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Strategic alliances bring enterprises the following benefits:
  • Increase in capital for research and product development and yet lower risk (Innovation)

  • Decrease in product lead times and life cycles (time pressures)

  • Ability to bring together complementary skills and assets that neither company could easily develop on its own

  • Access to knowledge and expertise beyond company borders (technology transfer)

  • Rapidly achieve scale, critical mass and momentum (Economies of Scale - bigger is better)

  • Expansion of channel and international market presence (enter a foreign market)

  • Building credibility in the industry and brand awareness

  • Providing added value to customers

  • Establishing technological standards for the industry that will benefit the firm


Strategic alliances come in all shapes and sizes, and include a wide range of cooperation, from contractual to equity forms.


TYPES OF STRATEGIC ALLIANCES


Contractual:

Equity:
  • New entity

  • ---Independent Joint Venture

  • ---Dependent Joint Venture of Multinational Corporation


  • Existing entity

  • ---Purchase of equity share

  • ---Equity swap



STAGES OF ALLIANCE FORMATION

A typical strategic alliance formation process involves four steps:
  • Strategy Development: Strategy development involves studying the alliance’s feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.

  • Partner Assessment: Partner assessment involves analyzing a potential partner’s strengths and weaknesses, creating strategies for accommodating all partners’ management styles, preparing appropriate partner selection criteria, understanding a partner’s motives for joining the alliance and addressing resource capability gaps that may exist for a partner.

  • Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high calibre negotiating teams, defining each partner’s contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood.

  • Alliance Operation: Alliance operations involves addressing senior management’s commitment, finding the calibre of resources devoted to the alliance, linking of budgets and resources with strategic priorities, and measuring and rewarding alliance performance.



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