STRATEGIC ALLIANCE IN E COMMERCE

STRATEGIC ALLIANCE IN E-COMMERCE

Strategic Alliance: An agreement between two or more individuals or entities stating that the involved parties will act in a certain way in order to achieve a common goal. Strategic alliances usually make sense when the parties involved have complementary strengths. Or Strategic alliances are voluntary arrangements between firms involving exchange, sharing, or co development of products, technologies, or services. Based on incentive system among the partners, non-market pricing mechanisms and co-ordination between the partners, alliances can be classified into three categories namely: joint venture, minority alliances, and contractual alliances (Investor words) Strategic alliance in E-commerce: Strategic alliance agreements in e-commerce are very different from other more traditional alliance agreements. Sometimes they contain an equity component, from a full-blown joint venture to a conditional right to purchase shares in the future. Often though, they do not contain equity components, and can therefore be less formal than an equity joint venture. E-commerce strategic alliance agreements frequently require substantial drafting as the lawyers attempt to define new business terms and models for which forms often do not exist. E-commerce strategic alliance agreements are also different from others in the importance of intellectual property and technology in the alliance relationship. Frequently, the most important assets of the alliance or the participating businesses are technologies, copyrighted content, trademarks, domain names, patents, business models, databases, customer lists, and human resources. The drafting of ecommerce alliances requires a firm understanding of the legal rights and principles underlying these technology and intellectual property assets. (EISNER, 2002) The e-commerce environment was perceived as highly uncertain, stemming from increased information visibility and dynamic market structures. A stronger emphasis on relationship management as part of business strategy enables managers to manage uncertainty better. Interestingly, increased information does not decrease the perception of uncertainty, but creates more uncertainty. As logistics is the function often involved with both information and relationship management within the supply chain, it may prove to be invaluable in helping firms succeed in this dynamic environment (Emerald ) Scope Electronic commerce offers a chance at greater experimentation with alliances, in terms of strategy, tactics or execution. Companies now regularly test different marketing partners and formulas, sticking with those that work and quickly abandoning those that do not. The entire climate is more contingent and opportunistic. With the greater freedom to exit unsuccessful

STRATEGIC ALLIANCE IN E COMMERCE

alliances, the Internet shortens the average lifespan of marketing alliances. Some last only a few weeks. Others undergo dramatic restructuring and redeployments on an ongoing basis It is helpful and desirable for the parties to a strategic alliance to define the scope and purpose of the alliance. What is the intended market of the alliance? What are the geographic targets and/or limitations of the alliance? What products and services do the parties intend to create and provide through the alliance? Some of this information, which usually can be taken from the business case documentation provided by the business sponsors, should be worked into the alliance agreement. A well-defined scope should not restrict the flexibility. A strategic alliance agreement should allow for the relationship to evolve and expand by mutual agreement of the parties. Whenever possible, a strategic alliance agreement should set out the objectives of the parties, and what the alliance is supposed to accomplish. This not only helps in giving meaning to the legal terms and conditions, but it requires the strategic partners to focus their initial efforts in creating mutually acceptable goals. Obligations required to meet the stated objectives should be clear and definable, wherever possible. (EISNER, 2002) Electronic commerce has major repercussions for existing alliances. It can also improve the machinery of alliance communications and tracking. It is driving the creation of new alliances with different characteristics than traditional brick and-mortar kind. Clearly alliance know-how is a key factor Types of Alliance in ecommerce Marketing alliance The Internet recasts the risk-reward equation of most marketing alliances because it allows companies to capture the advantages of higher-level marketing alliances without incurring some of the costs of the pre-Internet era. For example, on the Internet, a company like Gateway or Hewlett-Packard can place an alliance partner's logo on its Web site and create electronic links that allow interested customers to click directly to their strategic partners Costumer alliance Electronic commerce has several effects, good and bad, on existing traditional customer alliances. On the positive side, the technology allows the corporate center to create more consistent, rich, and relevant communications across its customer alliances. Research alliance The Internet makes it possible for research alliances to collaborate at lower cost, with more parties and over greater distances. The Internet's ability to bring faster prototyping and more experimentation to the research alliance holds much promise. Outsourcing alliance Outsourcing is an even more compelling proposition in eCommerce than in the brick-and-mortar world. The reason: many elements of eCommerce require specialized skills, such as data security, interpretation and mining, which are not worth developing internally. This fact alone has spawned many thousands of new alliances.
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Supplier alliance In supplier alliances, ecommerce can generate improvements in design costs and speed of innovation dramatically so when complex inputs are involved. Standard alliance Standard alliance reduced costs but also the chance to embed their technologies, products, or processes in the standard. (accenture) There are certain factors that a party has to consider while making alliance with another party in e-business Clear objectives Whenever possible, a strategic alliance agreement should set out the objectives of the parties, and what the alliance is supposed to accomplish. This not only helps in giving meaning to the legal terms and conditions, but it requires the strategic partners to focus their initial efforts in creating mutually acceptable goals. Obligations required to meet the stated objectives should be clear and definable, wherever possible (EISNER, 2002) Alliance Governance Issues The manner in which a strategic alliance will be governed is often a topic of great negotiation in the formation of an alliance. If the alliance is an equity joint venture many aspects of the operation of the alliance will require board approval, equity holder approval, or sometimes both. These topics requiring approval usually include things like the purchase or sale of assets of the alliance, licensing of material property, entry into certain material agreements, admission of new parties into the alliance or sale of additional alliance interests, appointment or removal of key managers and officers, compensation of the officers and managers, borrowing, lending, material changes in business plans or directions, and many other significant topics. Even in a non-equity strategic alliance, strategic partners will frequently want some control or input into some of those same major events, or alternatively, some means of restructuring or exiting the alliance upon the occurrence of one or more of those events. It is important to coordinate the dispute resolution procedures, and exit and unwinding procedures, with all of the major governance items in the event the parties cannot resolve their differences. (EISNER, 2002) Though there is considerable research on the strategic alliances among traditional firms, it is not clear if this knowledge could be extended to the domain of e-commerce. E-commerce markets are defined as the all-in-one markets, the markets that offer, side-by-side, alternative ways for buyers and sellers to transact business

