Strategic Alliance: What it is, Types, How to Plan and be Successful

A strategic alliance is partnering with a vendor to ultimately partner up with your customers’ needs. Read this blog to know in detail about the importance of strategic alliances.

An enterprise or an organization might be working individually to reach out its goals and defined objectives. But what if an organization cannot accomplish its goals, such as establishing the brand value or gaining a market share or the required resources. Being a marketer, you must have gone through the regular ups and downs; you might feel frustrated and agitated when results do not turn out the way you want. 

In such a scenario, you can create alliances with the other brand to learn from them and share the costs & benefits. The concept of strategic alliance is less complicated than a joint venture and has its benefits to survive for a longer term in the market field.

Read further to know more about the strategic alliance, its various types & benefits, and much more.

WHAT IS A STRATEGIC ALLIANCE

A Strategic Alliance is a collaboration between two companies for a project which is beneficial for both, yet each company retains its independence. The concept of a strategic alliance differs from a joint venture. In a joint venture, the two businesses come up together to create a separate entity.

Strategic alliances enable a company to accomplish the goals that they could not do alone, such as expanding the market or improvising the products and services to get ahead of the competitor. The two companies combined can work together to reach a goal that provides good returns.

Note: The strategic alliance could be short-term and long-term, depending upon the set goals. Also, it could be both formal as well as informal.

Read the below example for better understanding :

Suppose a company X and company Y pool up their capabilities, resources, and core competencies to accomplish an objective such as manufacturing and distributing goods & services.

WHAT ARE THE TYPES OF STRATEGIC ALLIANCES :

Strategic alliances are of three types formed based on different functionalities and objectives. Below are the three types of strategic alliances :

1. JOINT VENTURE

A Joint venture is created out of the two parent companies ( X and Y) to create a separate entity. Each company has its share value in the joint venture. In other words, company X and company Y(parent company) each own 50 percent of the entity created( child company). If the share value is equal between both, it would be called a joint venture. But if one of the partners owns more than the other, it would be classified as a majority-owned venture.

2. Equity strategic alliance

When one company (say company X) owns a specific percentage of equity of the other company (say company Y), it is said to be the Equity strategic alliance. For example – If a company X buys 60 % of the equity in company Y, it would signify a strategic alliance formation.

3. Non-equity strategic alliance

Contradictory in purpose from the other two, when two or more companies decide to sign a mutual contract for a specific purpose, such as pooling the resources and their core competencies, a non-equity strategic alliance is formed.

WHAT ARE THE REASONS BEHIND STRATEGIC ALLIANCES

The reasons behind the formation of strategic alliances could be different for different companies. It depends on the specific product life cycles with which each company affiliates. 

Product life cycle refers to creating new products in a specific industry with a streak of innovation. You can take the example of two different industries, one dealing with cosmetics and the other is a software industry. The product life cycles for both industries would be different. The product life cycle for the software industry would be faster in comparison with the other one.

Therefore, different industries would be falling into different categories based on their product life cycle. Also, that means the reasons behind the strategic alliances would be different.

• Slow cycle: While talking about the slow life cycle, specific industries work on slower product life cycles, such as the pharmaceutical industry. Here the patents last a long time, and also it takes a long time to develop products. Therefore, the reasons to form strategic alliances in this industry could be to set the product’s standards, establish the franchise in a specific market, and so on.

• Standard cycle: Usually, a company that follows a standard life cycle launches a new product after every one or two years. The reason behind the strategic alliance could be that it might not maintain its position in the industry. Therefore, you could form an alliance to get in more resources for larger capital projects or access the market share.

• Fast cycle: The companies that follow a faster life cycle for their products have to develop products and services continuously. Therefore, such companies form alliances to speed up the development of new products and services. They can share the costs and expenses with the alliance partners over streamlining the work processes.

HOW TO PLAN FOR A STRATEGIC ALLIANCE

A strategic business alliance is formed based on mutual interests and benefits. It is a long-term relationship between two parties receiving the benefits to create value in the market.

Here are some steps to plan for successful strategic alliances to get maximum benefits and uplift your sales :

a) Evaluate and execute :

Before you plan for a strategic alliance, evaluate the benefits it will provide you and your prospective partner. Also, your customer base matters equally. Identify your influencers as well. Once you evaluate all the benefits and plans, make sure your execution is also on the same page as your plans for having access over the market, your sales target, and revenue goals. 

Note : A successful strategic alliance helps you create your name in the market and strengthen your influence in the key industries.

Once you evaluate your crucial strategy, hire the employees you feel are right to manage the alliances. For example- hire more managers who have excellent interpersonal skills and can deal with others.

b) Reach out and begin :

The second step of developing strategic alliances is to reach out to the industries you evaluated in phase first as your prospective partners. Start talking to them, strategize the processes, and collect the tools and resources you need to build an alliance with this prospective organization.

c) Decide the parameters of success :

Now it’s time to set the goals and determine the parameters of success for both the organizations individually and jointly. Assign the roles and responsibilities in this alliance. Determine the elements for your mutual success and how you can have a function as a team that aligns with your marketing plan. Begin working on the marketing campaigns and their content. This step is a prolonged process. Therefore, it requires a lot of coordination.

d) Put forward your plan in the market :

It’s time to step out in the market once you and your alliance design a marketing strategy for the same. In this step, you can make a few deals, close them, and have few effective sales. Prepare your internal team for the same so that you can pick up your growth and better conversion rates.

e) Continue the process and expand :

As you are getting effective sales with the result of great marketing strategies, It’s time to strengthen the collaboration by satisfying customers’ needs, being aware of the sub-groups in the target market and their demands. It is how you can expand further.

HOW TO ENSURE A SUCCESSFUL STRATEGIC ALLIANCE :

In the above section, we discussed how to plan for a strategic alliance, but amidst all the processes, there are certain conflicts and frictions which each of the parties can face. 

Below are certain ways one must keep in mind to ensure a successful alliance :

1. A good communication process

Open communication is the foundation for creating a successful alliance. There could be misunderstandings and conflicts which you surely can avoid with the partner by being honest. Also, arrive at the common grounds while recommending anything for improvement. One shall practice it regularly.

2. Build a trustful relationship

Similar to open communication, trust and commitment to achieve mutual interests are also important. Maintaining a good rapport is essential, and working continuously towards it shall be the ultimate goal. Mutual benefits mean both parties are attaining the alliance’s benefits; if somewhere you feel the imbalances, work towards it. Being patient is the key.

3. Formalize the alliance

Formalize your alliance with a written agreement through which you can agree to specific terms and conditions. In case you have any mutual discord, you both can refer to this document and arrive at beneficiary conclusions.

CONCLUSION

A strategic alliance is the need of the hour as every industry is coming to a disruption. One must start looking for the right alliance to enter the new market and work towards launching new products and offers. Customer satisfaction and growth are the two vital goals one must strive towards