A strategic alliance is a term that is used in the context of the corporate world; the dictionary meaning of alliance is an association that is made for the mutual benefit of each other. The corporate world is always characterized by animosity and competition between the companies but in the case of strategic alliance, there is a business relationship in which two or more organizations cooperate to achieve common goals. Strategic alliances can take many different forms, but all involve some type of cooperative effort. In order to have a better understanding of this term, one should look at different types of strategic alliances.
Strategic Alliance Types
Strategic Partnerships
Strategic partnerships are the most common type of strategic alliance. In a strategic partnership, two or more companies agree to cooperate with each other in order to achieve common goals. Access to new markets and customers, shared risk, improvement in efficiency, reduction in costs, increased resources, sharing of expertise and capability expansion are some of the benefits of strategic partnerships However, strategic partnerships can also be risky due to ego clashes of employees as well as top management of two companies, problem in integration of resources and so on which can be avoided if companies form strategic partnership on clear terms and conditions.
Joint Ventures
A joint venture is a partnership in which two or more companies agree to create a new business entity. The new company is owned by the partners which are not individuals but the companies as it is a strategic alliance. Joint ventures are usually used by companies to enter new markets or industries. A joint venture has some important features like there is no impact of the joint venture on the current business of the company, a joint venture is made for a short period of time which is the reason why it can be termed as a temporary partnership, joint venture leads to risk reduction and so on. However, it suffers from same limitations as strategic partnerships like problems of integration of resources, ego clashes, lack of complete control, and so on.
Licensing Agreements
A licensing agreement is a contract in which one company grants another company the right to use its intellectual property in return the company using the intellectual property can give royalty or monthly fixed payment to other company. This type of strategic alliance is seldom found but still, companies looking to enter new markets without getting into the complexities of partnership or joint venture can opt for licensing agreements.
Mergers and Acquisitions
Mergers and acquisitions are another type or form of strategic alliance where a merger is an agreement between two companies to combine into one company where the old companies cease to exist and a new company is formed with a new name and identity. Mergers are usually done between two equally sized companies and both companies have more or less equal control over the new entity but when it comes to acquisition it refers to that process by which a big company acquires the small company and thus small company ceases to exist while the big company keeps running beside acquiring company has complete control over the other company. Hence one can say that mergers are a more friendly way of doing strategic alliances with other companies as compared to acquisitions which are a hostile way of doing strategic alliances with other companies.
As one can see from the above that strategic alliance can be made in many forms but the crux of any alliance is mutual understanding and trust between the parties involved and strategic alliance is no different and that is the reason why no matter what type of strategic alliance companies enter into but there should be mutual trust and understanding between the companies if they want the strategic alliance to be successful.