Carefully weigh risks, benefits of strategic

alliance.
When planned and executed correctly, strategic partnerships can be invaluable. They are
increasingly used to propel businesses to new horizons of profit-making and expansion.
But they can also be fraught with danger.
Before you enter into a strategic alliance, its crucial to understand the risks, benefits and
legal ramifications.
! strategic alliance is a relationship among two or more parties, which they see as vital to
their business goals and is governed by non-standard documentation because of the
complexity or novelty of the relationship.
What most alliances have in common is the ability to allow businesses to create synergies
and move "uickly through an effective blending of skills, financing, technology, infrastructure,
product lines, market penetration or other assets.
!s the daily developments in e-commerce demonstrate, flexibility and the power to move at
internet speed are more important than ever.
#n one basic form of alliance, two manufacturers may have complementary products. But if
one has a larger distribution capacity, they may $oin forces in a manufacturing and
distribution venture.
%r a software company with innovative business software may enlist the funding or
infrastructure resources of a large potential user in return for an initial exclusive license or a
royalty on the licensing of prototypes.
#ndeed, the possibilities of strategic alliances are limited only by market forces and the
creativity of the people who conceive them. But its important to remember that a strategic
alliance is not an off-the-shelf product. #t takes creativity, planning and analysis to shape and
negotiate the relationship.
#ts important to fully examine any such deals before moving ahead. When considering a
strategic alliance, ask yourself these "uestions& What is your strategic goal in forming the
venture' (oes it fit with your business plan' )ost importantly, is your potential partner right
for you'
(o not forget that the alliance can also fail because your company is not right for the
alliance. ! strategic checklist of goals, risks and other fundamental issues is a valuable tool
throughout the planning, negotiating and operating phases.
When considering a strategic alliance, you should first develop and prioritize your list of
partner candidates. *tudy their track records and foreseeable business needs. +valuate how
the size and strength of your partner, relative to your business, might impact the relationship.
,onsider the stage of development of the partner and whether it may become a target for an
ac"uisition or seek a merger in the near future.
#ts also a good idea to consider the members of your new potential partnership. -or
example, are senior people behind the alliance' .o beyond their track record. !sk others in
their field what its like doing business with them.
%nce youve settled on a partner, its time to negotiate the alliance. This is an important stage
of the process. /ere, for example, you may establish the chains of authority and determine
which issues are confidential.
!im for a collaborative atmosphere, building a consensus as you discuss and assess ways
to achieve each others goals. 0ou dont want to be so aggressive that you win the
negotiations but lose the alliance.
1egotiating a strategic alliance generally should be less like a game of high-stakes poker
and more a collaborative relationship. #f both sides dont win, its a good bet that theyll both
lose, particularly the weaker party.
#f your potential partners are playing their cards very close to the vest, this alliance may not
be the way to go. #f appropriate, test the relationship with a thai period alliance or by
implementing the partnership in stages.
%nce you are ready to document the alliance, lawyers with broad business experience and
creative negotiating skills can be valuable assets on the strategic alliance team.
! letter of intent is generally a useful tool for determining if the parties can agree on the main
elements of the deal without the cost and time commitment of preparing definitive
documents.
*uch a letter allows the parties to test their compatibility during the negotiation process while
identifying issues and determining if there is a meeting of the minds.
-or a good match, it can bring the deal into clearer focus. -or a bad match, it may provide a
chance to "uit before youre too far behind.
The structure of the alliance is essential in realizing the goals of both parties. #t should
encourage performance and discourage non-performance.
,areful attention to the particulars of the alliance will yield real benefits in crafting a sound
structure. %f course, its best to be prepared before problems arise.
Be sure to incorporate structured meetings into the documentation along with the flexibility to
deal constructively with unexpected problems that will inevitably arise.
+ach party needs its own structures to manage the relationship internally and externally. The
strategic checklist can help in evaluating the alliance and keeping it on the right track.