Length and Term of Alliance

The terms of strategic alliance agreements vary depending upon the alliance, any initial costs or funding outlay, and the obligations. In e-commerce alliances, alliances that require little start-up funding or effort typically have fairly short terms, usually about a year. Other more complex alliances have terms that vary anywhere between three and five years (EISNER, 2002)
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Data privacy and protection Data privacy and protection issues have become an important part of e-commerce alliance agreements. The gathering, analyzing and use of data is one of the key components that separates e-commerce businesses from other businesses. When forming an e-commerce alliance, parties must determine whether and to what extent data privacy laws and regulations apply to the business of the alliance (EISNER, 2002) Dispute resolution Many strategic alliance agreements provide for some executive dispute escalation and resolution procedures. These provisions typically provide for time periods for discussing an issue and attempting to resolve it, and increasingly higher levels of executive escalation if the issue cannot be resolved at the lower levels. Operational Requirement Alliance parties must consider all the operational requirements staff needed system needed and other changes needed for operations. Technology costs Alliance parties have to consider the cost that has to be occurred for improving or implementing the technological changes, for buying a new equipment or upgrading the system Performance incentives
Strategic partners should consider the appropriate financial penalties and bonuses to create incentive for the desired behavior of the each strategic partner

Board positions and advisory committees Some times alliances in ecommerce involves equity and shares, in case of that sort of alliance strategic partner can have a seat in board meetings or in advisory committees, in such case alliance partner must decide the limitations of the partner in board meetings. Equity, revenue share and royalties
Some alliance relationships involve the contribution of cash or assets for stock or an equity position in the alliance. Other strategic agreements are simply statements of intent to promote and attempt to sell the products and services of the other party, without any tangible compensation.

Exit rights and unwinding Provision Parties should decide at the time of making alliance the pattern of separating themselves from that alliance condition and terms has to be apply while separating them from alliance. Advantages of alliance in E commerce Faster buying/selling procedure, as well as easy to find products. Buying/selling 24/7. More reach to customers, there is no theoretical geographic limitations. Low operational costs and better quality of services.
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STRATEGIC ALLIANCE IN E COMMERCE

No need of physical company set-ups. Easy to start and manage a business. Customers can easily select products from different providers without moving around physically Alliance makes promotion of new brands easier. Alliance increase the number of costumer because of links posted at different places It improve the machinery of alliance communications and tracking

Disadvantages of Alliance in E commerce

Any one, good or bad, can easily start a business. And there are many bad sites which eat up customers money. There is no guarantee of product quality. Mechanical failures can cause unpredictable effects on the total processes. As there is minimum chance of direct customer to company interactions, customer loyalty is always on a check. There are many hackers who look for opportunities, and thus an ecommerce site, service, payment gateways, all are always prone to attack. Brand name of alliance partner can be at risk if any of partner faces any crises Can some times increase the cost in a case if any partner needed major change in technology to make alliance.

