Definition:
An arrangement or relationship among independent businesses with corresponding goals, established for a specific purpose and often for reducing costs and improving customer service. The collaboration is usually managed by a team with members from each business and held together by one agreement giving an equal share of risk and opportunity to each business.
Types:
Sales: A sales alliance occurs when two companies agree to go to market together to sell complementary products and services.
Solution-specific: A solution-specific alliance occurs when two companies agree to jointly develop and sell a specific marketplace solution.
Geographic-specific: A geographic-specific alliance is developed when two companies agree to jointly market or co-brand their products and services in a specific geographic region.
Investment: An investment alliance occurs when two companies agree to join their funds for mutual investment.
Joint venture: A joint venture is an alliance that occurs when two or more companies agree to undertake economic activity together.
Essential elements:
Skin: Each party needs to have some skin on the table. This does not necessarily have to be money but each needs to be prepared to dedicate resources to the alliance. Identify what each party brings to the alliance in terms of time, money, resources.
Accountability: Someone from each side needs to be recognised as being accountable for his or her deliverables and milestones in the strategic alliance.
Communications: Good communications are always more about listening than telling. Be all ears. Listen to your potential partners. What they tell you will not only give you clues to their needs but may influence your thinking in ways you’ve never even imagined. In the formal agreements establish clear lines of communications and establish a dispute resolution methodology in the case of an impasse
Advantages:
Achieve Strategic Objectives: A business partnership can help a company to achieve strategic business objectives through the collective objectives of the partners.
New Markets: Growth opportunities exist from business alliances by enabling companies to penetrate new business markets. Alliances open access to each partner's network of customers and distribution channels.
Knowledge Sharing: A business alliance provides access to the unique know-how of the partner company
Economies of Scale: Economies of scale might develop from business alliances. Economies of scale relates to the cost advantages that a company gains from expansion. In business alliances, this might include access to wider marketing channels, which a company might not otherwise be able to afford outside the partnership. Costs reductions might also result from joint investments on matters like research and development, or access to a partner's operational facilities.
Disadvantages:
Lack of Control: When you align with another company, you lose some degree of control over the way your business is perceived.
Unequal Benefits: Unless you have a carefully vetted contractual agreement, you have no assurance that your business alliance will be beneficial to you, or that you'll get as much as you give in terms of referrals.
Merged Reputations:When you form an alliance, you open yourself up to being judged based on the actions of your alliance partner regardless of whether your customers actually use the services of your business partner or not.
Liability:In the event something goes wrong with your business alliance partner, you can be held liable as well.
Some examples of Strategic Alliances
In R&D:
Manufacture:
Marketing:
For Market Entry:
For Sales:
Equity (participation) alliance
An arrangement or relationship among independent businesses with corresponding goals, established for a specific purpose and often for reducing costs and improving customer service. The collaboration is usually managed by a team with members from each business and held together by one agreement giving an equal share of risk and opportunity to each business.
Types:
Sales: A sales alliance occurs when two companies agree to go to market together to sell complementary products and services.
Solution-specific: A solution-specific alliance occurs when two companies agree to jointly develop and sell a specific marketplace solution.
Geographic-specific: A geographic-specific alliance is developed when two companies agree to jointly market or co-brand their products and services in a specific geographic region.
Investment: An investment alliance occurs when two companies agree to join their funds for mutual investment.
Joint venture: A joint venture is an alliance that occurs when two or more companies agree to undertake economic activity together.
Essential elements:
Skin: Each party needs to have some skin on the table. This does not necessarily have to be money but each needs to be prepared to dedicate resources to the alliance. Identify what each party brings to the alliance in terms of time, money, resources.
Accountability: Someone from each side needs to be recognised as being accountable for his or her deliverables and milestones in the strategic alliance.
Communications: Good communications are always more about listening than telling. Be all ears. Listen to your potential partners. What they tell you will not only give you clues to their needs but may influence your thinking in ways you’ve never even imagined. In the formal agreements establish clear lines of communications and establish a dispute resolution methodology in the case of an impasse
Advantages:
Achieve Strategic Objectives: A business partnership can help a company to achieve strategic business objectives through the collective objectives of the partners.
New Markets: Growth opportunities exist from business alliances by enabling companies to penetrate new business markets. Alliances open access to each partner's network of customers and distribution channels.
Knowledge Sharing: A business alliance provides access to the unique know-how of the partner company
Economies of Scale: Economies of scale might develop from business alliances. Economies of scale relates to the cost advantages that a company gains from expansion. In business alliances, this might include access to wider marketing channels, which a company might not otherwise be able to afford outside the partnership. Costs reductions might also result from joint investments on matters like research and development, or access to a partner's operational facilities.
Disadvantages:
Lack of Control: When you align with another company, you lose some degree of control over the way your business is perceived.
Unequal Benefits: Unless you have a carefully vetted contractual agreement, you have no assurance that your business alliance will be beneficial to you, or that you'll get as much as you give in terms of referrals.
Merged Reputations:When you form an alliance, you open yourself up to being judged based on the actions of your alliance partner regardless of whether your customers actually use the services of your business partner or not.
Liability:In the event something goes wrong with your business alliance partner, you can be held liable as well.
Some examples of Strategic Alliances
In R&D:
- Microsoft and Nokia - a software partnership for Nokia’s Windows Phones.
- CISCO Systems’ agreement with China’s biggest on-line commercial company Alibaba, to explore business services for SMEs.
- Claris (India) manufacturer of sterile injectables has an out-licensing agreement with pfizer to develop products for the US.
Manufacture:
- Chrysler – Fiat partnership to build compact and subcompact jeeps
- GSK – Dr. Reddy Labs: The Indian company will manufacture nearly 100 products mainly under GSK brand name for sale in some emerging markets.
Marketing:
- Abbott (US)’s alliance with Zydus - Cadila of Ahmadabad whereby Abbott will license 24 branded generics of Zydus in 15 emerging markets.
- WIPRO – GE joint venture to distribute approximately 85% of GE’s healthcare products and solutions in India.
- Pfizer and Biocon: To market Biocon’s insulin biosimilar products in world markets.
For Market Entry:
- Tommy Hilfiger / PHV group last October acquired a stake in Murjani group’s Arvind Murjani Brands in a possible move to bring the former’s brands into India
- Transcend Information Inc, a global player in many telecom accessories has an agreement with Bharti Teletech to distribute the entire portfolio of Transcend products in India.
For Sales:
- Nestle and General Mills (US) agreement whereby the product Honeynet Cheerios was made in General Mills’ US plants, shipped in bulk to Europe for packaging at a Nestle plant and then marketed in France, Spain and Portugal.
Equity (participation) alliance
- Ford’s 33.4% share in Mazda
- Daimler Chysler’s acquisition of 34% in Mitsubishi
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