Strategic Alliance | 7 Types of Strategic Alliances with Examples

          In this competitive era companies always try to expand and diversify themselves. While expansion and diversification companies enter into strategic alliances with other companies in order to gain certain benefits in the new market as well as in their operations. Thus, today in this article let us try to understand about the Strategic Alliance and its types.

Strategic Alliance

          Strategic Alliance is a flexible arrangement between two companies who agree to work together with a specific objective by remaining as two separate legal independent entities. The basic idea behind the strategic alliance is that to minimize the risk and maximize the leverage by making bulk purchases for good price to seeking business together. Strategic Alliance does not need to create a legal separate entity like Joint Venture and also the most important advantage of the strategic alliance is that it can be easily created whenever required.

Types of Strategic Alliance

          Different types of strategic alliance are as follows,

§  Franchising

§  Licensing

§  Management Contracts

§  Turnkey Projects

§  Partnering with Suppliers

§  Pooled Purchasing

§  Partnering with Distributors

Now let us understand each one of the type of strategic alliance below

§  Franchising:

Franchising is an agreement between two parties wherein one party (Franchisee) uses the intellectual rights of another party (Franchisor) in order to carry out the business of the franchisor.

The company that provides the license is called franchiser and the person who takes the license is called franchisee. The franchisee can be acquired by anyone after making the initial payment and yearly licensing fee to franchiser. The franchiser helps the franchisee by training the sales force, marketing, technology and more during the license period. In return to all the services provided by the franchiser the franchisee has to pay the royalty to the franchiser ever year.

For Example: Subway, McDonalds

§  Licensing:

Licensing is the agreement between two are more parties where by the company retains the Intellectual Property but grants the permission to others to use the Intellectual Property by issuing license to the party in return of certain amount for a specific period. After the specific period if not renewed then the licensor will take back the license from the licensee and the licensee cannot use it anyone if uses then licensor has all the right to file a legal case against him and get the compensation for it.

Example: Microsoft Software

§  Management Contracts:

A management contract is agreement between two parties where in one parties operational control related to necessary managerial functions is held by another firm by contract with an objective to carry out the management functions and operational control in efficient manner. In management contracts the one company pays another company for managing its specific area of operations like accounts maintenance, production facilities, marketing, training of the workforce and many more.

For Example: Contract Managers, Food service Managers and so on.

§  Turnkey Projects:

It is an agreement between two firms wherein one firm completely designs it construct and equip a business/service and when the service is ready for operations the firm sells the project to the purchaser for remunerations. Turnkey projects are of three types. They are

·    Build and Transfer: In Build and Transfer one firm takes up the project and designs it and makes it ready for operations and then transfers it to the another firm for carrying out the operations for remuneration.

·    Build Operate and Transfer: In Build Operate and Transfer one firm takes the projects and designs it and then when ready to carry out the operation operate the operations for a specific period of time in order to make the profit and recover the cost incurred while production of product or service and later after completion of the period it transfers to another firm. In this the firm doesn’t have ownership rights it just that permission is granted to the firm to operate.

·   Build Operate Own and Transfer: In build, operate, own and transfer type the firm takes up the project and designs it, produces and also own it and later after a specific period of time the firm transfers the ownership to another firm. In this the firm gains the ownership of the project.

For Example: Horton’s Restaurants, Subway, DIAL and so on

§  Partnering with Suppliers:

In this strategic alliance one firm make partnership with its supplier with an objective to get the raw materials easily accessible to it at the best prices so the production operations run smoothly. The biggest benefit is that the raw material gets accessible for best prices and a result of which production operations become cost efficient and effective.

For Example: P&G, Toyota are some of the companies that have partnering with their suppliers.

§  Pooled Purchasing:

In pooled purchasing two or more firms comes together to make a purchase which will result in lowering the cost and saving for both companies and also obtaining the prices at the cost efficient prices. Pooled Purchasing is a horizontal collaboration among the companies.

§  Partnering with Distributor:

In this type of strategic alliance the company makes agreement with its distributor and tries to acquire the market by efficient supply chain management.  This type of strategic alliance is done by the manufacturing firm with the distributor as direct sales has always remained challenge for the manufacturer and also it is easy & cost efficient for the manufacturers to achieve its goals of selling the product or service to a wide customer base by entering new markets through making partnering the distributor.