Explaining The 3 Different Types of Strategic Alliances

What is a strategic alliance? A strategic alliance enables individual companies to achieve more together than they would on their own. A company can’t be good at everything, which is where strategic alliances come in handy. Your company can play to its strengths while you can take advantage of another company’s strengths as well. The risks and the profits are shared, and both can enjoy the fruits of the venture. To learn more about strategic alliances and their types, look at the following information.

3 Different Types of Strategic Alliances 

The three most common forms of strategic alliances are as follows: 

Joint Venture 

As the name suggests, a joint venture is combined and owned by both companies. It is like a design company coming along with a production company and releasing its own range of products. Now the share for both companies in this venture will be 50-50. The risks and the profits are shared at an equal percentage. Both companies can negotiate between the shares based on who has more stakes in the partnership. However, if it is decided that company A will have more shares than company B and is a 30-70 partnership, then it is a majority-owned venture by company A.  

Non-Equity Strategic Alliance 

In a non-equity alliance, two companies sign a contract so they can share some of their resources and skills. Many companies do not have the capability or the skilled labor to do everything independently, and this alliance gives them an opportunity. You do not have to hire people for a new opening for your business; you can always form an alliance and see what is in there for your business. This can reduce the associated costs while also providing your company an opportunity to do business with another company. This can also significantly increase the customer base. You are now not only in business with your own customers but are also tapping into another potential market. 

Equity Strategic Alliance 

A company alpha buys equity in company beta, which is how they own the shares in the company and form an alliance. An equity alliance is created so that the company can focus on re-strategizing and on a bigger dynamic due to the availability of resources and skills. When two companies in partnership have different amounts of shares invested, it is evident that the one with the most shares will make all the decisions or at least have the power to do that. Buying equity in the company can also give the other company much-needed resources to turn things around for themselves.

Being in the business, a company doesn’t have to take all the brunt and survive independently. You can always strategize and partner with other companies to increase profits for your company. Before jumping into any partnership or alliance, it is imperative to have all the base conditions written and signed by both parties. A written contract can save and benefit mutual interests in the long run.

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