What Is A Strategic Alliance? The Strategic Alliance In A Nutshell

Strategic alliances occur when two or more businesses work together to create a win-win situation.  A strategic alliance describes cooperation between two or more organizations to achieve a result a single party could not achieve alone.

Understanding strategic alliance

In understanding strategic alliances, it can be helpful to differentiate them from more conventional alliances.

Strategic alliances are a type of joint venture designed to bolster a core business strategy, create a competitive advantage, or otherwise enable individual companies to achieve more together than they could on their own.

The act of forming a strategic alliance is closely aligned with coopetition, or the act of cooperation between two or more competing companies.

Conventional alliances, on the other hand, describe business relationships.

These alliances encompass personal networks that complement strengths while supplementing weaknesses.

Importantly, each organization in a conventional alliance remains separate and independent as they work toward mutually beneficial goals.

Several more criteria help differentiate a strategic alliance from a conventional alliance. Generally speaking, an arrangement is said to be strategic if:

  • It is critical to the success of a core business goal or objective.
  • It blocks a competitor from entering a market or from gaining a more competitive position.
  • It creates or maintains strategic choices for the organization.
  • It mitigates significant risk, and
  • Is critical to the development of a core competency or indeed any other potential competitive edge.

Strategic alliance types

There are three types of strategic alliance:

Joint venture

Where two parent companies come together to form a child company with shared resources and equity in a binding agreement.

Joint ventures have a clear objective, with profits split equally between each party.

Google announced a joint venture with pharmaceutical company GlaxoSmithKline in 2016 to research the treatment of disease with electrical signals.

The child company, Galvani Bioelectronics, is now itself a large company engaged in various partnerships to further its goals.

Equity strategic alliance

This occurs when one company purchases equity in another (partial acquisition), or when each party purchases equity in the other.

One notable example of an equity strategic alliance can be seen in the relationship between Panasonic and Tesla.

Panasonic invested $30 million in Tesla to accelerate battery technology innovation for electric vehicles, which then progressed to a manufacturing facility in Nevada.

Non-equity strategic alliance

As the name suggests, this alliance is characterized by both parties pooling resources without creating a separate entity or sharing equity.

These alliances tend to be less formal than the other types and comprise the majority of strategic alliances around the world.

In the first example, we hinted at some of the partnerships Galvani Bioelectronics subsequently made after becoming a child company.

These partnerships are non-equity strategic alliances, enabling organizations to share their resources in pursuit of the common goal of creating a comprehensive and precise human health map.

Key takeaways

  • A strategic alliance describes cooperation between two or more organizations to achieve a result a single party could not achieve alone.
  • A strategic alliance is distinct from a conventional alliance, which is characterized by business relationships and personal networks designed to complement strengths and lessen the impact of weaknesses. Furthermore, both organizations in a conventional alliance remain separate and independent entities.
  • The three types of strategic alliances are joint venture, equity, and non-equity. The vast majority of strategic alliances are of the non-equity type, where organizations share resources but do not create a separate entity.

Read Next: Business Model Innovation, Business Models.

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