April 23rd, 2023
April 23rd, 2023
Rating
5 - 1 vote
Small businesses often have trouble finding traction in the marketplace, especially when they're first getting started, due to limited resources and capacity. However, one major way small businesses can increase their capacity and gain an advantage over their competition is by combining forces with another business. There are many different ways businesses can combine their efforts and work together, each configuration with its own benefits and challenges. One of the most accessible ways businesses can work together is by creating what is known as a strategic alliance. This guide will explore the intricacies of the strategic alliance, outlining their purpose, format, and the major pros and cons to this sort of business partnership. To see a comprehensive guide comparing and contrasting all of the most popular forms of business partnerships, see the guide Working Together: A Comprehensive Guide to Business Collaborations.
The most informal kind of business collaboration is the strategic alliance. A strategic alliance, created using a Strategic Alliance Agreement, is a legal agreement between two companies to share access to their technology, trademarks, or other assets. Unlike a merger or joint venture, this business collaboration does not create a new company. This agreement is less complex and less binding, but also involves less liability, than a joint venture, in which two businesses pool resources to create an entirely new separate business identity.
Companies may enter into a strategic alliance to expand into a new market, improve their product line, or develop an edge over their competitors. This arrangement allows two businesses to work towards a common goal that will benefit both. The relationship may be short- or long-term and the agreement is usually simple and informal. Often, businesses seek out strategic alliances in the areas of design, product development, manufacturing, distribution, or the sale of goods and services, but any business objective can be furthered by entering into a strategic alliance.
Example: The coffee company Starbucks and the book store Barnes & Noble created a strategic alliance without creating a new company in 1993. Having both coffee and books available in the same space lead to an overall improved customer experience and an increase in profits for both businesses. Both companies were able to use their strengths while sharing the costs of renting space to the benefit of both companies, setting them both apart from other book stores and coffee shops.
There are two main types of strategic alliance: the non-equity strategic alliance and the equity strategic alliance. In the more commonly used non-equity strategic alliance, businesses are able to use each other resources and strengths to further their shared goals while remaining totally independent businesses. The two companies may earn profits together which they then share. But more often, the two businesses use each other's infrastructure and resources to increase their own earnings without generating a shared profit. This is the loosest form of strategic alliance.
In the less common equity strategic alliance, formed using a Collaboration Agreement, two companies buy interest, or equity, in each other's business. They essentially are investing in each other's business in this way by purchasing this interest. By doing this, the businesses are able to benefit from each other's success by owning a part of each other rather than just splitting shared profits. This is a more structured form of strategic alliance and often lasts for longer than a non-equity strategic alliance.
One of the most make-or-break details of a strategic alliance is the harmony between the two businesses. It is important to remember that the choice of business partner should be strategic. It is crucial to find someone who works just as hard who would like to achieve common goals. The idea is that both partners will benefit, ideally equally, for the duration of the alliance. This might also be considered a "symbiotic relationship." If the alliance is not working for both partners, then it is not truly strategic and is unlikely to succeed.
There are some main criteria to consider when picking a strategic partner:
Partners in a strategic alliance do not have to be in the exact same industry and, in some instances, may have very little in common at first glance. For example, few people would have guessed that a coffee store and a book store would have something to offer each other before Starbucks and Barnes & Noble entered into their incredibly successful strategic alliance. However, as long as the partners are aligned in their goals and have similar values, they have the potential to create a dynamic and fulfilling strategic alliance for both parties.
Strategic alliances are one of the most flexible forms of business collaboration since the companies do not need to merge capital and can remain independent of each other. Cooperating with a good strategic partner can be a powerful, but accessible, way for small business owners to grow their businesses. Strategic alliances can generate more leads, more customers, and more profits, while also cutting costs. The quality and efficiency of operations can be greatly improved for both businesses by them working together. Further, a well-considered strategic alliance often leads to knowledge sharing that is beneficial for both parties. Entering into a strategic alliance can also change the competitive environment. A good strategic alliance allows two companies to establish economies of scale, reduce prices to customers while pushing out their competitors, and thus gain market share. Through a strategic alliance, the partners are capable of expanding the customer pool while gaining low-cost access to complementary resources, restricted markets, and a sped-up development of new products.
However, no business arrangement is entirely risk-free and even a strategic alliance involves its own risks and challenges to consider. Partners must be able to trust each other, but there is the possibility that a partner could exaggerate or misrepresent the benefits they are bringing to the partnership. Though this might only come out after the work has started, this can be avoided by the partners doing their due diligence and researching each other thoroughly before entering into the business relationship with each other. It's also possible that one partner may commit more than the other, leading to frustration. A strategic alliance that is only beneficial to one of the partners is not actually strategic. While the agreement is usually clear for both companies, there may be differences in the companies' respective cultures or how they conduct business. Differences can lead to misunderstanding and conflict. Further, if the alliance requires the parties to share proprietary information, they must trust each other to use this information ethically and responsibly. Especially with long-term alliances, the parties run the risk of becoming mutually dependent, unable to fully operate without the assistance of the other business. This could have a long-term impact on their autonomy in the future.
Strategic alliances allow businesses to work together to achieve shared goals and further both of their interests. Though getting into business means taking on the competition, businesses are often the most successful when they are able to work together.
About the Author: Malissa Durham is a Legal Templates Programmer and Attorney at Wonder.Legal and is based in the U.S.A.