DEFINITIONS

1. Strategic Alliance is a mutually beneficial long-term formal relationship formed between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. It is a synergistic arrangement whereby two or more organizations agree to cooperate in the carrying out of a business activity where each brings different strengths and capabilities to the arrangement. The term strategic alliance can in fact mean many different things, but the commonly used meaning entails a joint cooperative effort by two or more companies working towards agreed upon goals. The parties are typically in the same or related industries and are looking for strategic synergies in allying with a party in one or more of the following areas: Joint product development Joint research Distribution arrangement Co-marketing arrangement Investment by one company in the stock of another company, typically for a minority position Licensing of patent or other intellectual property The alliance can be structured as a separate entity joint venture, with both parties making the agreed upon contributions (whether capital, technology, or services). More often, however, an alliance is promulgated as a contractual arrangement or a series of interdependent agreements. 2. Strategic alliance is a specific form of collaboration between two or more companies. Strategic alliances with stronger overseas partners can provide a means of overcoming the problems of small size and lack of resources faced by some US companies. The term "strategic alliance" can mean many things. In its broadest sense, it can apply to virtually any form of collaboration between two or more firms, including one or more of the following activities:

Design contracts Technology transfer agreements Joint product development Purchasing agreements

Distribution agreements Marketing and promotional collaboration Intellectual advice

For our purposes, the term strategic alliance encompasses a more specific type of company relationship than the joint venture or a typical exporterdistributor or licensing arrangement. A strategic alliance might be entered into for a one-off activity, or it might focus on just one part of a business, or its objective might be new products jointly developed for a particular market. Generally, each company involved in the strategic alliance will benefit by working together. The arrangement they enter into may not be as formal as a joint venture agreement. Alliances are usually consummated with a written contract, often with agreed termination points, and do not result in the creation of an independent business organization. The objective of a strategic alliance is to gain a competitive advantage to a companys strategic position. When you are a small company, a strategic alliance can allow you to graft your whole business onto the superior manufacturing, marketing and distribution structures of an established international company.

Characteristics of a Strategic Alliance

Compared to other types of company-to-company relationship, strategic alliances often have the following characteristics:

Usually a non-equity, loosely structured relationship Each partner retains its business independence One Company will take a lead role in any contract or marketing and the others will be "partners" in the work. They could work as sub contractors or suppliers to the main company The alliance can be struck between companies which would normally be considered competitors The relative size of the partners is not a significant factor Each partner must contribute distinctive "core strengths" eg technology, manufacturing capacity, access to distribution

Strategic alliances can be combined with other agreements, such as licensing of technology

Strategic alliances come in all shapes and sizes, and include a wide range of cooperation, from contractual to equity forms. Various terms have been used to describe forms of strategic partnering. These include international coalitions (Porter and Fuller, 1986), strategic networks (Jarillo , 1988) and, most commonly, strategic alliances. Definitions are equally varied. An alliance may be seen as the joining of forces and resources, for a specified or indefinite period, to achieve a common objective.

Types of strategic alliances

Contractual:

Licensing o Cross-licensing Franchising Joint R&D Management Contract Turnkey project

Equity:

New entity o Independent Joint venture o Dependent Joint Venture of Multinational Corporation Existing entity o Purchase of equity share o Equity swap

Stages of Alliance Formation

A typical strategic alliance formation process involves four steps:

Strategy Development: Strategy development involves studying the alliances feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for

production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy. Partner Assessment: Partner assessment involves analyzing a potential partners strengths and weaknesses, creating strategies for accommodating all partners management styles, preparing appropriate partner selection criteria, understanding a partners motives for joining the alliance and addressing resource capability gaps that may exist for a partner. Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high caliber negotiating teams, defining each partners contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood. Alliance Operation: Alliance operations involves addressing senior managements commitment, finding the caliber of resources devoted to the alliance, linking of budgets and resources with strategic priorities, and measuring and rewarding alliance performance

