Strategic alliance can be defined as an agreement between the companies that undertake a specific project or an activity together and agree on resource and effort sharing. The members of a strategic alliance, which are usually actual or potential competitors, retain independence, while enjoying new opportunities for market development, processes optimization and gaining a competitive advantage over competitors. The alliance can be only formed if the members derive mutual benefits from the collaboration.
Strategic alliances have a number of advantages compared to other forms of cooperation. The first benefit of strategic alliances is the possibility to enter new markets and customer segments, taking advantage of the partner’s presence in the market, while avoiding the administrative costs and the expenditures associated with opening new subsidiaries or with integrating local players. The second benefit of strategic alliances is the possibility to share risks and fixed costs with the partners. This fact opens new opportunities and allows pursuing the projects that would have never been attractive enough if the companies decided to undertake them on their own. The benefits of the strategic alliance are also related to the fact that such cooperation gives access to the know-how and complementary skills that the partner companies would not be able to develop independently.
Lastly, the establishment of strategic alliances helps companies to gain bargaining power in the market that could help to establish industry standards that would favour the allies.
Although strategic alliances have a number of benefits they also entail several drawbacks. Firstly, there is always the risk of an adverse selection in the alliance. If partners misrepresent or overestimate the resources and capabilities that they can bring into the alliance, the alliance will not reach its original objectioves. The second major danger of a strategic alliance is the moral hazard.
As such partnerships are usually created between competing companies, there is a high chance that managers may choose not to share valuable information, resources and capabilities with the partners. Another challenge of a strategic alliance is the distribution of earnings. As it is hard to estimate relative contributions of the partners into the alliance, it is hardly possible to find a precise way to share the benefits of the cooperation. Moreover, the creation of a strategic alliance implies that the companies remain fully independent. However, joint activities usually lead to a partial loss of autonomy that can jeopardize the performance of the companies outside the alliance. This fact is further exacerbated as the conditions in the market change. Once the commitment is made, it is hard for the firms to exit the alliance or to switch partners. Therefore, there is a high risk of remaining stuck in the alliance that yields no benefits in the current environment and prevents companies from forming other collaborative arrangements (Aswathappa, 2006).
Strategic alliances are common in the various industries. One of the recent strategic alliances is the cooperation between Microsoft and Nokia. The main focus of the cooperation is the development of the Windows phone expanding into mobile ecosystem. The driving force of the alliance is the complementarity of resources and capabilities of the two companies. In this case Microsoft can bring its expertise in the development of software, Nokia can share its capabilities in the hardware and imaging technologies. Such cooperation can help Nokia to remain competitive in the smartphone industry, where its operating system it is losing against Android and Apple. Microsoft, on the other hand, will benefit from the possibility to enter the smartphone business without the need to develop own hardware. Moreover, strategic alliance allows the company to get access to the Nokia users that still represent a significant part of the market. It also opens the possibility to sell other Microsoft products, such as Xbox Live and Microsoft, together with Windows phone (Savov, 2011). The success of this strategic alliance can be only evaluated in the long-run, however at the moment the strength of the rivalry in the smartphone business makes it essential for the companies to join efforts in order penetrate it and to gain market share.
References
Aswathappa, K. (2006). International business. (2nd ed.). New Delhi, India: Tata McGraw-Hill Education.
Savov, V. (2011, February 11). Nokia and Microsoft enter strategic alliance on Windows
Phone, bing, xbox live and more. Engadget, Retrieved fromhttp://www.engadget.com/2011/02/11/nokia-and-microsoft-enter-strategic-alliance-on-windows-phone-b/
