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Strategic Alliance in Business

Edith Forsyth, Shawn Grimsley
  • Author
    Edith Forsyth

    Edith Forsyth has taught High School Business for over five years. They have a bachelor’s degree in business administration from University of Evansville, Evansville, Indiana.

  • Instructor
    Shawn Grimsley

    Shawn has a masters of public administration, JD, and a BA in political science.

Learn what a strategic alliance is and how it allows businesses to achieve their goals. Identify types of alliances, their advantages, and disadvantages. Updated: 02/04/2022

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What Is a Strategic Alliance?

The importance of strategic alliances in business and politics cannot be underestimated. But what is strategic alliance? When two companies undertake mutually beneficial projects, they are described as strategic alliances. For this strategic alliance definition to apply, the companies must cooperate but maintain their independence.

Strategic alliances are particularly valuable in international business. Before discussing the factors and goals that motivate companies to enter into international strategic alliances, it is important to understand what is strategic alliance in international business. International business entails the exchange of commodities, services, knowledge, capital, and technology across national borders. With this in mind, strategic alliance in international business is defined as cooperation at a global level.


Strategic Alliance in Business

A strategic alliance is a cooperation between multiple parties seeking business objectives


But why would a business enter into a strategic international alliance? One goal that motivates a business to pursue a strategic alliance is leveraging economies of scale. Companies that enter into global partnerships enjoy economies of scale, which provide more access to resources. The arrangement allows partners to complement each other's skills, experience, and resources, thus improving their chances of success on the international stage.

Another motivation for strategic alliances is sharing global business risks. Spreading risks through joint marketing, sharing distribution systems, and collaboration in research and development reduce costs, increase returns and facilitate faster deliveries to consumers. Companies seeking to join foreign markets adopt strategic alliances to take advantage of established distribution and marketing systems. The strategy also provides valuable knowledge concerning opportunities, risks, and challenges within the new market. International markets are very competitive, and as such, strategic alliances strengthen competitive advantages.

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Joint, Equity, and Non-Equity Strategic Alliances

Strategic alliances are of three primary types:

  1. Joint Ventures: Under joint ventures, two companies contractually agree to a partnership and form a distinct business entity. The alliance between the parent companies creates a third legal entity (known as a child company). In a 50-50 Joint Venture, the partners equally own the third entity. Alternatively, if one partner holds a majority stake in the third entity, it becomes a Majority-owned Venture.
  2. Equity Strategic Alliance: Where one business partner holds a given stake in another company, it creates an equity strategic alliance. For example, if ABD Corporation purchases a 40% stock in Company XYZ, the merger becomes an equity strategic alliance. This strategic alliance involves the purchase of equity in one partner. Alternatively, the two partners can purchase each other's equity.
  3. Non-Equity Strategic Alliance: Non-equity strategic alliances do not involve any shared equity or child entities. These informal agreements are motivated by mutual commercial objectives. Partners entering non-equity strategic alliances pool resources and capabilities to pursue common business objectives.


Examples of Joint, Equity, and Non-Equity Strategic Alliances

  • A good example of a joint venture is the strategic alliance between Tata Global Beverages and Starbucks Corporation in 2012. The 50-50 joint venture between the beverage giants resulted in the creation of Tata Starbucks. This partnership allowed the parent companies to leverage their unique brand products and take advantage of new market opportunities.
  • Panasonic's purchase of Tesla's stock for $30 million is an excellent equity strategic alliance example. But, how did this investment benefit both companies? Through the alliance, Tesla gained the right to use Panasonic's cutting-edge battery cell technology on its vehicles. Meanwhile, Panasonic achieved its mission of becoming a leader in the green innovation industry.
  • Distribution partnerships are the most common examples of non-equity strategic alliances. For instance, BigCommerce partnered with FedEx to enhance the efficiency and convenience of e-commerce deliveries. The strategic alliance ensured that BigCommerce customers, mainly business owners, had access to shipping discounts, free shipping services, and other e-commerce solutions provided by FedEx. Equally, FedEx benefits through increased networking and brand presence on BigCommerce stores.

Advantages and Disadvantages of Strategic Alliance in International Business

What are the advantages and disadvantages of strategic alliances in international business? One benefit of strategic alliances is increased access to resources. Companies enjoy more access to supplementary resources such as products, knowledge, and assets without modifying their core functions. Partnerships allow partner organizations to share expertise and resources while maintaining their core competencies. Strategic alliances provide access to new markets. One of the significant motivations for partnerships in international business is access to new market opportunities. Indeed, strategic alliances are especially valuable when launching new products, campaigns, or events.

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Frequently Asked Questions

What are some examples of strategic alliances?

An example of an equity strategic alliance is Panasonic's acquisition of Tesla's equity for $30 million. Another example is the non-equity strategic alliance between BigCommerce and FedEx.

What are strategic alliances and their types?

A strategic alliance is a cooperation between two companies to pursue mutually beneficial projects. The three types of strategic alliances are Joint Ventures, Equity, and Non-Equity Strategic Alliances.

Why are strategic alliances important?

Strategic alliances are important because they offer partners more resources, knowledge, and expertise. The partnerships also facilitate access to new markets and are valuable when launching new products or campaigns.

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