Long term relationship between the companies designed to achieve an objective faster, more effectively than either of the

firm does so on its own Like a team contributing to Synergy Beyond normal company to company dealings but fall short of merger or full joint venture partnership with formal ties

Eg. Alliances among automobile company : Toyota has long term partnership with many of the supplier of automotive parts and components E.g. Oracle has alliances with IBM, Capegemini, I-flex solution Strategic alliances help companies in globally competitive industries strengthen their competitive position

To bring together the complementary skills To get into critical country markets quickly

To develop new technologies To learn form the alliance partners To create and develop new resources and to create core competencies To reduce the cost of establishment and operations To avoid or minimize risk

E.g. Motorola allied with Toshiba to build microprocessor and to enter in the Japanese market

New market entry

Firms enter with those companies which are already in the market Eg. Motorola and Toshiba

Supply chain integration

Are formed among the companies engaged in the various operations of the supply chain Eg. LIC with various banks

Design and integrated product

Shaping industry evolution

Firms of different industries form alliance to develop integrated product-cum-service Eg. Kingfisher and makemytrip.com Eg. Hospital and Insurance company
Different firms of the same industry align themselves to develop new product Eg. Intel and HP joined to develop 64-bit Itanium microprocessor Eg. Sony teamed up with Samsung to develop the flat screen tv

Mutual learning and Applying technology

Partners of alliances learn technology, methods and systems from each other Eg. A.P.lightings acquired the marketing methods from its partner i.e. Philips.

Licensing
Manufacturers leases the right to use intellectual property i.e. technology, patent, copyright etc to another partner of the alliance. Eg. Android

Franchising
A partner of the alliance operates the business under the name of another company, Franchisor. Franchisee pays fess and receives various facilities like trademarks, product reputation, employee training, advertising support etc.

Co-marketing
Partners of the strategic alliance market the product jointly Eg. Food and cold drink

Cross-Marketing
Each partner helps another partner in marketing its product Eg. McDonalds and Walt Disneys toys, Gillette razor and cream

Co-production
Partners of the alliance produce jointly by using the manufacturing facilities of either of them (in case of underutilization of one partner and differing demand between the two) Eg. IBM used to get its production from Motorola and Toshiba

Outsourcing
Long term contracting of non-core business processes to help achieve increased share holder value To enable the resources to focus on core business process to improve efficiency Eg. Bata, Insurance companies

Knowledge sharing
To create new knowledge and hence create more value Eg Nokia, Motorola, Vodafone, Deutsche telecom, Microsoft formed alliance to develop next generation wireless telephone and data communication system

Win-win approach Market leadership Acquiring competencies Knowledge about unfamiliar markets Developing new technology

Increase in incompatibility of Partners

When the partners fail to honour commitments Also when the goal is accomplished Once the strengths are acquired Eg. HP and Dell formed an alliance to sell HP branded printers but Dell started producing and selling under its own brand in 2002.

Risk of knowledge drain

Firms acquire knowledge and use for the development of their own business Eg. Sony acquired the knowledge and skills of distinctive consumer electronics and skills from Apple while building the laptops for apple

Risk of dependence
Can often become dependent excessively on the partners In turn can result in loss of skills Eg. US automobile industry was excessively dependent on Japanese industry for the production of small cars. Eg. Outsourcing by majority of US companies

Cost of coordination
Different cultures of the partners complicates the process of coordination Management style, method, approaches and practices vary from one partner from another partner

Cost of learning
Experienced managers may feel that they know the subject and fail to learn and implement

Cost of inflexibility
The partners are required to be flexible and adaptable to the environmental shifts Failing to which may result in the failure of the alliance

Cooperation and Coordination

Firms may start with cooperation but once the competences of the other partner are acquired may result in lack of it

Shifting loyalties of staff

The executives of the companies may shift their loyalty from the parent company to the alliance firm as they work closely with them

About two third run into serious managerial and financial trouble within short time of operations and one third ultimately rates as failures by the parties involved (*Strategic management by
Pradeep Sinha)

The success of an alliance seems to be a function 3 main factors: Partner selection, Alliance structure, and the Management

Partner Selection
The key to make an alliance effective is to select the right partner A good partner helps the firm to achieve its strategic goals Must have the capabilities that the firm lacks and it values A good partner must share the firms vision And is unlikely to try to opportunistically exploit the alliance for own ends

Alliance Structure
The alliance should be structured so that the firms risk of giving too much away is reduced Contractual safeguards can be written into an agreement Corss-licensing agreements can be made to swap skills

Managing the alliance

Sensitivity to cultural differences is an important factor Alliance should involve trust building activities between the partners Trying to build interpersonal relationships between the managers (Also referred as Relational Capital) The learning process should happen between the partners and should balance each others strengths and weaknesses