Academic journal article
By Hung, C. L.
Management International Review , Vol. 32, No. 4
A strategic business alliance (SBA) can be defined as a long term cooperative business agreement between two or more companies to pool, exchange and/or integrate specified company resources for achieving some agreed objectives. This broad definition embodies a vast array of corporate linkage arrangements ranging from almost an arm's length vendor-customer relationship to an affiliation just short of a complete merger. These include joint ventures, cross licensing, reciprocal distribution and promotion arrangements, technology swaps, information exchange agreements, collaborative research programs, sharing of complementary assets, and cooperative product development and servicing contracts.
Irrespective of the form, all SBAs must possess: (a) a business objective, (b) a long term agreement indicating a continuous relationship, (c) distinct and identifiable non-equity contributions by both parties, and (d) active participation and interaction in the management of the alliance by both parties.
Cooperation between companies in the form of joint ventures and distribution agreements have existed for many years, but today's SBAs portray something qualitatively very different. While traditional corporate linkages tend to take place in areas peripheral to the partner companies' core skills and competitive strength and are formed mostly by non-competing companies, SBAs are often formed by hither-to rivalling companies in order to enhance their respective capabilities and competitive positions in non-competing lines of operations or markets. Yet, at the same time, they may face each other as competitors in different lines of operations or markets. Notable examples are the alliances formed by General Motors and Toyota, Siemens and Philips, Canon and Kodak, Thomson and JVC, Apple and Canon, Honeywell and NEC, Texas Instruments and Hitachi, and most recently, I.B.M. and Apple, and Northern Telecom and Motorola. But apart from these alliances between industry giants, there are also thousands of alliances between companies of different sizes and strengths. While one company may enter into an alliance with another company in search for entrepreneurial capabilities and market niches, the latter may be looking to the former as a source for venture capital and research support for innovative ideas.
SBAs have grown exponentially in number in recent years, and are now a very popular instrument for global market competition. In a Survey Research International survey on 419 U.S. firms in 1990, SBAs were used by over half (51.2%) of the companies for world wide expansion. This proportion exceeded by a significant margin those of the other modes such as acquisitions (36.3%), direct exporting (34.8%), new product introduction (34.2%) and start-up (18.8%). In the 1980s, U.S. companies formed over 2,000 alliances with European companies alone (Kraar 1989).
While the proliferation of SBAs in recent years has definitely been enhanced by improved communication technology linking geographically dispersed companies, the underlying driving force is unquestionably the realization of their necessity and benefits. The world market of today is characterised by a move towards globalization, escalating capital requirements for research and development, increased sophistication of new products and rapid technological obsolescence which shortens the product life cycle. These trends are forcing companies to reexamine the feasibility and wisdom of traditional market development methods and market positioning strategies. Inevitably, they come to realize that no matter how strong and resourceful is a company, there is no way it can have competitive advantage in each and every step of the value added process in all national markets, nor can it maintain a cutting edge in all the different critical technologies required for the development, production and marketing of today's sophisticated products. There are tremendous and often prohibitive costs, risks and time required to set up new research, manufacturing and distribution facilities. …