What is strategic alliance explain the types of strategic alliance firms?

Companies run their businesses in a market comprised of various competitors. The presence of other competitive businesses is good for your business and customers. Because healthy competition keeps you on track and customers would have more choices. Sometimes, businesses and companies join hands and share resources in order to deal with a certain situation.

Table of Contents

• What is Strategic Alliance?
• Reasons behind Forming Strategic Alliance
• Types of strategic Alliances with detailed Examples
  • Horizontal Strategic Alliance
  • Vertical Strategic Alliance
  • Joint Venture
  • Equity Strategic Alliance
  • Non-Equity Strategic Alliance
• How to Make a Successful Strategic Partnership
• Advantages of Strategic Alliance
• Disadvantages of Strategic Alliance

What is Strategic Alliance?

A strategic alliance is an agreement between two or more business entities where they could enjoy the benefits while maintaining their independence. The nature of strategic partnership could be short or long-term depending upon the agreement. However, the agreement of strategic alliance is usually less complicated than a joint venture where businesses create something new.

The strategic alliance could be formal or informal; it clarifies the roles and responsibilities of each partner in order to achieve mutual goals and benefits. The profit would determine the time period of alliance among partners. The alliance could help businesses to be efficient in their processes.

Reasons behind Forming Strategic Alliance

Businesses create a strategic alliance for various reasons, and they’re as follows;

• Achieve a competitive edge against the common competitor
• To collect resources to create a larger fund
• Learning the know-how of the new technology
• Achieving a price competitive edge
• Minimizing the risk factor of research and development
• Achieve economies of scale and cost reduction
• Maintaining the top leading role
• Speed up the process of the product development
• Entering into the new market
• Entering into the restricted market like the Chinese market

Types of strategic Alliances with detailed Examples

Horizontal Strategic Alliance

A horizontal strategic alliance is an agreement and alliance among companies that are operating their business in the same industry. The alliance is among the businesses that used to be the competitors; they join hands and share resources to achieve a competitive edge in the market.

The strategic business partnership alliance between Nissan and Renault is a very good example of a horizontal strategic alliance. This helped both companies to limit the research and development cost, rationalize the logistic cost, and achieve economies of scale through bulk production.

Vertical Strategic Alliance

A vertical strategic alliance is stretching your business upward, downward, or both of the supply chain. For instance, an automobile manufacturing company makes a business partnership with a foreign distribution network while entering into a new market in another country.

An ink manufacturing company makes a strategic alliance with the pigment manufacturer so that the company would have a consistent supply of raw material pigment.

Joint Venture

Two companies share resources and create a new company through an agreement. In other words, the joint venture is a Child Company of two big parent businesses. It could be short-term or long-term, but it has clear goals and objectives, and the partner companies share their profit.

Google and GSK made a strategic alliance in 2016 to fund the research of treating a patient with electrical signals. The joint venture attracted the attention of many other firms and they share their resources in the development of the product.

Equity Strategic Alliance

Equity strategic alliance is when a business shares and equity of the other business. Two businesses purchase shares and equity of each other firm.

The relationship between Panasonic and Tesla is a very good example of an equity alliance. Panasonic invested 30 million dollars in battery technology for electric vehicles. It resulted in the form of establishment of a lithium-ion battery plant in Nevada.

Non-Equity Strategic Alliance

A non-equity strategic alliance is when businesses make an alliance and agreement where they share resources without creating any separate business. It’s usually informal and flexible than a regular form of partnership and equity. A great number of companies usually make a non-equity alliance.

The purpose of such a type of business alliance is to gain an advantage in sales, marketing, production, and research and development.

How many types of strategic alliances are there?

Which of the following are types of strategic alliances?

What is a strategic alliance What are the three major types of strategic alliances that firms form for the purpose of developing a competitive advantage?

What are the types of strategic partnerships?