Strategic Alliance

An agreement between two or more organizations to cooperate in a specific business activity, so that they benefit from each others strengths, and gains competitive advantage. The formation of strategic alliances is seen as a response to globalization and increasing complexity and uncertainty in the business environment.

Strategic alliances involve the sharing of knowledge and expertise between partners. It also focuses on reduction of risk and costs in areas like relationships with suppliers and the development of new products and technologies. A strategic alliance is sometimes also equated with a joint venture, but an alliance may involve competitors. Alliance generally has a shorter life span.

Strategic alliances take many forms, including contractual arrangements (such as license agreements, marketing agreements, and development agreements), minority equity investments, and joint ventures that are operated as separate legal entities (such as corporations, limited liability companies, or partnerships).

Strategic alliance share common features like – (i) Scope and strategic objectives;(defined) (ii) interdependent contractual arrangements within the defined scope and to achieve the strategic goals; (iii) specifically defined responsibilities and commitments for each party; (iv) independence of the parties outside of the defined scope of the alliance; and (v) a fixed time period in which to achieve the strategic goals.

The simplest form of strategic alliance is a contractual arrangement. Contractual-based strategic alliances generally are short-term arrangements that are appropriate when a formal management structure is not required.

The most complex form of strategic alliance is a joint venture. A joint venture involves creating a separate legal entity (generally a corporation, limited liability company, or partnership) through which the business of the alliance is conducted.

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