Benefits of Strategic Alliances

Strategic alliances can be valuable and beneficial tools to implement corporate goals. While no single alliance may provide solutions for meeting all corporate goals, alliances, when properly structured, can provide the following benefits: Access to New Distribution Channels An alliance can be structured to grant a company access to new distribution channels that may otherwise be difficult or costly to penetrate on its own. Access to New Technology Many alliances are formed to enable one company to obtain access or rights to new technology through license or other contractual arrangements allowing Increase in capital for research and product development and yet lower risk (Innovation) Access to Capital A prime motivation for smaller emerging companies is the ability to access new capital for growth, for development of new products or services, or for entry into new lines of business. This is typically structured as license

payments or investment in the stock of the emerging company. Valuations of the company in such corporate partnering arrangements may be higher than available in venture capital financings. Access to International Markets. In an increasingly global economy, multinational alliances that grant access to international markets can be a significant benefit. Allying with a company that is already doing business or stationed in a foreign country, that understands the market and the culture, and that has existing business operations in the foreign country, can often be much more efficient and successful than attempting to enter those markets on the companys sole initiative. Reduction of Cost and Uncertainty Allying with a partner may reduce the significant cost and uncertainty of pursuing a new market, product, or service. Often, the company may be unable to expand on new initiatives without the backing and assistance of a strategic ally, Allowing Decrease in product lead times and life cycles (time pressures) Access to Manufacturing . An alliance can provide a company access to manufacturing capabilities, expertise, or capacity. Enhancing the Ability to Compete An alliance can provide a company enhanced ability to compete in its existing markets and in new markets. Enhanced Credibility Under an appropriate alliance, a start-up or emerging company may enhance its credibility (e.g., to the markets or to the potential investors). Access to New or Existing Products An alliance can provide a company with access to new or existing products. Pharmaceutical companies in particular enter into strategic alliances with biotechnology companies to place them in a preferred position for access to new products. Rapidly achieve scale, critical mass and momentum (Economies of Scale - bigger is better) Ability to bring together complementary skills and assets that neither company could easily develop on its own Providing added value to customers

Disadvantages of Strategic Alliances

There are a number of potential disadvantages to strategic alliances: Lack of Total Control By nature, most strategic alliances require a measure of shared control over goals and method of implementation of the alliance. The lack of total control of the direction of the business venture can cause significant problems if there is a disagreement with the partner on fundamental decisions that arise during the course of the venture. High Rate of Failure Notwithstanding good intentions by both sides in the start of an alliance, there is a high rate of failure in such transactions. The failures often come as a result of corporate cultural differences, unrealistic expectations, inability to agree on direction or on major decisions, or the inability of one party to bring to the alliance the anticipated benefits (e.g., technology, marketing, distribution) in the manner contemplated by the other party. Adverse Impact on the Flexibility of the Participants Alliances can limit the flexibility of the participants to engage in other alliances, acquisitions, or other transactions. The drafting of the alliance agreements is absolutely key in this area. The alliance agreements may also prevent the parties from competing with the alliance or the other partner to the alliance. Overdependence on the Partner Alliances can sometimes make one partner particularly dependent on another partner. This can be damaging in the event the other partners performance on behalf of the alliance deteriorates or in the event the other partners business suffers adverse developments. Commitment of Time and Resources Successful alliances require a great deal of commitment by personnel and management and potentially significant amounts of capital and other resources. Such resources may be difficult to continually contribute and may adversely divert managements attention from their primary responsibilities.