Examples of Strategic alliance in E commerce Adaptec, the global computer hardware and data storage manufacturer, used the Internet to reduce the time for one supplier to design and manufacture a semiconductor from 105 to 55 days. By connecting itself to the supplier via a Web-based procurement program, Adaptec engineers were better able to share information with the supplier, reduce delays between decisions and make design adjustments later in the production cycle. The speed gains alone have saved the company U.S. $2 million per year

Internet retailing giant Amazon.com also relied heavily on partnerships and alliances to reach a dominant position in the world of e-commerce. Hoping to fuel growth, one of the firm's first moves was the creation of its "associates" program in July of 1996. This program allowed individual Web site owners and operators to partner with Amazon by including links to Amazon on their site. Associates received a commission each time a Web surfer who clicked on the Amazon link actually purchased a book. In 1997, Amazon created alliances with AOL and
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Yahoo Inc., both of which resulted in Amazon's promotion on these high-traffic sites. By the following year, the associates program had reached 30,000 members, and it continued to grow rapidly throughout the remainder of the decade. According to Fortune columnist Eric Nee, Amazon "helped gain dominance and bolster its brand name by signing up 200,000 'associate' Web sites that refer customers to Amazon in return for a share of the revenues."(Par) Yahoo! is the world's busiest Internet portal, with more than 100 million visitors every month. The reason for the site's intense level of traffic, according to Advertising Age, is co-founder Jerry Yang's efforts to create a "destination where Web surfers could get whatever they wanted from the site's personalized content, e-commerce offerings, special promotions, and other interactive data." Yang did this by continually forging alliances with companies as a means of offering new products and technology to users. For example, Yahoo! diversified into Internet access services a few years after its inception by teaming up with AT&T Corp. to offer Internet access through AT&T's WorldNet Service. A 1999 alliance with Motorola Inc. allowed Yahoo! to expand into wireless Internet service. Another deal with TIBCO Software Inc. allowed the firm to launch Corporate My Yahoo! in its first attempt to target corporate clients. In November of that year, North point Communications and Yahoo! began jointly promoting broadband services such as digital subscriber line (DSL) to residential and business Internet users. Kmart Corp., SOFTBANK Venture Capital, and Yahoo! worked together to launch BlueLight.com, a free Internet access service, in December. The following year, Yahoo! partnered with growing online search engine operator Google Inc., agreeing to make Google.com its default search results provider. (Par)

Discount travel site Priceline.com is an example of an e-commerce venture that simply would be unable to function without alliances and partnerships. To begin operating its name-your-price site, the dotcom had to convince major airlines to agree to sell their extra tickets on Priceline.com. Although the site offered airlines a way to fill some of the 500,000 seats left empty each day, at first many airlines proved reluctant to partner with an Internet upstart. Initially, only TWA and America West signed deals with Priceline. It wasn't until the firm recruited an experienced management team that Delta Airlines signed on. Eventually, Northwest and Continental followed suit. Additional alliances with United Airlines, American Airlines, and US Airways allowed Priceline to increase its offerings in November of 1999. Deals with A&P, ShopRite, Stop Shop, D'Agostino's, Key-Food, and other grocery stores formed the basis for a name-your-price online grocery service called Priceline Web House Club, established in 2000. Diversification into new product areas is dependent upon alliances with businesses willing to participate in an online name-your-price venture (a-xis.biz)

STRATEGIC ALLIANCE IN E COMMERCE

Bibliography
(n.d.). Retrieved from Partnerships and Alliances - Internet, Earthlink, Access, Yahoo, Inc, and Amazon http://ecommerce.hostip.info/pages/830/Partnerships-Alliances.html#ixzz1OZloVuiC (n.d.). Retrieved from a-xis.biz: www.a-xis.biz/index.php/ru/jcomments/67-partners-in-business accenture. (n.d.). Retrieved from accenture: http://www.accenture.com/SiteCollectionDocuments/PDF/ecommerce_and_alliances_pov_rev.pdf EISNER, R. S. (2002). STRATEGIC ALLIANCES IN E-COMMERCE. 9. Emerald . (n.d.). Retrieved from http://www.emeraldinsight.com/journals.htm?articleid=846861&show=abstract Investor words. (n.d.). Retrieved from investorswords: http://www.investorwords.com/4772/strategic_alliance.html#ixzz1MPo1nk8h