Global strategic alliances offer incredible new opportunities for businesses of any size. Thanks to the availability of communication and information-sharing resources, a startup can form the same quality of alliances globally as a large corporation.
Businesses are looking to form these alliances with one another more than any other type of relationship. In 2014, for example, there were 11 major global strategic alliances that were formed, including one between MasterCard and Apple Pay.
The best alliances form when 2+ companies want to form a partnership when goals are shared. They recognized that their collective branding allows their resources to maximize the reach of their mission and vision.
If you’re thinking about forming a global strategic alliance, or you’re just researching this topic to learn more about it, here are the specific advantages and disadvantages which must be evaluated to know if it is the right move to make.
List of the Advantages of Global Strategic Alliances
1. It allows all parties to reach their goals faster.
It is much easier to meet your metrics or reach your goals when the resources of 2+ companies are working together instead of one company going alone. You’re able to expand your presence within your targeted markets, just as your alliance partners are able to do, which expands the reach of each brand. It is one of the fastest ways for a new business to establish themselves into a market or to introduce a proven brand into a new market.
2. It expands your customer base.
People are loyal to the brands that they trust. Your company earns their business because you’re able to fulfill value propositions on a regular basis. When you form a global strategic alliance, that loyalty expands to the other companies within the alliance. At the same time, your company gains the loyalty of the customers from the other alliance members too. That makes it possible to expand your current demographic base, even if you are in a mature domestic market.
3. It gives you access to greater levels of innovation.
Customers are always looking for the best value possible. In a perfect world, they would always choose the company with the most expertise to share. In the real world, customers balance the quality of expertise with the price they are forced to pay. When you’re able to form an alliance with other companies, your resources are able to go further than if you were developing resources on your own. That leads to products or services which have more innovation, which provides customers with more value, and that is a path which leads to better results.
4. It gives you access to positive brand awareness.
When an alliance is formed between 2+ companies, the positive brand awareness actions that one company takes will reflect on all other alliance members. Although this requires all parties involved to have layers of accountability which ensure customers are able to receive excellent quality services with every transaction, it costs much less to build a positive reputation within a global strategic alliance than it does when you must build it on your own.
5. It can improve the quality of individual products.
Global alliances provide new insights and ideas into existing product lines or service opportunities. This creates an opportunity for the quality of individual products or services to improve over time. Not only does this give your company, and the alliance, an edge over the rest of the competition, it is a chance to create more profits as well. You can improve manufacturing processes, create new vendor relationships, or reduce costs within your distribution networks.
6. It may involve financial assistance.
A global strategic alliance may include financial assistance for all parties involved – or just one. If your company is a startup, a small business, or in trouble without access to the global market, you may find that alliance members are willing to stabilize the finances of your company to earn rewards in the future. You may also be called upon to provide financial assistance one day, so paying attention to the fine details of the agreement is an essential step that cannot be ignored.
7. It allows businesses to avoid import/export controls.
Depending on the home nation of the companies involved, regulations may permit companies with a proven global strategic alliance to avoid the controls which are involved in importing or exporting goods. Some companies may be able to avoid tariffs or entry fees into new markets with this type of partnership. Even if these benefits are not present, alliance members still gain an advantage with reduced barriers to entry into a new market.
8. It is not a merger or an acquisition.
Companies prefer a global strategic alliance because it doesn’t change the formal structure of the individual agencies involved. You don’t need to worry about a formal merger process or spending money to acquire another business. You just start working together in specific ways, finding opportunities to combine resources to the benefit of all alliance members. It is a clean, simple, and efficient way to expand the reach of a company into new markets or customer segments.
9. It expands networking opportunities.
A global strategic alliance helps companies broaden their networking base of contacts throughout the world. The additional of political contacts through this partnership may be one of the most valuable advantages that is available with this type of partnership.
List of the Disadvantages of Global Strategic Alliances
1. It may encourage good employees to cross over.
One of the biggest disadvantages that occurs within a global strategic alliance is the crossover of employees. When companies come together, you are putting your company at risk. You might lose good people because your strategic partners are able to pay your best people more than you can afford to pay them. You might be stuck dealing with mistreatment of your agreement by your partner. Some companies even use these alliances as a way to poach talent, without regard to the health of the other company.
2. It can create conflicts in ownership claims.
When 2+ companies work together to bring new products or services to a specific market, it sometimes creates conflict with regards to who has the rights over the product, the production sites, or the patents and trademarks which are involved. In severe cases, a global strategic alliance can break down into lawsuits and litigation, which reduces all the benefits that are possible with this type of agreement should it occur.
3. It may stick one company with a majority of the expenses.
Within a global strategic alliance, it is common to saddle one company with a greater share of alliance expenses than others. Not every company is willing to step up and help others out when the time comes either, which may leave one company experiencing only benefits and the other fighting to stay profitable. Even the way you’ve agreed to split profits can come into question. That is why any new global strategic alliance must have clear rules outlined in this scenario to prevent one company from taking advantage of another.
4. It can lead to discrepancies of interpretation.
If an agreement is ambiguous when it is hammered out, then it leaves everyone to interpret what the wording means when it comes time to implement a strategy. That can create difficulties in what each company believes is applicable to them. It can even lead to disagreements over how long the partnership is intended to last. Before signing onto any agreement, thoroughly review an agreement and ask questions about anything that seems uncertain to avoid this disadvantage.
5. It can create a clash of cultures.
Global cultures can vary widely. When companies partner up and there are clear differences in culture, it can create clashes between the two which are sometimes difficult to overcome. These clashes are especially evident in alliances which involve Western companies and Asia-Pacific companies. When this occurs, the blame is often shifted from one party to the other, which doesn’t solve the issue, adding tension to an already tense relationship.
6. It may cause delays in implementation.
Even the best partnerships today experience problems with implementation if they are unable to coordinate their services effectively. Open, honest lines of communication are mandatory within a global strategic alliance to ensure this issue does not occur. If delays do occur, it may allow rival companies or strategic partnerships to gain a competitive edge, negating the other advantages which come with a partnership.
The global strategic alliance advantages and disadvantages ultimately involve using common sense. Enter into agreements that are mutually beneficial to all parties involved. Be clear about what you are agreeing to do, along with what is expected from everyone else. There will always be companies that try to take advantage of others to increase their own market share. If you review these agreements, ask questions, and move slowly instead of impulsively, it is possible to avoid many of the pitfalls that these agreements can sometimes form.