Strategic Alliance Types
Basically, the strategic alliance is divided into three different types, including joint venture, non-equity strategic alliance, and equity strategic alliance.
Joint Venture: There are times when companies form their own child companies, but this is not an exact alliance because in this, one company is the parent and the other is the child company. However, there are cases when two companies collaborate and form a third company, which is the child company. This is known as joint venture. With the help of this kind of strategic alliance, the two companies have 50-50% rights over the child company, and the shares, profits, and everything related to that child company are owned by both of them.
Non-Equity Strategic Alliance: This type of alliance involves a written contract that is signed by the companies entering into the alliance. In this type of alliance, the capabilities and resources of all the companies involved are pooled, just like any other relationship.
Equity Strategic Alliance: This is usually acquired by those companies who have the power and the resources to purchase a certain percentage of any other company. If any company gets any percentage of the equity of another company, then the alliance formed is a strategic equity alliance.
Benefits of Strategic Alliance
There are many values and benefits that strategic alliances can create among the collaborators. which are as follows,
It can easily improve and manage ongoing projects.
Allows companies to gain more profit if the alliance is successfully carried out.
The profit and the risk are both shared among the companies involved.
One can easily enter into a new industry with the help of a strategic alliance.
If a company wants to exit from a certain industry, it can do so with the help of an alliance.
It can modify the environment of competition.
Partners can outrun the market with innovative solutions that are a full package for the clients if they form the appropriate relationship.
The collaborations are innovative and innovative, and they have a significant impact on the market environment.
Challenges Involved in Strategic Alliance
When there are benefits of anything, there are some drawbacks or challenges as well. Hence, similarly, strategic alliances have some major challenges that a company may or may not face, which are as follows,
There needs to be trusted among the companies entering into an alliance because if there’s no trust, the alliance cannot get success.
If the company does not have a good profile, there might be chances that the other companies might be cheated or face more consequences.
There have to be efforts from the partners because an alliance cannot work if only one of the partners is doing all the planning.