A strategic alliance is the cooperation between the two firms who have agreed upon some strategic goals or participate in single stege of production process while remaining independent in other functions. From the definition of strategic alliance two main feature can be drawn
- It is cooperative i.e a partnership in which the organizations remain independent
- It is strategic which means it is a response to the strategic challenges and opportunities that the partner would face
There are both external and internal drivers that facilitate strategic alliances between the two firms. The external drivers of strategic alliance are :-
- For getting access to the global market and going international
- Through strategic alliance the firm could enhance its organic growth by generating revenue
- Strategic alliance also greatly help in reducing the speed to innovation in the market and new product development.
There are also internal drivers for strategic alliance which are :-
- When the companies need resources for their business practices and respond to threats and opportunities.
- Sometimes not only to generate resources but to gain knowledge and learning the firm goes for strategic alliances.
- Sometimes in order to save the organization fro the financial risk the firm goes fot strategic alliance.
- Gaining access to market with faster pace rather than doing that alone.
- In order to minimize the cost of business activities.
Types of Strategic Alliances– strategic alliances can be divided into two types partnership with non competing firms and alliance between the competitors.
Partnership between the competing firms can also be divided into different types of strategic alliances which include international expansion alliance, vertical integration alliance and diversification alliance.
Alliance between the competitors can also be divided into different type of strategic alliances which include complementary alliance, quasi concentration alliance and shared supply alliance.
Criteria for selecting a partner in the alliance
- Partner-related criteria: associated with the efficiency and effectiveness of partners’ cooperation, such as partner’s corporate culture, compatibility, motivation, commitment, and reliability.
- Task-related criteria: associated with the operational skills and resources which an alliance requires for its competitive success, such as financial resources, marketing resources, customer service, R&D technical resources, organizational resources, and production resources.
Risks in Strategic Alliance
- When the firms do not gain the satisfactory cooperation from the partners as desired, it is known as relational risk
- Sometimes the partners are fully involved in the alliance but still the partnership fails this type of risk is known as performance risk