Strategic Alliance

What is Strategic Alliance (Definition):

Strategic Alliance (SA) is an agreement between two entities to pool their resources for achieving a common business goal. They are generally entered when each entity to the agreement possess some kind of an expertise. This expertise, when combined makes them complete and provides a distinct competitive advantage to both the entities. Unlike Joint Venture, SA doesn’t necessitate the creation of the new entity. As a result, the entities involved in SA can continue to operate as an independent entity.

Generally, a strategic alliance is entered into to gain geographical presence, achieve economies of scale through alliance for manufacturing or to gain access to research / technology etc.

Types of Strategic Alliances:

Horizontal Strategic Alliance

It is an alliance between companies operating in the same business area. In other words, companies which were competitors previously now join hands to enhance their competitiveness against other competitors in the market. The classic example of this kind of SA is Renault – Nissan Alliance. The SA between both the entities is neither by a merger of nor by an acquisition, however, it is through a cross holding agreement. This kind of SA provided both the companies with competitive advantages like economies of scale as the raw material cost can be negotiated for larger volumes, logistics cost can be rationalized, research & development cost can be rationalized and even marketing and servicing network can be commonly utilized.

Vertical Strategic Alliance

This kind of alliance is largely seen between upstream and downstream value chain of firms product. For E.g. Ink manufacturers entering into a strategic alliance with Pigment manufacturers, this kind of arrangement ensures ink manufacturers with the consistent supply of requisite kind of Pigment. Further, a car manufacturer entering new geography may enter into a SA with distributors which enable it to expand rapidly.

Various Ways of entering into a Strategic Alliance:

  1. Joint Venture: Joint Venture is an alliance entered by two or more entities to pool up their resources in the new entity to achieve the tangible business objective.
  2. Equity Participation: This is an alliance where one entity acquires a substantial equity stake in other entity so it has control to drive business decisions. (Renault – Nissan Alliance; explained earlier)
  3. Non – Equity: Entities involved SA agree to share their core competencies (expert knowledge) in order to create competitive advantage. Since no new entity is created, equity participation is not required.

Various Ways of entering into a Strategic Alliance

Reasons for Strategic Alliance / Logic behind Strategic Alliance

  • Gaining an access to a restricted market (China)
  • Gaining a foothold in new marker
  • Increase the speed of development of new products
  • Maintain leadership position
  • Leverage upon the befits like economies of scale, lower cost
  • De-risking the R&D efforts
  • Gain market power (especially pricing power)
  • Gain access to know-how
  • Pool resources to fund large capital intensive projects
  • Gaining competitive advantage against competitors


In the nutshell, Strategic Alliances helps both the entities in agreement to gain/leverage from the expertise possessed by another one. Since it does not necessitate the creation of a new entity, both the entities can continue to undertake their core activity independent of SA. Entering right kind of SA reduces the costs and in a way enhances the shareholders’ value.



  • Strategic Management: Concepts and Cases; By Michael Hitt, R. Duane Ireland, Robert Hoskisson
  • Understanding Business Strategy: Concepts and Cases; By R. Duane Ireland, Robert Hoskisson, Michael Hitt
  • International Marketing : An Asia Pacific Focus By Kotabe, Peloso, Gregory, Noble, Macarthur
Last updated on : August 31st, 2017
What’s your view on this? Share it in comments below.

Leave a Reply

  • Process of Management Buyout
    Management Buyout
  • Corporate Restructuring
    Corporate Restructuring
  • Franchising
  • Divestitures
  • Subscribe to Blog via Email

    Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 122 other subscribers

    Recent Posts

    Find us on Facebook

    Related pages

    shareholder wealth maximisationdefinition of current assets and current liabilitiesequity growth rate formuladebit and credit accounting explainedhow do you calculate current ratio in accountingaffirmative covenantsmeaning of pros and cons in hinditotal debt to equity ratio calculatorcomparing companies financial ratiosfinancial accounting depreciation methodswhich is better irr or npvaverage collection period ratio formulawhat is a overdraft facilitycalculate roceaccounting differential analysismaximization of profitproject for loan proposalpayback period advantagesclosing inventory holding periodppe turnoveradvantages and disadvantages of irr methodsales maximisationtangible assets and intangible assets examplesreceivable turnover ratio exampledebt to equity ratio calculatorbill discounting meaningdefinition of asset accountingstockholder equity calculatorwhy are research and development costs expenseddefine mirrcalculate payback periodtrade off theory of capital structureinventory turnover ratio formuladividend capitalization modelfundamental accounting equation examplesinventories turnover periodwhat are horizontal mergerscapital budgeting formulasebt financeinsolvency ratiodisadvantages of idealismmaximize shareholder wealthrationed meaningdupont system analysisaccrual vs actualfix cost and variable costdefine redeemablewhat is megeradvantages and disadvantages of bank creditwacc npvzero coupon convertible bonddividend capitalization modelsimplified straight line depreciationwhat does accountancy meandifferential cost definitionbank loans advantages and disadvantagesprofit margin interpretationinvestment alternatives to stock markethedging policy definitioncapital lease journal entriesdefinition of sundry creditorsicr formulahow to calculate constant growth ratewho is a debenture holdermeaning of overdraft facilitydifferentiate between fixed cost and variable costdefine rationingwhat is the difference between renting and leasingmarginal costing systemnpv of investmentpayback period method in capital budgetingadvantages and disadvantages of convertible bondssimilarities between cost accounting and management accountingadvantages and disadvantages of budgetingdebt coverage ratio formula