Strategic Alliances and Technology Transfer
The alliance often involves technology transfer (access to knowledge and expertise), economic specialization, shared expenses and shared risk. A strategic alliance will usually fall short of a legal partnership entity, agency, or corporate affiliate relationship.Typically, two companies form a strategic alliance when each possesses one or more business assets or have expertise that will help the other by enhancing their businesses. Strategic alliances can develop in outsourcing relationships where the parties desire to achieve longterm win-win benefits and innovation based on mutually desired outcomes.This form of cooperation lies between mergers and acquisitions and organic growth. Strategic alliances occur when two or more organizations join together to pursue mutual benefits. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.
A strategic alliance (also see strategic partnership) is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization,[1] shared expenses and shared risk. A strategic alliance will usually fall short of a legal partnership entity, agency, or corporate affiliate relationship.Typically, two companies form a strategic alliance when each possesses one or more business assets or have expertise that will help the other by enhancing their businesses. Strategic alliances can develop in outsourcing relationships where the parties desire to achieve long-term win-win benefits and innovation based on mutually desired outcomes.This form of cooperation lies between mergers and acquisitions and organic growth. Strategic alliances occur when two or more organizations join together to pursue mutual benefits. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.
Some types of strategic alliances include:
- Horizontal strategic alliances, which are formed by firms that are active in the same business area. That means that the partners in the alliance used to be competitors and work together In order to improve their position in the market and improve market power compared to other competitors. Research &Development collaborations of enterprises in high-tech markets are typical Horizontal Alliances. Raue & Wieland (2015) describe the example of horizontal alliances between logistics service providers.[They argue that such companies can benefit twofold from such an alliance. On the one hand, they can "access tangible resources which are directly exploitable". This includes extending common transportation networks, their warehouse infrastructure and the ability to provide more complex service packages by combining resources. On the other hand, they can "access intangible resources, which are not directly exploitable". This includes know-how and information and, in turn, innovativeness.
- Vertical strategic alliances, which describe the collaboration between a company and its upstream and downstream partners in the Supply Chain, that means a partnership between a company its suppliers and distributors. Vertical Alliances aim at intensifying and improving these relationships and to enlarge the company's network to be able to offer lower prices. Especially suppliers get involved in product design and distribution decisions. An example would be the close relation between car manufacturers and their suppliers.
- Intersectional alliances are partnerships where the involved firms are neither connected by a vertical chain, nor work in the same business area, which means that they normally would not get in touch with each other and have totally different markets and know-how.
- Joint ventures, in which two or more companies decide to form a new company. This new company is then a separate legal entity. The forming companies invest equity and resources in general, like know-how. These new firms can be formed for a finite time, like for a certain project or for a lasting long-term business relationship, while control, revenues and risks are shared according to their capital contribution.
- Equity alliances, which are formed when one company acquires equity stake of another company and vice versa. These shareholdings make the company stakeholders and shareholders of each other. The acquired share of a company is a minor equity share, so that decision power remains at the respective companies. This is also called cross-shareholding and leads to complex network structures, especially when several companies are involved. Companies which are connected this way share profits and common goals, which leads to the fact that the will to compete between these firms is reduced. In addition this makes take-overs by other companies more difficult.
- Non-equity strategic alliances, which cover a wide field of possible cooperation between companies. This can range from close relations between customer and supplier, to outsourcing of certain corporate tasks or licensing, to vast networks in R&D. This cooperation can either be an informal alliance which is not contractually designated, which appears mostly among smaller enterprises, or the alliance can be set by a contract.
Michael Porter and Mark Fuller, founding members of the Monitor Group (now Monitor Deloitte), draw a distinction among types of strategic alliances according to their purposes:
- Technology development alliances, which are alliances with the purpose of improvement in technology and know-how, for example consolidated Research & Development departments, agreements about simultaneous engineering, technology commercialization agreements as well as licensing or joint development agreements.
- Operations and logistics alliances, where partners either share the costs of implementing new manufacturing or production facilities, or utilize already existing infrastructure in foreign countries owned by a local company.
- Marketing, sales and service strategic alliances, in which companies take advantage of the existing marketing and distribution infrastructure of another enterprise in a foreign market to distribute its own products to provide easier access to these markets.
- Multiple activity alliance, which connect several of the described types of alliances. Marketing alliances most often operate as single country alliances, international enterprises use several alliances in each country and technology and development alliances are usually multi-country alliances. These different types and characters can be combined in a multiple activity alliance.
Further kinds of strategic alliances include:
- Cartels: Big companies can cooperate unofficially, to control production and/or prices within a certain market segment or business area and constrain their competition
- Franchising: a franchiser gives the right to use a brand-name and corporate concept to a frachisee who has to pay a fixed amount of money. The franchiser keeps the control over pricing, marketing and corporate decisions in general.
- Licensing: A company pays for the right to use another companies´ technology or production processes.
- Industry standard groups: These are groups of normally large enterprises, that try to enforce technical standards according to their own production processes.
- Outsourcing: Production steps that do not belong to the core competencies of a firm are likely to be outsourced, which means that another company is paid to accomplish these tasks.
- Affiliate marketing: a web-based distribution method where one partner provides the possibility of selling products via its sales channels in exchange of a beforehand defined provision.
Historical development of strategic alliances
Some analysts may say that strategic alliances are a recent phenomena in our time, in fact collaborations between enterprises are as old as the existence of such enterprises. Examples would be early credit institutions or trade associations like the early Dutch guilds. There have always been strategic alliances, but in the last couple of decades the focus and reasons for strategic alliances has evolved very quickly:
In the 1970s, the focus of strategic alliances was the performance of the product. The partners wanted to attain raw material at the best quality at the lowest price possible, the best technology and improved market penetration, while the focus was always on the product.
In the 1980s, strategic alliances aimed at building economies of scale and scope. The involved enterprises tried to consolidate their positions in their respective sectors. During this time the number of strategic alliances increased dramatically. Some of these partnerships lead to great product successes like photocopiers by Canon sold under the brand of Kodak, or the partnership of Toshiba and Motorola whose joining of resources and technology lead to great success with microprocessors.
In the 1990s, geographical borders between markets collapsed and new markets were enterable. Higher requirements for the companies lead to the need for constant innovation for competitive advantage. The focus of strategic alliances relocated on the development of capabilities and competencies.
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