A strategic alliance (often referred as a strategic partnership) is a cooperative agreement between two or more parties that decide to combine their resources and capabilities to pursue a set of mutually beneficial objectives. Nowadays, businesses are increasingly using strategic alliances in order to pursue a set of goals that are hard to achieve in isolation, such as expanding to new markets, introducing new products and services, or even lowering your costs.
Why decide to form a strategic alliance?
A strategic alliance might be formed for several reasons, such as:
- To gain access to another firm’s resources, capabilities and knowledge.
As the business environment is becoming ever more complex, resources are becoming incredibly scarce and inimitable – that’s the reason business are increasingly outsourcing some activities. By forming a strategic alliance, both firms can tap into and gain advantage of the resources, capabilities and knowledge of the other firm.
- To achieve economies of scale.
Through a strategic alliance, companies can combine their resources and achieve economies of scale, and as a result minimize costs.
- To minimize risk.
Another reason to form a strategic alliance is to divide the global business risk. This is often the case in new product innovations that require a heavy investment in Research & Development.
- To enter new, untapped markets.
Strategic global alliances can be an effective way to tap into new foreign markets that you could not previously enter alone. Through a partnership, businesses can gain access to established distribution system s and market knowledge that can help them enter a new market faster and better.
- To overtake competition in the market and gain a competitive advantage.
By forming a strategic alliance and taking advantage of shared resources and capabilities, you can significantly enhance your competitiveness and take over competition.
- To gain access to new technology.
What are the disadvantages?
Although strategic alliances may yield many benefits to your organization, they also carry a set of disadvantages that have to be taken into account. Some of them are:
- Conflicting cultures and organizational design.
Although firms within a strategic alliance remain as independent organizations, their partnership requires them to have a similar like company culture and structure. If the two companies are operating on an entirely different management style, then problems and conflicts will start to emerge much faster and much more frequently.
- Risk of sharing.
Within a strategic alliance, you are required to share your resources and capabilities. This might be critical in the case that business secrets or highly confidential information falls within those must-share resources and capabilities.
- Reputation.
In the case that your strategic partner is engaged in shady activities such as fraud or a crisis event, this could easily damage your reputation as well. And as you probably know, reputation is hard to build but easy to destroy.
- Creating a potential competitor.
The capabilities and knowledge shared might be feeding your current partner into a future competitor when the partnership comes to an end.