Strategic alliances differ from joint ventures in their complexity. This is because in joint ventures a completely new business entity is formed. Strategic alliances are formed to enable each firm to achieve organic growth faster than if they had not allied. Businesses utilize strategic alliances to get access to a core potential that is not owned domestically or to fully exploit their potential by leveraging them in another company’s growth efforts. Additionally, businesses with similar abilities may also join forces to pool their resources to share the risk of venturing into a given market.
Businesses combine their best efforts to achieve a specific goal. They can acquire a deeper comprehension of a given product, sales, or marketing expertise that facilitates faster production. Businesses can retain their independence while benefiting from the conjoined efforts. Firms utilize alliances to acquire early insights on an emerging business opportunity that they may wish to engage in in the future. Through alliances, businesses can adjust the form and range of potentials they can access, which is very crucial in the contemporary business environment. Firms share their knowledge and expertise in a given production area; thus, facilitating the development of new competencies.
Both groups must relinquish some influence over how their businesses are operated and viewed to ally. A strategic alliance necessitates honesty and transparency, but trust takes time to develop. An alliance may suffer if neither party is fully committed. A successful alliance requires businesses to have a common language and routine to facilitate the transfer of skills and knowledge, especially, the complex and implicit knowledge that is can lead to sustainable competitive advantages. Both companies are responsible for the outcome of a joint venture or equity strategic alliance. Partners are in danger of losing their reputation if something happens to halt production or produce disgruntled customers. For example, in the case of Tesla and Panasonic, what had been a mutually beneficial partnership deteriorated when batteries were not made and supplied promptly, causing delays in Tesla vehicle manufacturing and delivery.
Types of Strategic Alliances
A joint venture is the offspring of two-parent corporations. It is sustained by a formal agreement that requires the sharing of resources and equity. When one company buys stock in another (partial acquisition) or when each company buys stock in the other, it’s called an equity strategic alliance (cross-equity transactions). Organizations form a non-equity strategic partnership when they agree to share resources without forming a separate corporation or sharing equity. Non-equity partnerships are frequently more loose and informal than equity partnerships. The great majority of commercial alliances are made up of these.
General Electric (GE) and SNECMA (a French jet engine company) formed a joint venture, known as CFM International to integrate complementary technologies and expertise to develop a new jet engine. The alliance involved integrating GE’S F101 turbojet with SNECMA’s low-pressure fan skills to develop an improved and fuel-efficient engine. Coming Glass Company has formed several alliances with various companies with complementary expertise to expand its glass technology into various fields. Both JVC and Thompson deal with VCR production. Thomson’s aim in the alliance was to garner product technology and manufacturing skills from JVC while JVC aimed to learn how to enter the European market from Thomson. Aspla is an example of an alliance network whereby a formal entity has been created to govern the alliance.
The joint ventures formed Saudi Arabian Military Industries (SAMI) – France’s FIGEAC AÉRO Group was in line with Saudi Vision 2030 to improve Saudi Arabia’s aerostructure manufacturing capabilities, train Saudi engineers and technicians to work on the project, and enhance the localization of military and civil aerospace sectors. Initial products will focus on the machining and processing of aerospace parts made of light alloys (aluminum) and hard metals (titanium).
Technology Alliance Strategies
Strategic alliances come in two forms: capability complementation and capability transfer. Capability complementation is combining or pooling the capability and other resources of a partner firm, but not necessarily transferring those resources between the partner. In turn, capability transfer is the exchange of capabilities across firms in such a manner that partners can internalize the capabilities and use them independently of the particular development project. These alliances can be both individual, that is, between two entities, and network, which includes more than two entities. Companies in quadrant A form an independent partnership to integrate similar technology or talents required for a project. For example, General Electric and SNECMA integrated endeavors to develop a new jet engine. Thus, one side provided the product, and the other side provided the technology to improve it, which is an example of complementing the capabilities of two individual entities. Companies in quadrant B use a matrix of partnerships to integrate similar power and skills. Corning can serve as an example since this glass company cooperated with other firms with similar competencies to expand the product line. In this case, the alliance is presented in a network form, within which the capabilities of partners from different areas are supplemented by providing them with products that will subsequently be improved by them. Companies in quadrant C utilize individual partnerships to exchange competencies among themselves. For example, JVC and Thomson helped each other expand their expertise or make an expansion.
Thus, between Thomson and JVC there was a mutually beneficial exchange of necessary technologies, which is an example of the transfer of capabilities between two individual entities. Companies in quadrant D utilize a partnership system to trade competencies and cooperatively build new capabilities. For instance, Aspha and NCMS had a network to collectively create. In this case, there is also an exchange of new knowledge, but the number of subjects, in this case, is greater than in the C quadrant, which results in the creation of a network of alliances.