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MOYCOM.DE
Strategic Alliances
Central, South East & Eastern Europe (CSEEE)

F. Juergen Moy

Corporate Alliances Manager & Communications Consultant

Official Spokesman of Azure Community Deutschland (ACD) - Communications & Alliances

ACD Web: wazcommunity.wordpress.com

Greinwaldstrasse 13

D-82327 Tutzing am Starnberger See / Munich
GERMANY

 

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+49 (162) 701 6087

 

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juergen.moy@moycom.de

 

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Definitions, Terminology & Typology

  

There are several ways of defining a strategic alliance. Some of the definitions emphasize the fact that the partners do not create a new legal entity, i.e. a new company. This excludes legal formations like Joint ventures from the field of Strategic Alliances. Others see Joint Ventures as possible manifestations of Strategic Alliances.

 

Some definitions are given here.

 

 

 

Definition including joint ventures

 

  • A strategic alliance is an agreement between two or more players to share resources or knowledge, to be beneficial to all parties involved. It is a way to supplement internal assets, capabilities and activities, with access to needed resources or processes from outside players such as suppliers, customers, competitors, companies in different industries, brand owners, universities, institutes or divisions of government.
  • A strategic alliance is an organizational and legal construct wherein “partners” are willing-in fact, motivated-to act in concert and share core competencies. To a greater or lesser degree, most alliances result in the virtual integration of the parties through partial equity ownership, through contracts that define rights, roles and responsibilities over a span of time or through the purchase of non-controlling equity interests. Many result eventually in integration through acquisition.

 


Definitions excluding joint ventures

 

  • An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities.
  • Agreement for cooperation among two or more independent firms to work together toward common objectives. Unlike in a joint venture, firms in a strategic alliance do not form a new entity to further their aims but collaborate while remaining apart and distinct.

 

 

 

Terminology

 

Various terms have been used to describe forms of strategic partnering. These include ‘international coalitions’ (Porter and Fuller, 1986), ‘strategic networks’ (Jarillo, 1988) and, most commonly, ‘strategic alliances’. Definitions are equally varied. An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective’.

 

 

 

Typology


Some types of 'Strategic Alliances' include:

  • 'Horizontal Strategic Alliances', which are formed by firms that are active in the same business area. That means that the partners in the alliance used to be competitors and work together In order to improve their position in the market and improve market power compared to other competitors. Research &Development collaborations of enterprises in high-tech markets are typical Horizontal Alliances. Raue & Wieland (2015) describe the example of horizontal alliances between logistics service providers. They argue that such companies can benefit twofold from such an alliance. One the one hand, they can "access tangible resources which are directly exploitable". This includes extending common transportation networks, their warehouse infrastructure and the ability to provide more complex service packages by combining resources. On the other hand, they can "access intangible resources, which are not directly exploitable". This includes know-how and information and, in turn, innovativeness.
  • 'Vertical Strategic Alliances', which describe the collaboration between a company and its upstream and downstream partners in the Supply Chain, that means a partnership between a company it´s suppliers and distributors. Vertical Alliances aim at intensifying and improving these relationships and to enlarge the company´s network to be able to offer lower prices. Especially suppliers get involved in product design and distribution decisions. An example would be the close relation between car manufacturers and their suppliers.
  • 'Intersectional Alliances' are partnerships where the involved firms are neither connected by a vertical chain, nor work in the same business area, which means that they normally would not get in touch with each other and have totally different markets and know-how.
  • 'Joint Ventures', in which two or more companies decide to form a new company. This new company is then a separate legal entity. The forming companies invest equity and resources in general, like know-how. These new firms can be formed for a finite time, like for a certain project or for a lasting long-term business relationship, while control, revenues and risks are shared according to their capital contribution.
  • 'Equity Alliances', which are formed when one company acquires equity stake of another company and vice versa. These shareholdings make the company stakeholders and shareholders of each other. The acquired share of a company is a minor equity share, so that decision power remains at the respective companies. This is also called cross-shareholding and leads to complex network structures, especially when several companies are involved. Companies which are connected this way share profits and common goals, which lead to the fact that the will to competition between these firms is reduced. In addition this makes take-overs by other companies more difficult.
  • 'Non-Equity Alliances', which cover a wide field of possible cooperation between companies. This can range from close relations between customer and supplier, to outsourcing of certain corporate tasks or licensing, to vast networks in R&D. This cooperation can either be an informal alliance which is not contractually designated, which appears mostly among smaller enterprises, or the alliance can be set by a contract.

 

Michael Porter and Mark Fuller, founding members of the Monitor Group, draw a distinction among types of 'Strategic Alliances' according to their Purposes:

  • 'Technology Development Alliances', which are alliances with the purpose of improvement in technology and know-how, for example consolidated 'Research & Development' departments, agreements about simultaneous engineering, technology commercialization agreements as well as licensing or joint development agreements.
  • 'Operations and Logistics Alliances', where partners either share the costs of implementing new manufacturing or production facilities, or utilize already existing infrastructure in foreign countries owned by a local company.
  • 'Marketing, Sales and Service Alliances', in which companies take advantage of the existing marketing and distribution infrastructure of another enterprise in a foreign market to distribute its own products to provide easier access to these markets.
  • 'Multiple Activity Alliances', which connect several of the described types of alliances. Marketing Alliances most often operate as single country alliances, international enterprises use several alliances in each country and Technology and Development Alliances are usually multi-country alliances. These different types and characters can be combined in a Multiple Activity Alliance

 

Further kinds of 'Strategic Alliances' include:

  • 'Cartels': Big companies can cooperate unofficially, to control production and /or prices within a certain market segment or business area and constrain their competition
  • 'Franchising': a franchiser gives the right to use a brand-name and corporate concept to a franchisee who has to pay a fixed amount of money. The franchiser keeps the control over pricing, marketing and corporate decisions in general.
  • 'Licensing': A company pays for the right to use another companies´ technology or production processes.
  • 'Industry Standard Groups': These are groups of normally large enterprises, that try to enforce technical standards according to their own production processes.
  • 'Outsourcing': Production steps that do not belong to the core competencies of a firm are likely to be outsourced, which means that another company is paid to accomplish these tasks.
  • 'Affiliate Marketing': Affiliate marketing is a web-based distribution method where one partner provides the possibility of selling products via its sales channels in exchange of a beforehand defined provision.
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