10.08.2022

Strategic alliance as an opportunity for enterprise development

Rapid technological development, constant change and, above all, progressive globalization are the picture of the modern world, in which the independent functioning of even the strongest organizations offers fewer and fewer guarantees for achieving their goals. The homogenization of consumer tastes and the expansiveness of global giants mean that very often cooperation becomes a key approach to effective competition. Among the many opportunities for cooperation, an extremely attractive and popular one in recent times is the strategic alliance, a form of cooperation between competitors who have decided to jointly carry out an enterprise, combining and coordinating their resources, means and skills. Most often, alliances are formed by companies in the automotive, technology and aerospace sectors. Elementary examples of cooperation include the strategic alliance between Fiat and Chrysler or LOT Polish Airlines with Star Alliance.

When to decide on a strategic alliance?

The main determinant that makes companies decide to enter into a strategic alliance is risk reduction. The cooperation of two or more companies means that the risk of the project is spread among the partners, each of whom retains organizational independence. In addition, the cost of the union is less than the cost of an investment undertaken by each party separately, which, in turn, makes it possible to diversify the company's product portfolio through savings. According to Anna Pietruszka-Otryl of the Department of Organizational Behavior at the Cracow University of Economics, thanks to strategic alliances, companies become more courageous when entering new sectors previously unknown to one of the parties, as they feel supported and introduced by a company with an established position in a given market.

Alliances also make it possible to significantly rationalize production costs and increase the benefits of economies of scale. Joint purchasing by cooperating companies improves the bargaining position vis-à-vis suppliers and makes it possible to receive volume and contract discounts. In addition to price advantages, alliances also foster the economization of delivery times and deadlines, which is particularly important in sectors where lead time is a critical success factor, such as just-in-time production.

A corporate alliance is also a great opportunity for pharmaceutical or biotechnology companies to develop a product faster and more comprehensively. Collaboration saves time and money, which in an individual production setting is spent on unnecessary duplication of development research. An example of an alliance from the biotech sector is the agreement that Innogenetics, a company that is one of the 81 corporate members of the European Bioprocessing Association EuropaBio, has entered into with Sanfoi Aventis for Alzheimer's disease research. Each company offers the "missing pieces of the puzzle" such as technology, skills, knowledge or know-how, and the benefits of the cooperation are shared between the parties to the alliance.

A strategic alliance also makes it possible to build a strong and stable competitive position both locally and internationally faster and more efficiently than individual operations. Moreover, companies can choose the best partner for you with the desired competitive advantage, which they will jointly develop in the future.

An important motive for entering into an alliance is the possibility of overcoming administrative barriers. This is quite an advantage especially for countries where preferential government policies are applied to domestic companies. Cooperation allows to bypass many barriers like discriminatory tax policies or the need to obtain additional certificates and permits.

Alliances are also often the only opportunity for growth and overseas expansion for small and medium-sized enterprises located in less economically developed regions. Building a market position independently costs small companies a lot of time and forces them to spend significant amounts of money without any guarantees of product acceptance and return on the money put in. Forming an alliance, therefore, allows inexperienced companies to minimize risks, reduce costs and shorten the time for initial expansion into other markets, especially overseas.

Proper functioning of the alliance

A strategic alliance should be built in two basic stages. The first involves agreeing on the terms of cooperation between the partners, and the second - establishing the organizational basis of the alliance. Of course, in each case, the determination of the organizational scheme is the result of individual negotiations and is not subject to aggregate treatment, but nevertheless there are 4 main principles to be aware of.

  1. The principle of partnership between the allies - for the positive development of the alliance, it is important to have equal rights and obligations, and to reap the benefits of the arrangement adequate to the amount of effort put in. Fulfillment of this principle makes it possible to compare the two quantities, which in turn makes it possible to conduct a stable and long-term arrangement.
  2. Division of powers - at the very beginning of the cooperation, the scope of responsibilities and rights should be clearly defined, as well as which decisions the allies can make on their own and which require the consent of all parties. Clarity in the division of powers improves the functioning of the alliance and avoids unnecessary conflicts.
  3. Unambiguity of project management - an external manager should be hired, or one person should be selected from the already employed staff to be the coordinator of the alliance for the duration of the coalition. Most often, the choice falls on an outside manager with the credentials of a consulting firm supporting the entire operation. By selecting such a person, the allies can focus on the proper management of the cooperation and also enjoy autonomy from the associates.
  4. Separation of project management from business management - this principle is closely related to the danger of information about the company or its projects leaking through the alliance's information system. To avoid such a situation, allies should designate a person within their companies who is responsible for the proper functioning of the coalition. This person would contact the alliance manager directly, which in turn would help safeguard the alliance against economic espionage or other unforeseen behavior.

It is also worth remembering that the arrangements adopted during the negotiation of the terms of a strategic alliance are not final. The alliance evolves during the course of the alliance, and the partners change their positions (market or competitive), goals and needs with respect to the initial situation. It is therefore important to set deadlines for renegotiating the terms of the alliance.

Raise the profile of your company!

Alliances are entered into to achieve specific goals, the partners clearly define the scope of cooperation and the expected benefits. The most common goal of an alliance is the desire to improve the company's competitive position in the global market by introducing an innovative service or product. Strategic alliances very often bring a company to a completely different level of development, blazing a trail that an independent company could never enter. Therefore, if you have an idea on how to develop your company, look for a partner and together sail into the deep waters of the global market!

 

Anna Gallon

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