities of each involved parties are well defined, along
with their needs and benefits. Typically, the duration of the alliance is fixed and agreed upon
at the time of forming the said alliance. The sole purpose of forming a strategic alliance, is to
allow each business venture to achieve growth more easily and quickly than if they had
operated independently.

Strategic alliances are formal business relationships, which allows firms to achieve much
more than what they could be have accomplished alone. The steep competitive environment
often makes it quite difficult for companies to foster steady growth. As a result, the market
players seek to find out alternative ways to achieve higher competitive advantage in the
market. The strategic alliance allows different companies to combine their key strengths to
create a strong synergy, allowing them to achieve loftier business goals, which would have
been otherwise impossible.

Types of Strategic Alliances

As mentioned earlier, the strategic alliances are business relationships which allows
companies to achieve challenging business goals more easily. Depending on the business
goals and objectives, companies can adopt different types of agreements, each of which has a
different approach to meeting the shared goals.

Joint Venture
A joint venture refers to the business arrangement in which two organizations bring their
resources together for the purpose of achieving a particular goal, which can be a new project
or a new business operation. The companies involved in joint venture are responsible for the
sharing the profits, losses and cost of operations associated with pursuing the common goal.
It should be noted that when two companies form a joint venture, a new business entity is
formed, which has its own identity and operates separately from the two business partners.
The joint venture takes advantage of the resources, good will, supplier relationship and
technological know-how of the partnering firms. For example, Google’s parent company
Alphabet formed a joint venture with GlaxoSmithKline (GSK), to create a new venture
called Galvani Bioelectronics. The newly formed venture is dedicated to develop advanced
medical devices for patients. The medical expertise of GSK and the technological
advancement of Alphabet has been combined to create higher competitive advantage, which
would have been difficult for each company to create alone.

Equity Strategic Alliance

The equity strategic alliance is formed when one organization purchases equity in another
organization, thus providing partial ownership of the company. In certain situations,
companies may purchase each other’s equities in order gain certain degree of control over
their business operations. This type of strategic alliance, allows a company offer financial
support by purchasing a portion of their equity and in return earning control on a portion of
their business operations.
The partnership between Tesla and Panasonic can be a great example of equity alliance.
Panasonic invested a substantial amount of capital which is close to USD 30 million on Tesla
to boost its battery manufacturing operation. This alliance has helped Panasonic to enter
into the lithium ion battery industry for electric cars, which is considered to be the future of
automobile sector. At the same time, it has also helped Tesla to enhance its operations with
the help of the financial support from Panasonic. Typically, the control and share of profit
between organizations are determined by the amount of equity bought by the partner.

Non-equity Strategic Alliance

Non-equity strategic alliance refers to the partnership where the organizations agree to share
their resources and expertise without forming a separate joint venture or purchasing equity. In
this case, the formed alliances are more informal, where the partnering firms share the
benefits of the alliance between themselves. It might not be mentioned in the SWOT
analysis of Coca Cola, but recently EspriGas has announced its collaboration with the
company to meet the needs of beverage gas of Coca Cola. Typically, companies form a non-
equity strategic alliance to strengthen their value proposition or to cater to more potential
customers.

The most common example of a non-strategic alliance is the partnership between

McDonald’s and Coca-Cola. McDonald’s offer Coca-Cola beverages with their meals,
which enhances their value proposition, at the same time Coca-Cola is able to cater to more
customers in the market.

Non-equity strategic alliance is more commonly found among organizations. In this type of
partnership, companies take advantage of each other’s strengths, while benefitting from the
collaboration. It should be noted that the degree of financial risks in much lower in this type
of strategic alliances, as the degree of investment is much lower. However, it may also offer
lesser financial return compared to joint venture and equity strategic alliance.

Conclusion
Strategic alliances are business partnerships which allows different firms to collaborate with
each other in order to utilize each other’s core competency. The sole purpose of forming a
strategic alliance is to develop stronger competitive advantage and financial benefits for both
the companies, which would have been quite difficult to achieve otherwise. Typically, there
are three different types of strategic alliances: joint ventures, equity strategic alliance and
non-equity strategic alliance. The joint venture allows two firms to collaborate to create a
new venture which has access to the resources and expertise of both the firms. The equity
strategic alliance allows one company to purchase certain portion of equity of another
company, thus granting them control over their certain operational activities. Finally, in case
of the non-equity strategic alliance firms form partnership in an informal way without
forming any joint venture or buying equity of another company. This informal alliance allows
firms to take advantage of each other’s strengths to improve their own value offering and
competitive advantage.