EXAMPLES IN AIRLINES INDUSTRY

Star Alliance

Star Alliance
Official Launch Date Full Members Non-Voting Pending Airports Destinations Served Countries Annual Passengers (M) Fleet Size Management Website May 14, 1997 18 3 2 842 152 425 2800 Jaan Albrecht (CEO) staralliance.com

The Star Alliance, launched on May 14, 1997, is the largest and most awarded airline alliance in the world, with the following points of cooperation among its partner airlines:

Frequent flyer program integration allows airline miles to be earned and redeemed on all members of the Alliance at the same level Premium customers of the alliance have access to all members' airport lounges. Flight schedules are coordinated to permit almost seamless travel which may include several different carriers within the alliance, on a single ticket Special fares for round-the-world and similar travel on alliance members offer discounts over booking individual itineraries Customer service processes are harmonized in an effort to promote a consistent experience

Cooperation in development of a common information technology platform

This tight cooperation led to suspicions of anti-competitive behavior, and the alliance was investigated by the European Union as a virtual merger of its members. Indeed, some speculated that if government regulations were relaxed, the members would merge into a single corporation, although no evidence has yet materialized. Previous to Star Alliance, Northwest Airlines and KLM were operating together as the forerunners of the modern airline alliance system since 1993 - although there had been even earlier pairings and groupings of airlines for decades on a less formal level. The creation of the Star Alliance was a milestone in airline history due to its size and sparked the formation of rivals, notably SkyTeam and Oneworld.

Star Alliance livery seen in 2006 Star Alliance now runs 16930 daily flights to 842 airports in 152 countries with South African Airways and Swiss International Air Lines having joined at the beginning of April 2006. The figure also includes the new US Airways, which reached a merger deal with America West in May 2005. Its market share is 28%, including US Airways-America West Airlines, based on the RPK (revenue passenger kilometers). The alliance developed the "regional" concept in 2004, which helps the alliance to penetrate individual markets through regional carriers, which requires sponsorship from existing members. Star Alliance was voted best airline alliance in the 2005 World Airline Awards for the second time in three years Full members

Air Canada+ Air New Zealand All Nippon Airways (ANA)

Asiana Airlines Austrian Airlines bmi LOT Polish Airlines Lufthansa+ Scandinavian Airlines System (SAS) + Singapore Airlines South African Airways Spanair Swiss International Air Lines TAP Portugal Thai Airways International+ United Airlines+ US Airways Varig

Note+: Indicates founding members of the Star Alliance. Regional members

Adria Airways (sponsored by Lufthansa) Blue1 (sponsored by SAS) Croatia Airlines (sponsored by Lufthansa)

Former members

Ansett Australia collapsed in 2001 Mexicana left alliance in 2004 after deciding not to renew a codeshare alliance with United Airlines and opted to codeshare with Oneworld's American Airlines.

Future members

Air China, currently partnered with ANA, Asiana Airlines, Austrian Airlines, Lufthansa, SAS, United Airlines, and Varig. Despite Oneworld's Cathay Pacific being its shareholder, the airline was officially invited to join the alliance on May 22, 2006, after an agreement with Lufthansa [22]. Shanghai Airlines was invited to join Star Alliance on May 10th, 2006 [23].

Potential members

Turkish Airlines has chosen to apply for membership to the alliance. However, there is no official announcement from neither the airline nor the alliance.

Egypt Air - according to the homepage of the Arab Air Carriers Organization AACO the airline is in early talks with Lufthansa in order to promote their application. Egypt Air aims to become a member within the next 24 months. Air India is set to join the Star Alliance as well. A former announcement on joining the Star Alliance is to be
made in December 2006.

Star Alliance livery seen in 2003. Star Alliance has two premium levels, Silver and Gold, based on a customer's tier status in a member carrier's frequent flyer program. Each of the member and regional airlines recognizes Star Silver/Gold status, with a few exceptions (mainly pertaining to airport lounge access). The statuses have no specific requirements of their own; membership is based solely on the frequent flyer programs of individual member airlines.
Star Alliance Silver Star Alliance Silver status is awarded to customers who have reached the premium level of a member carrier's frequent flyer program.

