It is wrong to think that strategic alliances are a recent phenomenon in our time, they are as old as the existence of the enterprises itself. Examples would be early credit institutions or trade associations like the early Dutch guilds. Nevertheless, Holmberg, S. R., & Cummings, J. L. (2009) stated that what it is true is that over the last decades the focus and reasons for strategic alliances has evolved very quickly.
What we understand of strategic alliance has been changing gradually among the past decades states that during the 1970, the focus was the performance of the product; in the 1980s, building economies of scale and consolidating positions at the market were the main aim of these kind of alliance; finally, since the 1990s until our days, companies require constant innovation for competitive advantage, so the focus was relocated on the development of capabilities and competences, due the break of geographical borders and the creation of new markets.
This scenario made strategic alliances from an option to a necessity in many markets and industries. Nowadays, it is compulsory to integrate strategic alliance management at the global planning of the company in order to advance products and services, enter new markets, etc. Statistics show that the companies that get involved with alliances increase their revenues from a 3–6% (p. 164–193).
As we have seen, strategic alliance is a term that has changed briefly among the years, but we will take the definition that researchers Van Dam, N., & Marcus, J stated:
“two or more enterprises entering into an agreement to work together without creating a new legal entity. Both businesses continue to exist as independent enterprises. The enterprises will work together in particular areas, sharing knowledge, resources and skills with each other. The goal of such a collaboration is to generate new knowledge new products and / or new production facilities”. (2012, p. 134)
According some authors, such as the management consultant Anders Sundelin (2009), strategic alliance could include the term joint venture inside the definition, but in this explanation it will be considered two different terms, so it will be possible to inquire more deeply in both terms. The main difference between excluding or not, is the creation of a new enterprise.
There may be various motives for developing strategic alliances, such as research, production, marketing, distribution or management, among others. Motivation depends mainly in two factors: the business market position (leader or follower) and the strategic importance (core or peripheral). All motives can be summarized into four generic, Figure 1 shows these diagrammatically:
Source: P. Lorange, J. Ross and P.S. Bronn, Long Range Planning, December 1992, PEM-select no. 2, 1993
Glancing the indicators, we distinguish four types. Defence refers to the protection of the market leader core activity in order to secure the future; remain consists to stay in the same position, because even it is not the main activity of the organization, the enterprise is the market leader: a defensive strategy, therefore. Catch up it’s an offensive strategy that has as objective the strengthening of the competitive position of the enterprise and restructuring indicates that the company is follower in some peripheral activities, so, the restructuring will go as far these activities are subsequently disposed of.
First of all, we need to keep clear two concepts: vertical and horizontal. In strategic alliances, vertical means the collaboration between a company and its upstream and downstream partners in the supply chain. Vertical alliances aim at intensifying and improving these relationships and to enlarge the company´s network to be able to offer lower prices. Horizontal alliance refers the collaboration between a company and other business at the same industry and level of production, this means that they used to be competitors but now work together in order to improve their position in the market and improve market power compared to other competitors. Other type totally different from both mentioned are intersectional alliances, collaborations where the involved firms are not at the same industry or supply chain, so they would not be able to get in touch with each other.
There is another way to classify alliances, through their purpose. In this classification it is showed four different types: technology, operations, marketing and multi operational. Technology development alliances, which are alliances with the purpose of improvement in technology and know-how. Operations and logistics alliances, where partners either share the costs of implementing new manufacturing or production facilities, or utilize already existing infrastructure in foreign countries owned by a local company. Marketing, sales and service strategic alliances, in which companies take advantage of the existing marketing and distribution infrastructure of another enterprise in a foreign market to distribute its own products to provide easier access to these markets. Multiple activity alliance, which connect several of the described types of alliances.
Ed Rigsbee (2000) states that there are seven general areas in which you can profit from building alliances. They are as follows: products, access, operations, technology, strategic growth, organization and finance. In order to make it more clear and useful,
· Technological sophistication: an exchange of technology to compliment your core strengths, shore up your core weakness and improve production capabilities to better serve customers.
· Increase market share: access to new markets both domestic and international, also, partnering can provide the benefit of positioning for future needs not yet known to you or your industry. Moreover, the opportunity to expand business with new or related product innovations and service offerings.
· Improved customer service.
· Innovation: this field become one commonplace for firms that have chosen to work together.
· Cost savings: sharing resources, or outsourcing, rather than owning and operating a manufacturing plant, will allow a synergistic partnering agreement allows you concentrate on your core strengths.
· Financial stability: alliance relationships allow partners to share the financial risks associated with developing new products and entering into new markets
· Supply chain improvements: new areas are available to improve such as on-time product delivery, prompt response to complaints, specific volume commitments, improved supplier loyalty, etc.
McQuerrey (2015) express that interweaving your business with another, whether via formal or casual alliance, requires thoughtful consideration. Going into an alliance without pre-planning can damage your personal branding and lead to other potential liabilities.
· Lack of control: some loss of 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: it is possible that customers judge you based on the actions of your alliance partner, independently if they use that service or not.
· Liabilities: if something goes wrong with your business alliance partner, you can be held liable as well.
Life cycle of strategic alliance: how to implement
Going back to Ed Rigsbee (2000), the author proposes seven steps to a complete strategic alliance, going through all the process in order to do it as more gradually possible, as business usually don’t answer properly to fast and huge changes.
1. Monitor: study your business, observe and identify areas for improvement. Have a good reason for developing an alliance and what do you want for it.
2. Educate: learn about those companies you might consider for strategic agreements, and seek arrangements that create a win-win result for all who participate.
3. Select: Chose alliance partnering, and with whom to build your alliance, with knowledge, understanding and commitment. Target companies, large or small, that can aid you in rapidly and efficiently, reaching the goals of research, technology, production and marketing. Consider the focus of the individuals involved.
4. Organize: identify, understand, and putting together the possibilities for your alliance. Develop not only your alliance structure, but also your road map. Emphasize the importance of understanding and access to the staff of each alliance member. Create a convenient communication system for all partners, especially decision makers. Plan procedures to keep relationships between key people of partnering companies open and constantly alive
5. Agreement: ensure that you write down everything that is required, identify the goals, milestones and turning points to success. Establish the terms and conditions under which the partners will resolve questions of frustrated business opportunity
6. Implementation: decide upon day-to-day activities: decision, culture, and consensual or hierarchical.
7. Maintenance: develop systems that allows the continuing tracking of the agreement, establish feedback points and reviews in order to always be updated of the current status of the alliance.
Van Dam, N., & Marcus, J. (2012). Organization and management: An international approach. (2nd ed.). Routledge.
Sundelin A., (2009). Strategic Alliances — an important part of most business models. Retrieved from: http://tbmdb.blogspot.nl/2009/08/strategic-alliances-important-part-of.html
Holmberg, S. R., & Cummings, J. L. (2009). Building successful strategic alliances: strategic process and analytical tool for selecting partner industries and firms. Long range planning, 42(2)
Rigsbee, E. R. (2000). Developing strategic alliances. Crisp Publications.
McQuerrey, L. (2015) The Disadvantages of Forming Business Alliance. Retrieved from: http://smallbusiness.chron.com/disadvantages-forming-business-alliances-73390.html