A Business Encyclopedia

Strategic Alliance

Definition: The Strategic Alliance refers to the agreement between two or more firms that unite to pursue the common set of goals but remain independent after the formation of the alliance. In other words, when two companies come together to achieve the common objective by sharing the particular strengths (resources) with each other is called as a strategic alliance.

The partner firms in the strategic alliance share the benefits and control over the performance of the assigned task but are less involved and less permanent than the joint venture. Unlike joint venture where the partner firms pool their resources to form a separate business entity, in a strategic alliance, the firms to the agreement remain independent and come together just to capitalize on the strengths of each other.

There are four types of strategic alliances. These are:

  1. Procompetitive Alliances
  2. Noncompetitive Alliances
  3. Competitive Alliances
  4. Precompetitive Alliance

Disadvantages of Strategic Alliances

Though, the strategic alliance brings lots of advantages for the partnered firms it has certain loopholes.

  • Since each firm maintains its autonomy and has a different way to perform the business operations, there could be a difficulty in coping with each other’s style of performing the business operations.
  • There could be a mistrust among the parties when some competitive or proprietary information is required to be shared.
  • Often, the firms become so much dependent on each other that they find difficult to operate distinctively and individually at times when they are required to perform as a separate entity.

Often, the companies enter into the strategic alliance agreement to develop a more effective process, enhance the production capacity, develop an effective distribution channel, expand into new market segments, etc. There are several real-time examples of strategic alliances, such as Apple has partnered with Sony, Motorola, Philips and AT&T., Disney and Hewlett-Packard, Starbucks and Barnes and Nobles Bookstore, etc.

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