Benefits of Star Alliance Silver membership:

Priority Reservations Waitlisting Priority Airport Standby

Some carriers also offer the following to Silver members:

Priority Boarding Priority Airport Check In Priority Baggage Handling Preferred Seating Additional Checked Luggage Allowance Airport Lounge Access

Star Alliance Gold

Star Alliance Gold status is awarded to customers who have reached a high level of a member airline's frequent flyer program.

Benefits of Star Alliance Gold membership:

Priority Reservations Waitlisting Priority Airport Standby Priority Boarding Priority Airport Check In Priority Baggage Handling Additional Checked Luggage Allowance Airport Lounge Access (Gold members of United States airlines only receive lounge access when traveling internationally)

Some airlines also offer the following to Gold members:

Preferred Seating (Exit seat or even on a special section on the plane on some carriers which provide more leg room) Guaranteed Seating on Fully Booked Flight (Subject to the Booking Class Code and notice period) Complimentary Upgrade (In the form of voucher/certificate or automatic upgrade upon check in)

Currently the lowest qualification criteria for a Star Alliance Gold status is 35,000 status miles earned during calendar year with Air Canada's Aeroplan program awarding a status valid for one year from March of the next year. Alternatively 50,000 qualification miles during a calendar year in Thai Airways Royal Orchid Plus program awards a status with two years of validity.

SKYTEAM ALLIANCE

SkyTeam
Official Launch Date Full Members Non-Voting Pending Airports Destinations Served Countries Annual Passengers (M) Fleet Size Website June 22, 2000 10 0 7 728 149 373 2151 skyteam.com

SkyTeam Alliance is the second largest airline alliance in the world

behind Star Alliance partnering ten carriers from three continents.

The stated benefits and goals of the alliance are:

Easy frequent flyer mile collection and redemption across carriers Reciprocal airport lounge access between carriers Guaranteed reservations for Elite Plus customers More available flights and easier connections between carriers More fare options Unified check-in for all carriers Consistent quality standards across carriers One reservation network for all members

Sky Team calls itself the "first alliance built around customer needs". In 2005 SkyTeam was the world's best airline alliance, according to the readers of Global Traveler Magazine 1. Nonetheless, Skyteam service to Australia and New Zealand is quite limited, making it the only worldwide airline alliance that does not provide a practical Round-The-World itinerary in the Southern Hemisphere. Also, it's the only alliance with no member airlines providing a one-plane Kangaroo route service

WOW Alliance
Successfully established in airfreight market within three years of its founding, the WOW cargo alliance grouped around Japan Airlines Cargo, Lufthansa Cargo, SAS Cargo and Singapore Airlines Cargo is successfully entrenched in the market. Meantime, with a market share of about 20 per cent, it is the world's biggest air cargo alliance. The partners in the grouping have reached a major milestone and pressed further ahead with their integration. the alliance was founded by Lufthansa Cargo, SAS Cargo und Singapore Airlines Cargo in April 2000. JAL Cargo joined WOW in July 2002. The air cargo alliance commands a combined fleet of 43 freighters and the belly hold capacity of more than 760 passenger aircraft, many of them wide body jets. Between them, JAL Cargo, Lufthansa Cargo, SAS Cargo and Singapore Airlines Cargo offer an unparalleled route network of destinations, linking the world's major trading centres. Among the IATA airlines, Lufthansa Cargo is the biggest carrier in the international airfreight business, Singapore Airlines Cargo is the second biggest and Japan Airlines Cargo the sixth biggest. SAS Cargo operates a dense network, notably in northern Europe. WOW is not an abbreviation; it stands for the alliance's values: "Dynamism", "Innovation" and "Vitality". An enthusiastic "WOW" is the customer response that the alliance aims to elicit with its services and quality.

