A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations of each other.
Alliance simply means a corporation or collaboration which aims for a greater give and take scenario where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. These alliance could be via technology transfer, transfer of expertise and knowledge etc.
For example, Company A and Company B may decide to combine their respective resources, and core competencies to generate mutual interests in many online businesses such as ecommerce, digital marketing, development of App, FinTech designing, manufacturing, or distributing goods or services and plenty other ventures.
There exist 3 major types of such alliance which you must know.
- Joint Venture.
- Equity Strategic Alliance
- Non-equity Strategic Alliance.
1 Joint Venture
A joint venture is established when the parent companies establish a new brain child or offshoot. For example, Company A and Company B are both parent companies and the may decide to come together and form a joint venture by creating Company C child company.
2 Equity Strategic Alliance
This happens for example when one company purchases a certain equity percentage of the other company shares and other valuables. If Company A purchases 40% of the equity in Company B, an equity strategic alliance would be formed.
3 Non-equity Strategic Alliance
As the name implies, a non-equity strategic alliance is formed when two or more companies sign a contractual agreement or enters into a mutual relationship to pool their resources and capabilities together to achieve a certain goals and objectives for the benefits of both.
What you should Know.
There are plenty reasons for strategic alliances to fail. Partners may misrepresent what they bring to the table and hence creating an untrusted alliance and engagement.
Partners may fail to commit resources and capabilities to the other partners.
Also in some scenario, one partner may commit heavily to the alliance while the other partner does not and be playing games. In rare situations, some partners may even totally fail to use their complementary resources for the common good of the alliance.
What you must know.
A company can form a strategic partnership to easily enter into a new industry. This is often done to lower cost. In another turn, a new entrant can form a strategic alliance with a company already in the industry and slowly take over that company, allowing the company that is already in the industry to exit easily without incuring much extra cost.
Warning you must observe very carefully.
Partners may misrepresent what they bring to the table such as lying about there competencies that they do not have. Partners may Also fail to commit resources and capabilities to the other partners. In some instances, some companies may be out to cheat the other while pretending to be serious for the alliance.
So as an entrepreneur, you should watchout to avoid being swindled or being scammed by “too good to be true” alliance. So ensure you do your due diligence and get all the paper works well sorted.
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