BUSPOL (Alliances)

1. What is Strategic Alliances?

A strategic alliance is an agreement between two or more parties to pursue a set

of agreed upon objectives needed while remaining independent organizations. It is
agreements for cooperation or collaboration between businesses, with the ultimate
result being a synergy where each party will benefit more from the alliance than from
individual efforts alone. Strategic alliances involve the sharing of knowledge and
expertise between partners as well as the reduction of risk and costs in areas such as
relationships with suppliers and the development of new products and technologies.

2. Why do companies opt to have a strategic alliance?

Cooperating with a good strategy partner can be a powerful way for small
business owners to grow their businesses. Strategic alliances can get you more leads,
more customers and more profits; they can also help you to cut costs.

One of the main benefits of strategic alliance is that it allows you to penetrate a
new market by using the resources and market expertise of a company that’s already
captured that market. This can be especially advantageous if your alliance is with a
company that’s overseas because that company understands that market and has
developed strategies and distribution channels that you can also use.

Other reasons why companies opt to strategic alliance are the following:
 Allows You to Share Knowledge and Resources
 Helps Create Economies of Scale
 Strengthens Your Strategic Objectives
 Shares the Risk

3. What are the types of strategic alliances? Explain each.

 Joint venture is a business arrangement, wherein two or more independent firms come
together to form a legally independent undertaking, for a stipulated period, to fulfill a
specific purpose such as accomplishing a task, activity or project. In other words, it is
a temporary partnership, established for a definite purpose, which may or may not use
a specific firm name.

 Global strategic alliance is usually established when a company wishes to edge into
a related business or new geographic market, particularly one where the
government prohibits imports in order to protect domestic industry. Alliances are
typically formed between two or more corporations, each based in their home
country, for a specified period of time. Their purpose is to share in the ownership of
a newly formed venture and maximize competitive advantages in their combined
territories.
 Non-Equity Strategic Alliances can range from close working relations with
suppliers, outsourcing of activities or licensing of technology and IPRs, to large R&D
consortia, industry clusters and innovation networks. Informal alliances without
any agreements, or based on "Gentlemen’s agreement", are common among smaller
companies and within university research groups. Another form of informal non-
equity alliances are geographic clusters where concentrations of interconnected
players, industries, universities and government agencies co-exists, increasing local
competition and productivity.

 Equity Strategic Alliances agreements are supplemented by equity investments,

making the parties shareholders as well as stakeholders in each other. The
investments are passive so each firm retains fully its decision power. The cross-
shareholding of companies may result in a complex network where company A
owns equity in company B that owns equity in C, creating direct and indirect
ownership. Intuitively, when firms share profits the incentives for competing are
reduced and are often done to enhance control and make takeovers more difficult.

4. What is joint venture?

Joint ventures, in very simple words, are business ventures that two or more

people or entities undertake for a certain period of time. They are created keeping specific
and pre-determined purposes in mind. The venture generally comes to an end once those
purposes are met unless the parties decide to continue working together.
These parties to a joint venture are governed by a contractual agreement they enter into.
The agreement specifies things like their obligations, the rate at which they will
share profits or losses, their rights and liabilities towards each other, etc.

Parties that create such joint ventures are called joint venturers or co-venturers.
These parties can be either natural persons (humans) or even artificial legal persons
(companies). Transactions of such joint ventures are peculiar. This is because these entities
are neither singular in nature, and nor are they treated as completely separate entities as
such. They are even different from typical partnership forms of business.

5. What are the types of joint ventures?

 Basic Joint Ventures – Joint ventures can be a valuable tool for business owners in
any industry. Creating a win-win situation with another company can help increase
your longevity and raise your bottom line. Starting a joint venture is a worthwhile
endeavor for new business owners looking to get started and existing business
owners looking to take their company to the next level.

 Affiliate partnerships – Joint venture agreement with a low barrier of entry.

Creating affiliate relationships is a good idea for product owners who lack an
audience. A huge part of the internet marketing industry based on long lasting
 affiliate relationships. You can think of affiliates as basically commission only
salespeople for your company. Affiliates have the marketing and promotion skills to
expose your product to an audience that’s ready to buy.

 Financing agreement – is a type of joint venture agreement that involves taking on

a bit more risk. Getting funding from a private party or business center will allow
you to execute the business plan that you may have lacked the resources for at first.
For these types of joint venture, it’s best to hire a business lawyer to ensure your legal
rights are properly protected. With a financing agreement, both parties share the
risk. Joint venture financing gives the business owner more flexibility to execute
new ideas and implement new strategies.

 Vertical joint ventures – are incredibly useful tools when you’re dealing with
importing products. This type of joint venture allows businesses to enter new
markets while sharing risk and building economies of scale. By sharing distribution
channels, industry knowledge, and funding, both companies can work towards
finding more effective ways to reach their goals.

 Project Based Joint Venture – usually have a singular focus and goal. It’s common
for businesses in emerging fields to collaborate with each other in order to further
their research. If one company wants to expand into another industry, they can
collaborate with an existing company in that industry to get the valuable data they
need to build a successful business. Both companies can use the research and data
to advance their existing operations. Project-based joint venture efforts usually
don’t go past the agreed upon task. But the results are valuable enough for both
companies to benefit.

 APIs – One of the most futuristic types of joint venture you can enter into has to be
collaborating through application programming interfaces. With publicly available
application programming interfaces (APIs), companies can collaborate by
combining software unique to each business. API collaborations in the business
world are usually used to enhance an existing product or service through new
technology or unique data.

 Republishing & Retargeting – are powerful joint venture techniques for

companies that rely on technology. With republishing, you can use existing content
to tap into a new audience. The content owners benefit from brand exposure and
traffic, while the publishers benefit from having new content to keep their audience
consistently engaged. Retargeting sharing is a powerful technique for businesses in
similar or related industries. If you and another business have some overlap in your
audience, you can benefit from advertising another business on your retargeting list
if they do the same for you. 

 Functional Based Joint Venture - two companies come together to combine their
expertise. The goal of this type of joint venture is to enable both companies to
perform their vital functions more efficiently. Functional based joint ventures occur
 all the time in the food and health industry. One company may have the resources to
manufacture a supplement or type of food but lack the resources to effectively
promote and sell the product. Two companies can come together to and mutually
benefit each other by filling gaps the companies previously had when working on
their own.

6. Give examples of companies that are involved in any strategic

alliances / joint ventures.

 Barnes & Noble and Starbucks

 Hewlett-Packard and Disney
 Apple Pay and MasterCard
 Cipla and Biocon
 Axon Limited and Trump Industries
 Lincoln Corp Prawn International