Why Strategic Alliances Are Formed
A few reasons why companies might consider forming a strategic alliance: Joint ventures (JVs) are often called strategic alliances – and they are, although we tend to call them by their real names. A joint venture is formed when two companies, Company A and Company B, establish a subsidiary or subordinate company, Company C, to achieve the business objectives of the Alliance. If Company A and Company B each own 50% of Company C, it is a 50:50 joint venture. But they can assign ownership in any percentage. More and more executives looking to expand the reach of their company`s products, geographies or customers are turning to alliances as a strategic vehicle of choice. Over the past five years, the number of national and cross-border alliances has increased by more than 25% per year. But the term alliance can be misleading; In many cases, an alliance really means a possible transfer of ownership. The median lifespan of alliances is only about seven years, and nearly 80% of joint ventures – one of the most common alliance structures – end up ending up in a sale by one of the partners. The use and operation of strategic alliances does not only bring opportunities and benefits. There are also risks and limitations that must be taken into account.
Failures are often attributed to unrealistic expectations, lack of commitment, cultural differences, strategic differences in goals, and insufficient trust. Some of the risks are listed below: With the help of a carefully selected strategic alliance, SaaS companies, large and small, can join forces to expand their product and service offerings, jointly develop new products, enter new markets, share skills and expertise, and increase the competitiveness of both partners. As traditional boundaries between partnerships and traditional sales and marketing blur, product differentiation becomes exhausting, and competitors sit on your neck, a carefully crafted strategic alliance could be the next big thing you can do to grow your SaaS business. On-demand economy companies like Uber, GrubHub, and Instacart don`t rely on full-time employees, but contractors to provide their services. Companies need to thoroughly examine each contractor during the hiring process and check for criminal involvement, employment history, and driving records for warning signs. In the past, this review was carried out only once – violations after hiring were not detected. However, a strategic alliance can carry its own risks. While the agreement is generally clear to both companies, there may be differences in the way companies do business. Differences can lead to conflict. If the alliance requires the parties to share proprietary information, there must be trust between the two allies.
But for those who manage to achieve successful strategic alliances, the rewards are many. Ask yourself the following questions: What are the specific business strengths – such as products, technologies, market access and functional capabilities – of each partner and which of these elements is most important to the long-term success of the company in the market (for example. B, successful drugs in pharmaceutical alliances)? Which partner controls the customers served by the company? Which company will hold the most management positions in the company? Which partner is most able and willing to invest in allianz based on the company`s profitability, cash flow and strategic importance? Although the strategic alliance can be an informal alliance, the responsibilities of each member are clearly defined. The needs and benefits of partner companies will determine the duration of the coalition`s entry into force. Second, partners should structure the Alliance in such a way that contributions made and value received are regularly reviewed and an appropriate balance is maintained. For example, Honeywell typically incorporates sunset clauses to force a renegotiation of its alliances every five years or so. Flexibility can be increased if partners agree on the underlying principles for resolving conflicts and agree to abide by them if technical or legal agreements prove unfair. Flexibility is also needed so that partners can expand or limit the scope of the alliance in order to meet market demands or resolve conflicts that may arise. Strategic alliances can be flexible and part of the burdens that a joint venture could entail.
The two companies do not need to pool their capital and can remain independent of each other. In the 1980s, strategic alliances aimed to achieve economies of scale and scale. The parties have sought to consolidate their positions in their respective sectors. Meanwhile, the number of strategic alliances has increased significantly. Some of these partnerships lead to great product successes such as Canon photocopiers sold under the Kodak brand, or the partnership between Toshiba and Motorola, whose combination of resources and technology leads to great success with microprocessors. There are many reasons for companies to enter into a strategic alliance: just like a relationship, strategic alliances represent a significant investment of time and resources. Before you jump headfirst into a strategic partnership that you may not be prepared for, make sure you`ve answered a few important questions. Today, as companies continue to bring new and improved partnership tools to market, strategic partnership options that were once only available to large companies are leaking to small businesses and new startups.
Strategic alliances are an option for companies looking for profitable growth opportunities in a crowded market. Forming a strategic alliance is a process that typically involves some of the important steps mentioned below: For example, Nike has decades of experience in developing products for athletes, but little or no experience in developing hardware and managing all the necessary technical details and supply chains. Meanwhile, Apple is the world`s leading supplier of equipment with no experience in athletics. The two have long been strategic partners, developing products that connect users` physical Nike products to Apple`s digital ecosystem. At first glance, you may not have much in common with a proposed strategic partner – few would have imagined how successful a partnership between a coffee shop and a bookstore could be. But if there`s room for you to give and get something in return, then the relationship might be worth exploring. This path of partnership is the only one that can lead to a marriage for life. They are two strong and complementary partners, and both generally remain strong throughout the duration. These alliances almost always last much longer than 7 years. In fact, the characteristic of such companies is that none of the partners could (or rationally) want to buy and run the business. Dow Corning is over 50, Fuji Xerox is over 30 and Siecor – an alliance between Siemens and Corning – is over 15.
There are several ways to define a strategic alliance. Some definitions emphasize the fact that the partners do not create a new legal entity, that is, a new company. This excludes legal forms such as joint ventures from the field of strategic alliances. Others see joint ventures as possible manifestations of strategic alliances. Some definitions are given here: When it`s time to finish it, the next logical step is to try to sell to a stronger company with the resources to make a turnaround. But many companies that try to sell themselves after forming an alliance realize much less value than if they had made a full sale. Potential buyers are often put off by the difficulty of dissolving an alliance; In addition, competitive advantages – capabilities, customers and products – may have been eroded in the meantime. A better strategy for a weak company is to separate directly or realign the company and then think of an alliance. With strategic partners, companies can tap into an almost unlimited market for ideas, resources, and knowledge that would be impossible to do on their own, while avoiding the pitfalls that lead to failed partnerships and untapped potential. A strategic equity alliance is formed when one company acquires a certain share of the capital of the other company. If Company A acquires 40% of the capital of Company B, a strategic equity alliance would be formed.