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Organizations often join forces to achieve a shared goal, which might be more difficult for them to achieve individually.  A strategic alliance can be defined as an official and legally binding arrangement between two organizations to undertake a project which is mutually beneficial to one another, each of them retains its independence. The nature of the strategic alliance can vary great from one situation to another, as there can be different ways in which companies can form an alliance to achieve their goals. Typically, a strategic alliance is most commonly seen when an international market player wants to enter a new market. Forming a strategic alliance can help them gain access to the new markets, develop new product line, access to advanced technologies, etc. Learning about strategic alliance can help you implement it in your own business plan or any business management college essay that requires you to formulate strategies for superior competitive advantage.

Understanding Strategic Alliances

In a strategic alliance, the responsibilities of each involved parties are well defined, along with their needs and benefits. Typically, the duration of the alliance is fixed and agreed upon at the time of forming the said alliance. The sole purpose of forming a strategic alliance, is to allow each business venture to achieve growth more easily and quickly than if they had operated independently.

Strategic alliances are formal business relationships, which allows firms to achieve much more than what they could be have accomplished alone. The steep competitive environment often makes it quite difficult for companies to foster steady growth. As a result, the market players seek to find out alternative ways to achieve higher competitive advantage in the market. The strategic alliance allows different companies to combine their key strengths to create a strong synergy, allowing them to achieve loftier business goals, which would have been otherwise impossible. While working on your professional essay writing on strategic alliance, you should be aware of different types of strategic alliances and how they differ from each other.

Types of Strategic Alliances

As mentioned earlier, the strategic alliances are business relationships which allows companies to achieve challenging business goals more easily. Depending on the business goals and objectives, companies can adopt different types of agreements, each of which has a different approach to meeting the shared goals. For your assignment help, let us look at each one of them.

Joint Venture

A joint venture refers to the business arrangement in which two organizations bring their resources together for the purpose of achieving a particular goal, which can be a new project or a new business operation. The companies involved in joint venture are responsible for the sharing the profits, losses and cost of operations associated with pursuing the common goal. It should be noted that when two companies form a joint venture, a new business entity is formed, which has its own identity and operates separately from the two business partners. The joint venture takes advantage of the resources, good will, supplier relationship and technological know-how of the partnering firms. For example, Google’s parent company Alphabet formed a joint venture with GlaxoSmithKline (GSK), to create a new venture called Galvani Bioelectronics. The newly formed venture is dedicated to develop advanced medical devices for patients. The medical expertise of GSK and the technological advancement of Alphabet has been combined to create higher competitive advantage, which would have been difficult for each company to create alone. 

Equity Strategic Alliance

The equity strategic alliance is formed when one organization purchases equity in another organization, thus providing partial ownership of the company. In certain situations, companies may purchase each other’s equities in order gain certain degree of control over their business operations. This type of strategic alliance, allows a company offer financial support by purchasing a portion of their equity and in return earning control on a portion of their business operations.
The partnership between Tesla and Panasonic can be a great example of equity alliance. Panasonic invested a substantial amount of capital which is close to USD 30 million on Tesla to boost its battery manufacturing operation. This alliance has helped Panasonic to enter into the lithium ion battery industry for electric cars, which is considered to be the future of automobile sector. At the same time, it has also helped Tesla to enhance its operations with the help of the financial support from Panasonic. Typically, the control and share of profit between organizations are determined by the amount of equity bought by the partner.

Non-equity Strategic Alliance

Finally, the non-equity strategic alliance refers to the partnership where the organizations agree to share their resources and expertise without forming a separate joint venture or purchasing equity. In this case, the formed alliances are more informal, where the partnering firms share the benefits of the alliance between themselves. Typically, companies form a non-equity strategic alliance to strengthen their value proposition or to cater to more potential customers. The most common example of a non-strategic alliance is the partnership between McDonald’s and Coca-Cola. McDonald’s offer Coca-Cola beverages with their meals, which enhances their value proposition, at the same time Coca-Cola is able to cater to more customers in the market.

Non-equity strategic alliance is more commonly found among organizations. In this type of partnership, companies take advantage of each other’s strengths, while benefitting from the collaboration. It should be noted that the degree of financial risks in much lower in this type of strategic alliances, as the degree of investment is much lower. However, it may also offer lesser financial return compared to joint venture and equity strategic alliance.

Summarizing it Up

Before you start writing papers in college, let us recapitulate what we have learnt so far. Strategic alliances are business partnerships which allows different firms to collaborate with each other in order to utilize each other’s core competency. The sole purpose of forming a strategic alliance is to develop stronger competitive advantage and financial benefits for both the companies, which would have been quite difficult to achieve otherwise. Typically, there are three different types of strategic alliances: joint ventures, equity strategic alliance and non-equity strategic alliance. The joint venture allows two firms to collaborate to create a new venture which has access to the resources and expertise of both the firms. The equity strategic alliance allows one company to purchase certain portion of equity of another company, thus granting them control over their certain operational activities. Finally, in case of the non-equity strategic alliance firms form partnership in an informal way without forming any joint venture or buying equity of another company. This informal alliance allows firms to take advantage of each other’s strengths to improve their own value offering and competitive advantage.

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