How to decide whether a strategic alliance is right for your organisation
When Jack Welch was CEO of General Electric, he observed that ‘If you think you can go it alone in today’s global economy, you are highly mistaken’. Clearly, Welch supported the practice of pursuing appropriate strategic alliances. But it does not necessarily follow that alliances fit every situation. Like others before you who have considered strategic alliances, you too may need answers to questions that will make your decision easier. Here are answers to some of those frequently asked questions...
1. What is ‘a strategic alliance’?
The term ‘alliance’ generally describes a broad range of relationships that can include business-to-business collaborations or business networks. Alliances usually fall between the extremes of conventional outsourcing/service arrangements and mergers and acquisitions. Strategic alliances are typically alliances of equals, linking the core capabilities of each partner to increase value to the customer. The alliance becomes a partnership between two or more strong companies that have something to exchange. They are often global; involve a broad range of products or services; and allow one or both of the partners to achieve things that they simply couldn’t manage on their own, or that could be done more effectively in partnership than by acting alone. The more familiar alliances are generally characterised by:
- a commitment to at least ten years
- a linkage based on equity or on shared capabilities
- a reciprocal relationship with a shared strategy in common
- an increase in the companies’ value and competitiveness in the marketplace.
2. Are there different forms of alliances?
There is a variety of forms of strategic alliance. Five of these include:
- alliances between non-competing companies in different but related industries
- alliances between companies in the same industry that do not compete in the same markets
- alliances between direct competitors
- alliances between firms from unrelated industries
- alliances between entrepreneurs pursuing common goals.
3. What are the main benefits of alliances?
Effective alliances can provide access to global markets without the capital-intensive risks associated with mergers and acquisitions. Other benefits include:
- developing new products and services to reach new markets
- creating additional values and sharing in the rewards
- producing a consistently high return on investment (about 20 per cent among the top 2,000 companies in the world for nearly 10 years)
- achieving advantages of scale, scope, and speed
- increasing market penetration
- enhancing competitiveness in domestic and international markets
- increasing diversity
- reducing costs
- expanding market development
- creating new businesses.
