Strategic alliances are long-term relationships among firms, which are driven by strategic considerations.
There are various types of strategic alliances, ranging from loosely structured cooperation agreements to full-fledged joint ventures where equity is shared among parent firms to form new, legally independent entities. Alliances also range in terms of their strategic configurations, e.g., horizontal alliances between competitors versus vertical alliances between a firm and its upstream or downstream providers.
Alliances can be domestic or cross-border, and while the majority involve two partners, a sizable minority involves three or more, with obvious impact on the complexity of their establishment and operation.
Strategic alliances are used by firms for a variety of purposes, including, but not limited to, entering into new product, industry and country markets; joining together complementary technologies; mitigating financial risks; learning vital knowhow; and overcoming antitrust objections to mergers and acquisitions. Those reasons are not always transparent.
Strategic considerations can also evolve with time, as the business environment changes and as the partners’ capabilities grow. For instance, it might create a potential competitor out of a partner firm, which was initially a noncompetitor (and perhaps chosen for that reason).
Be open to the opportunities
Alliances are an important option for any firm, but perhaps more so for middle-market firms because they represent opportunities to augment their limited skills and resources, from capital and equipment to capital and retail blueprint.
Middle-market firms clearly recognize the importance of that strategic vehicle. For example, research conducted by the National Center for the Middle Market shows that strategic alliances were the preferred mode of entry into international markets for middle-market firms.
Not as easy as it looks
Their promise notwithstanding, alliances are not easy to establish and run. Negotiating an alliance takes a long time (18 months in some studies), and establishing a governance and organizational structure still more.
The performance record is weak: On average, for every successful alliance you can find a failed one. Even experienced companies often find running an alliance a challenge, let alone those who are less experienced in using this mode, as is often the case for middle-market firms.
As always, knowledge is a critical component. Understanding the key success factors is a must. Those factors include, among others, a clear division of labor between partners, designating senior contact staff as coordinators, establishing clear mechanisms to monitor operation and performance, and, in the case of cross-border alliances, paying close attention to cross-cultural and political issues.
Oded Shenkar is the academic director of the National Center for the Middle Market, the leading source for knowledge, leadership and research on midsize companies, based at the Fisher College of Business, in collaboration with The Ohio State University. Oded is the Ford Motor Co. chair in Global Business Management and a professor of management and human resources at the Fisher College of Business.
