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STRATEGIC ALLIANCE

An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project.

Each company maintains its autonomy while gaining a new opportunity.

CHARACTERISTIC

JOINT VENTURE-BASED

The most common kind is the joint venture through a subsidiary. In such an instance, two entities create a third separate entity with its own legal existence. For example, American Motors Corp. has formed a joint venture with government-owned Beijing Automotive Works, creating a third entity called Beijing Jeep.

CHARACTERISTIC

Another is the joint venture by acquisition. It is created when one business purchases all or part of the shares of another. For example, in the 1990s, the Lear Corp. acquired interior components producer Masland Corp.

STRATEGIC ALLIANCES NOT BASED IN JOINT VENTURES

In general, a strategic alliance that is not in the form of a joint venture is formed for a limited purpose and is more narrow in its operations than the joint venture. Non-joint venture strategic alliances tend to be less stable and last for shorter terms than joint ventures. For example, United Airlines and British Airlines formed a strategic alliance for the purpose of marketing their North American and European routes in 1988. They did so because they were losing part of their market share to Delta and American Airlines. Within a year, however, the market shifted and they terminated the agreement.

WHAT ARE NOT STRATEGIC ALLIANCES?

It is important to note that not all linkages between national or international businesses are strategic alliances. Examples of arrangements that do not create strategic alliances include licensing, exporting, franchising, and foreign direct investment agreements.

BENEFITS

The Internet, advances in telecommunications, and improved transportation systems have helped firms enter foreign markets and have contributed to the globalization of business. Simultaneously, they have facilitated the creation of strategic alliances.

The decision to form a strategic alliance depends on the needs and goals of the companies involved and on the laws of the countries in which the companies are doing business.

STRATEGIC ALLIANCES

SYNERGISTIC EFFECTS OF SHARED KNOWLEDGE AND EXPERTISE.

SHARING RISKS AND EXPENSES.

GAINING COMPETITIVE ADVANTAGE.