REMARKS
Strategic alliances represent an important form of cooperation between two or more business Entities. A strategic alliance might be viewed as a lesser form of a merger. It is not a merger per se, since alliance partners remain separate business entities and retain their decision-making autonomy. While merger activities have slowed down significantly since 2000, strategic alliances are increasingly, and widely, used by firms. They are particularly prevalent in network-oriented industries such as airline, shipping, telecommunications, multimodal transportation and logistics industries. Consider the airline industry. The four largest global alliances namely,

Star Alliance, OneWorld, Wings, and SkyTeam accounted for 57% of the worlds revenue passenger kilometers in 2002 (Airline Business, November 2003). Like alliances in logistics and other transportation industries, an airline alliance is a multi-product network, with each of its products corresponding to travel (either by people or by cargo) in a particular city-pair market. The extent of alliance will affect not only the partners but also the nature of interaction between competing alliances in various markets. The strategic alliance between, for instance, United and Lufthansa the two major partners of Star Alliance will thus have a major impact on the alliance decision by American and British Airways in OneWorld, which is competing with Star Alliance in the U.S., European and North Atlantic markets.

Examples: The merger of Air France and KLM was recently approved by
EU regulators. As a consequence, KLM is expected to leave Wings and join SkyTeam, whose major partners are Air France and Delta. KLMs current alliance partner , Northwest, is also expected to join SkyTeam, with Continental (Northwests long-time domestic alliance partner) joining as well (Brueckner and Pels, 2005). If the Wings and SkyTeam alliances are consolidated into a single mega-alliance, the three largest global alliances would each have about 20% of the worlds passenger kilometers airline alliances enable partners to better coordinate their flight schedules to minimize travelers wait time between connecting flights. The partners also benefit from sharing information, research and experiences indifferent market segments and from linking their existing networks; thereby, reducing the need for developing new

Hubs: a major cost of entry and particularly so for international aviation due to bilateral treaties and foreign ownership restrictions (Baker and Pratt, 1989; Pitelis and Schnell, 2002)

The three largest strategic alliances in the air cargo sector, namely, New Global Cargo, SkyTeam Cargo, and OneWorld, accounted for 49% of international freight tonne kilometers in 2002.

In water transportation, the five Shipping alliances namely, Maersk/Sea-Land, Grand Alliance, New World Alliance, The KLine/COSCO Group, and United Alliance accounted for 61% of international freight tonne kilometers in 2000. The same trend has recently appeared in the U.S. domestic airline industry. Over the past few years, virtually all of the U.S. hub-spoke carriers have entered into broad code sharing partnerships, including the United/US Airways alliance that began in January 2003, and the three-way alliance between Northwest, Continental and Delta initiated in June 2003

IN ELECTRONICS
HP and Apple Partner to Deliver Digital Music Player and iTunes to HP Customers

LAS VEGAS, Consumer Electronics Show, January 8, 2004Working to provide consumers with the most compelling digital content whenever and wherever they desire, HP and Apple today announced a strategic alliance to deliver an HP-branded digital music player based on Apples iPod, the number one digital music player in the world, and Apples award-winning iTunes digital music jukebox and pioneering online music store to HP's customers. As part of the alliance, HP consumer PCs and notebooks will come preinstalled with Apples iTunes jukebox software and an easy-reference desktop icon to point consumers directly to the iTunes Music Store, ensuring a simple, seamless music experience. This offering is yet another way that HP is helping consumers enjoy more from their personal digital entertainment content. HPs goal is to bring the most compelling entertainment content and experiences to our customers, said Carly Fiorina, chairman and chief executive officer at HP. We explored a range of alternatives to deliver a great digital music experience and concluded Apples iPod music player and iTunes music service were the best by far. By partnering with Apple, we have the opportunity to add value by integrating the worlds best digital music offering into HPs larger digital entertainment system strategy. Apple's goal is to get iPods and iTunes into the hands of every music lover around the world, and partnering with HP, an innovative consumer company, is going to help us do just that, said Steve Jobs, Apples CEO. As the industry balkanizes by offering digital music wrapped in a multitude of incompatible proprietary technologies, consumers will be reassured in getting the same unparalleled digital music solutions from both HP and Apple, two leaders in the digital music era. According to internal HP research, more than 54 percent of current HP consumers download music to their PCs. Over two million iPods have been sold since its introduction, solidifying its position as the number one digital music player in the world. All iPods work seamlessly with the award-winning iTunes digital music jukebox software and the iTunes Music Store, which has sold more than 30 million songs, providing music fans with the best digital music experience on either a Mac or Windows PC.

