Strategic Alliance:

A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon

goals or to meet a critical business need while remaining independent organizations.

Strategic alliances involve exchange, sharing, or co development of products, services,

procedures, and processes. 

CHARACTERISTICS:

1. Two or more firms that unite to pursue a set of agreed upon goals, remain independent

subsequent to the formation of an alliance.

2. The partner firms share that benefits of the alliance and control over the performance of

assigned tasks.

3. The partner firms contribute on a continuing basis in one or more key strategic areas, sector

products, etc.

NEED:

1. Satisfy customer demands.

2. Share R&D costs.

3. Fill knowledge gaps.

4. Make scale economies.

5. Make scope economies: Alliances can enlarge dramatically the scope of a company

operations. Alliances focusing on scope help counter the ever- shorter product cycle of modern

technology.

6. Jump market barriers.

7. Speed in product introduction.

8. Pre-empt competitive threats

9. Use excess capacity.

10. Reduction in costs.

Stages of Alliance Formation:

Strategy Development: involves studying the alliance’s feasibility, objectives and rationale,

focusing on the major issues and challenges and development of resource strategies.

Partner Assessment:

Involves analyzing a potential partner’s strengths and weaknesses, creating strategies for

accommodating all partners’ management styles.

Contract Negotiation:

Involves determining whether all parties have realistic objectives, defining each partner’s

contributions and rewards.

Alliance Operation:

Involves addressing senior management’s commitment, finding the caliber of resources devoted

to the alliance, linking of budgets and resources with strategic priorities.

Alliance Termination:

Involves winding down the alliance, for instance when its objectives have been met or cannot be

met.

Types of strategic alliances:

1. Joint Venture Strategic Alliances

Joint ventures are distinguished from Equity Strategic Alliances in that the participating

companies usually form a new and separate legal entity in which they contribute equity and other

resources such as brands, technology or intellectual property. The parties agree to share

revenues, expenses and control of the created company for one specific project only or a

continuing business relationship.

2. Equity strategic alliance:

Equity strategic alliance is an alliance in which two or more firms own different percentages of

the company they have formed by combining some of their resources and capabilities.

3. Non-equity strategic alliance:

Non-equity strategic alliance is an alliance in which two or more firms develop a contractual-

relationship to share some of their unique resources and capabilities.

4. Global Strategic Alliances:

Global Strategic alliance working partnerships between companies across national boundaries

and sometimes formed between company and a foreign government, or among companies and

governments.

Advantages:

1. Allowing each partner to concentrate on activities that best match their capabilities.

2. Learning from partners & developing competences that may be more widely exploited

elsewhere.

3. Adequate suitability of the resources & competencies of an organization for it to survive.

4. Share risk between the companies.

5. Respond more quickly to change.

6. Increase a company market share.

7. Adapt with greater flexibility.

Disadvantages:

1. Technology – Low Cost Manufacturing.

_US & Japanese Companies

2. Organization Culture.

3. Competition – How to compete in future.

4. Significant differences between the objectives.

5. Loss of control over such important issues as product quality, operating costs, employees,

etc.

KEY FACTORS OF STRATEGIC ALLIANCE:

Select the proper partners for the intended goals

Share the right information

Negotiate a deal that includes risk and benefit analysis (not necessarily equal) for all

sides.

Come to a realistic agreement on the time to market and corporate expectations

Mutual, flexible commitment on what's appropriate to change, measure and share

within each partner's culture

IMPLEMENTING AND MANAGING THE ALLIANCE:

The success or failure of an alliance is dependent on how the venture is structured, the kind of

managers placed in charge and how the responsibilities and strategic missions are divided among

the partners. The alliance implementation or management plan must thus be formalized jointly

with the partner. The plan is generally a written document, which should inter alia, answer the

following questions. Who will do what?

How will contributions be made?

What communications mechanism will be in place for approvals?

How will the information flow?

Who will be the liaison from each company?

How will be partnership fit in with the existing relationship of both companies?

EXAMPLES OF ALLIANCES:

Toshiba

Toshiba has a long-term strategy bused on the three G’s – growth, group management and

globalization. Globalization is achieved by forming new joint ventures, research agreements and

cooperative relationships in new business areas. In 1996, Toshiba Corp. started its new US $1

billion chip-making facility at Nagoya, Japan. This was based on strategic alliances with the

companies IBM and Siemens of Germany. Some of the other alliances which Toshiba entered

into include:

An agreement with Apple Computers for new technology creation for multimedia

A technology-sharing agreement with IBM to develop new data storage devices using

‘NAND-flash’ memory chips

An alliance with IBM and Siemens to develop advanced semiconductor devices; it has

developed the world’s smallest 256-Mb D-Ram.

Through and alliance with IBM, Japan, it opened a second large-size then- film-transistor

(TFT) LCD plant.

Alliance with National Semiconductor and Samsung Electronics of Korea to jointly

develop and market flash memory chips.

An alliance with Sun Microsystems Inc. of the US in the areas of rightsizing. Internet and

interactive technology to share product development, marketing and distribution in these

fast-growth areas.

Alliance with MCA and time Warner in the US, Thomson Multimedia in France, and

Hitachi, Matsushita and Pioneer in Japan to develop digital video discs (DVD). These

were attempts to establish an industry-wide unified format.

An alliance with Time Warner, its partner in TITUS communications, which aimed to

work with cable TV operators throughout Japan to form a nationwide multiple system

operator network.

IBM-Apple

In July 1991 IBM and Apple agreed to wide-ranging co-operation to develop new generations of

computer technology. According to a financial Times article of October 3, 1991, this partnership

includes a series of specific agreements:

1) Joint development of software to facilitate links between Apple’s Macintosh personal

computers and IBM’s personal-computer networks.

2) Development of new System 7 Macintosh software that can run on an IBM- designed reduced

instruction set computing (RISC) microprocessor.

3) Joint development, in conjunction with Motorola, of a new set of microprocessors based on

IBM’s RISC design.

4) A collaborative project to combine both partners’ versions of AT&T’s UNIX system. The

companies plan to create a new UNIX version that both IBM and Apple can use with their

incompatible machines and networks.

5) Creation of a joint venture to develop a radically new approach to software design that will

create software for Apple, IBM and other computers.

6) Establishing a joint venture to formulate industry standards for “multi- media”, the

simultaneous processing of video, graphics, voice and text.

Hitachi

Hitachi formed many strategic business relationships in the areas of computers, electronics and

technology, which include:

An R & D agreement with Texas Instruments to develop a next-generation computer

memory chip.

Providing chip manufacturing technology to Goldstar electron of Korea

Supplying mainframe computers to Germany’s Comparex and Italy’s Olivetti

A joint venture with GE to sell lighting products in Japan

Joint development of a new gas turbine with GE.

Joint development of new RISC computer chip with Hewlett Packard.

Joint development of medical equipment with Bushranger-Mannheim of Germany.

Research cooperation between Hitachi Cambridge Laboratory and Cambridge University

of developing a single-electron memory device.

Starbucks:

Starbucks partnered with Barnes and Nobles bookstores in 1993 to provide in-house coffee

shops, benefiting both retailers.

In 1996, Starbucks partnered with PepsiCo to bottle, distribute and sell the popular coffee-based

drink, Frappuccino.

A Starbucks-United Airlines alliance has resulted in their coffee being offered on flights with the

Starbucks logo on the cups.

Apple:

Apple partnered recently with Clear well in order to jointly develop Clear well’s E-Discovery

platform for the Apple iPad. E-Discovery is used by enterprises and legal entities to obtain

documents and information in a "legally defensible".