Alliances

Alliance Forms and Types

Alliances can take various forms, from long-term R&D joint ventures with equity stakes to loosely agreed short-term marketing partnerships. Two broad classes of alliances can be differentiated: equity and nonequity alliances. Equity alliances, like joint ventures, involve the creation of a separate, new entity (i.e., the joint venture). Joint venture partners provide financial capital and other resources to the newly created firm, which typically has its own management team reporting to a board composed of representatives from the joint venture partners. Nonequity alliances are based on contractual agreements and entail any form of cooperative relationship between two or more firms. The agreement can be more or less formalized and either emerges from the interactions of two or more firms or is the result of purposefully establishing a collaborative organizational relationship. Examples include long-term supply relationships, licensing arrangements, and distribution agreements.

There are various ways of classifying the type of alliance. The type typically follows the strategic rationale underlying the formation of the alliance. As noted by Barney and Hesterly in 1996, alliances are usually motivated by the partnering firms' strategic intents, such as a focus on exploiting economies of scale; gaining low-cost entry into new markets; learning to enhance a firm's knowledge base; managing uncertainty, costs, and risks; or facilitating tacit collusion. In many cases, alliances between companies can involve two or more types of alliances. For instance, a sales alliance occurs when two companies agree to go to market together to sell complementary products and services. A solution-specific alliance occurs when two companies decide to jointly develop and sell a specific marketplace solution. A geographic-specific alliance is developed when two companies come together to jointly market or cobrand their products and services in a specific geographic region. With a strategic aim focused on selling solution-specific products to a particular region, for example, there can be overlap with respect to the type classifying alliances. Different forms and types of strategic alliances are a more common and economically important form of cooperation than, for example, mergers and acquisitions.

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