A strategic alliance is a partnership created to achieve specific objectives. This type of alliance is usually formed between two or more organizations with complementary capabilities. Are you still wondering? Let’s dig in further.
Some organizations form strategic alliances with other companies to access their resources, skills, and technologies. Other organizations form strategic alliances with other companies to lower their risks and share the burden of research and development. And some organizations form strategic alliances with other companies to increase their competitiveness in the marketplace. Therefore, understanding a strategic alliance and its importance can help you in your career or business ventures.
Three Main Types of Strategic Alliances
If we look closely into the types of strategic alliances, we will find three different types of these partnerships. All three have properties and functions, but you need to know about them. These three include:
- Joint Ventures
- Equity
- Non-equity
Joint Ventures
Joint ventures are when two companies combine and share resources to create a new product or service. This is the most common type of strategic alliance as it is easy to set up and can benefit both parties. This strategy is used by companies that want to work together but don’t have the resources or expertise to do it alone. Joint ventures can also be used as a marketing strategy, where one company will promote the other’s product in exchange for using their product in their marketing.
If we look more into it, there are two types of joint ventures: horizontal and vertical. Horizontal joint ventures are when two or more companies in the same industry come together to work on a project, while vertical joint ventures involve businesses from different industries coming together to work on a project.
Equity Alliance
Equity alliances are when one company invests in another company in return for company shares. These alliances are often long-term and require a lot of capital investment upfront, but they can lead to huge returns if successful. The benefits of this type of alliance are that it can provide access to new markets and technologies and help to innovate faster. However, it can be difficult to maintain an equity alliance because the two companies compete for business.
Non-Equity Alliance
Non-equity alliances are when two companies agree to work together on a project without one investing in the other. These alliances often involve sharing knowledge, expertise, or resources but not equity, so they usually have a short-term time frame and lower risk profile than equity alliances. There are two types of non-equity alliances:
- A strategic alliance is an agreement between two or more businesses to cooperate on specific projects or goals.
- A marketing alliance is an agreement to exchange products, services, and information for the mutual benefit of both partners.
Conclusion
Knowing different strategic alliances can help you make informed decisions about your business. Getting into business with someone with ample information about the kind of alliance you will be forming is better. This will save you from future partnership mishaps and other disasters.