The iTunes Music Store offers Windows and Mac users a music catalog of more than 500,000 songs, the same gold standard personal use rights and the same 99 cents-per-song pricing. The iTunes Music Store features online gift certificates for family and friends; Apples innovative and patentpending online Allowance feature, which allows parents to automatically deposit funds into their kids iTunes Music Store account every month; more than 5,000 audio books, which can be purchased with one click and listened to on a Mac or Windows computer as well as on iPods; Celebrity Playlists; and new exclusive tracks from more than 60 artists. The iTunes Music Store offers music from all five major music companies and over 200 independent music labels.

IN NETWORKS
Dell chose Enterasys to be one of their Preferred Partners in Q1 of 2002 to provide comprehensive networking solutions at a
price/performance value unmatched by any other networking vendors. Leveraging Enterasys technology and thought leadership as well as the strengths of the Dell strategic partnership, Enterasys and Dell strive to develop flexible, scalable, intelligent solutions that are easy to purchase and easy to own. Enterasys and Dell provide powerful, standards-based Secure Networks customized for the unique needs of your organization and enable you to easily build complete IT solutions, manage IT procurement and resolve challenges

Mission
Enable customer success by driving business and technology change through strategic alliances with industry leaders.

Cisco Collaborates with IBM to Deliver New Fibre Channel Embedded Switches for IBM BladeCenter

Cisco Alone Offers Full Range Of Protocols for Embedded Switches: Ethernet, Infiniband, and Fibre Channel
LONDON, England (Gartner Data Center Summit), November 20, 2006 Cisco today announced that it is expanding its portfolio of award-winning storage networking switches and directors by developing a new embedded Fibre Channel fabric switch for IBM blade server chassis. The new Cisco embedded switch will allow customers to deploy end-to-end Cisco intelligent SAN services, such as VSANs, advanced security, and high availability. With this addition to its switch portfolio, Cisco is the only company to offer a full range of connectivity protocols for data center blade servers, uniquely providing customers with the choice of Ethernet, InfiniBand, and Fibre Channel to match their business and IT requirements. Customers benefit through common provisioning and management tools, simplified operations, and reduced operational costs. "Today's data center managers need access to a variety of protocols in order to match the specific requirements of their environment with the protocol that best supports those needs," said Bob Pass more, research vice president at Gartner. "Blade servers that can offer multiple protocols and common management tools provide the flexibility and agility that the enterprise demands." Many organizations are deploying bladed server architectures to simplify management and operations through standardization on a single platform for operation consistency, reduction in cabling and rack space, and integrated management. Blade server solutions help customers save in power, cooling, floor space, time, money, and resources. By offering a full range of protocols for embedded switches, Cisco helps enable seamless integration with the broader data center infrastructure and extends the benefits of multiprotocol intelligent network architectures to blade servers. Powered by the Cisco SAN OS operating system, the new Cisco embedded Fibre Channel fabric switch is fully compatible with the Cisco MDS 9000 family of Multilayer directors and fabric switches for transparent, end-to-end service delivery in large enterprise environments, while enabling customers to take advantage of an end-to-end Cisco management framework to simplify data center operations.

"IBM has been leading the blade server industry with its innovative approach to systems design and a rich ecosystem of partners, unparalleled in the blade server market," said Doug Balog, Vice President for IBM Blade Center. "We are pleased to be working with Cisco to continue to expand that ecosystem and look forward to offering our customers the new Cisco embedded Fiber Channel switch across the entire family of Blade Center chassis."

At Cisco, strategic alliances engage in impact partnering that is differentiated by 8 unique but integrated characteristics