A strategic alliance is a legal agreement formed by two or more companies to combine resources and achieve a common objective. Unlike joint ventures, strategic alliances allow each company to be independent of one another allowing for the growth and expansion of each respective business. They are advantageous for companies as they can exploit mutually beneficial resources and reach a larger market. It is important to have a strong legal agreement to underpin and govern the commercial terms of a strategic alliance.
What is Involved in Forming a Strategic Alliance?
Companies may form strategic alliances to merge their:
- Universities; or
- Government divisions.
Strategic alliances can help improve market positions, gain entry into new markets, share costs of major projects and increase skill sets. A strategic alliance should accurately define the alliance and its vision. The implementation strategy should outline how the business objectives fit the vision. Firms should pick partners based on the potential synergy of working together. A working relationship should be developed in mutual recognition of opportunities. A formal agreement should also monitor performance over time.
Why a Strategic Alliance?
An alliance between companies can:
- Be crucial to the success of a core business goal or objective by partners investing together in a new partnership that pools and groups resources;
- Block a competitive threat;
- Create or maintain a strategic choice;
- Mitigate risk for the business; and
- Help foster a competitive advantage.
Together, these factors can contribute to a successful business endeavour.
Examples of Strategic Alliances
Common categories of strategic alliances include:
- Large multi-nationals working with established small businesses in a new international market; and
- Large partnerships with startups to cater to all markets in their service industry.
Strategic alliances have the potential to add value to all the parties involved. A good case study of a successful strategic partnership is the Oneworld airline alliance.
The Oneworld alliance is a partnership between 15 different airlines and 21 affiliated carriers. It provides the individual airlines greater savings and benefits than they could achieve on their own. Most importantly, it allows the airlines to offer a substantial increase in travel routes to their customers and allows them to achieve considerable efficiencies by working together.
Forming Strategic Alliances
Forming strategic alliances is a complicated process. It is advisable to get a lawyer involved as soon as possible. In particular, it is important to negotiate with a heads of agreement in the early stages of negotiation. You may or may not choose this to be legally binding.
One of the problems of strategic alliances is that they have the potential to harm future relationships where there are significant differences in the company strategy and ethos. Furthermore, businesses may face further difficulties at the conclusion of their alliance. An example might be the consequences of sharing confidential information. Clear legal contracts that set out the obligations of each party can prevent disputes arising as the relationship builds.
If you are considering forming a strategic alliance, get in touch with LegalVision’s qualified lawyers today. We have a team of commercial, corporate and contract lawyers who can assist you with your strategic alliance. Call us on 1300 544 755 or fill out the form on this page.