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Startegic AllianceThere are three types of strategic alliance; direct cooperation, joint ventures and minority investments. Every joint venture is always a strategic alliance but not all strategic alliances are joint ventures.

What is a strategic alliance?

Strategic alliances are agreements to operate collaboratively between otherwise arm’s length organizations to accomplish a strategic purpose. Alliances can be either equity or non-equity alliances but all are formed to achieve benefits for the organizations that would not be achieved by operating individually.

 

Strategic alliances usually have a unique value proposition that uses the specific competencies of each of the organizations to achieve competitive advantage. By sharing complementary resources and capabilities alliance partners achieve quicker and more efficient growth than they would if they developed the resources or capabilities within their own organization.

Joint ventures

Joint ventures are the most complex of strategic alliances as they involve the creation of a separate legal entity from those of the alliance partners. The alliance partners own and control the new entity together. They can be distinguished from other forms of equity alliance by the fact that they are created to achieve a specific, defined purpose.

As an example, joint venture companies are commonly seen in the manufacturing industry where economies of scale require a single manufacturing plant to be cost effective but the market can sustain a number of distributors of the product.

In such cases competitors may form an alliance to create a separate company jointly owned and controlled to manufacture goods. The goods are supplied to the alliance partners who then compete in the same market to distribute the goods through either wholesale or retail channels.

Direct cooperation

Direct cooperation alliances are usually entered into for the purpose of operational efficiency or geographic expansion. They are non-equity alliances and are managed less formally than joint ventures. Rather than creating a separate entity or alliance partners obtaining a shareholding, direct cooperation usually involves a contractual arrangement.

Although they may appear similar to transactional dealings direct cooperation alliances involve a greater commitment by the strategic partners and performance objectives are defined and measured by the partners in cooperation.

Minority investment

This type of strategic alliance is an equity alliance and is used most frequently by young rapidly growing organizations. The young firm obtains capital from corporate investors by providing the corporate investor with a minority shareholding in their company.

The purpose of minority investment is less specific than in a joint venture and unlike a joint venture one partner retains control through their majority shareholding. Investors usually have a strategic interest in the growth and success of the company that extends beyond a simple return on investment.

Before seeking a strategic alliance organizations need to identify the type of alliance that will fit their needs. Whatever vehicle is used it is essential that the expected outcomes are defined, the elements to be provided by each partner are documented and the whole arrangement is conducted through an appropriate legal agreement.

 

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