When approached for a strategic alliance, many small business owners are hesitant, as the amazing potential these kinds of partnerships hold is not always readily apparent.
In this ever-globalizing world, though, strategic alliances are becoming more relevant to business owners of all sizes and all industries – what used to be limited to blue chip companies is now a commonplace consideration for many small business owners. Here I will clarify what defines a strategic alliance and how they can benefit small businesses.
Strategic Alliances: Common Concerns
We’ve discussed with many of our members their fears and hesitations about being approached for an alliance. When considering entering into a strategic alliance, it can sometimes feel as if someone is trying to take over their business. They also find the operational and financial implications might seem hazy, and the work ahead too demanding.
Some of the concerns they expressed include:
- Loss of ownership in the business
- Loss of executive control over the project
- They associate a Strategic Alliance with M&A activity
- That a strategic alliance is too high level for their small business
Truthfully, strategic alliances can lead to growth for both parties. Slowly but surely, we are seeing these doubts erode as more business leaders become comfortable with the concept and the benefits of strategic alliances.
What Are Strategic Alliances?
Strategic alliances are agreements for cooperation or collaboration between businesses, with the ultimate result being a synergy where each party will benefit more from the alliance than from individual efforts alone.
By definition, a strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives while remaining independent organizations. This type of partnership falls between mergers and acquisitions and organic growth.
Overall, strategic alliances allow each partner to pool resources while concentrating on their competitive advantage and simultaneously growing their respective businesses.
How SMB’s Benefit from Strategic Alliances
Businesses enter alliances with resources the other alliance members are looking for. These resources can include products, distribution channels, manufacturing capabilities, funding or intellectual property. Other benefits include knowledge and expertise transfer, economic specialization and shared expenses.
Knowledge and Resource Sharing
Pooling resources can always increase the attractiveness of both partners. A knowledge share can include anything from marketing skills to management to branding to technical know-how. The combination of these shared resources increases the value of each partner in a way that is not possible when each business acts alone. Knowledge and resource sharing often increases speed to market, reduces operational complexity and increases cost efficiency.
Opportunities for Growth
A business can only sustain and grow organically until they reach a certain ceiling, which is determined by operational and financial capacity. This organic growth might not be sufficient to satisfy the strategic growth requirements of management or stakeholders, meaning that a business cannot grow and extend itself enough without the expertise and support of an external partner.
Access to Target Markets
Entering a new market almost certainly involves overcoming localized risk and operational hurdles. Often, forming an alliance with an “on the ground” or local partner is the only way to enter a specific market. This is especially true when entering into developing countries or countries with limited experience dealing with foreign businesses.
Economies of Scale
When companies pool their resources and allow each other to increase manufacturing and distribution capabilities, economies of scale can be achieved. Forming strategic alliances with the correct partner and developing effective executional strategies also allows smaller businesses to compete against larger competitors.
Businesses looking to enter new markets minimize their exposure to market and political risk by entering strategic alliances with businesses in their target markets. This is because the local business will have experience in and understanding of local laws, customs and the cultural climate in the target market. This type of partnership generally works best when the partners’ portfolios complement, but do not compete, with each other.
Other advantages of entering into strategic alliances include accessing new technologies, R&D resources and IP rights, diversifying products and services, improving material flow and product lifecycle times, making operations more agile and reducing overhead and administrative costs.
What to Keep in Mind When Entering into Strategic Alliances
While the advantages to entering into a strategic alliance are many and varied, there are obviously some considerations to keep in mind when choosing the right partner:
- Ability to meet performance expectations: Is your potential partner able to produce at a time and speed you are expecting, at a cost and efficiency that are attractive to you?
- Clear goals: These are necessary before entering into any partnership. Costs, deadlines, project roadmaps and execution duties should all be laid out clearly. They must also be agreed upon before any work begins.
- Partner compatibility and commitment to a long term partnership: This is ultimately the most important part of a strategic alliance. Both sides must feel that they will receive a clear and definite benefit from the partnership. Without such a benefit, engaging in a strategic alliance is not advisable.
Engaging in a strategic alliance allows each partner to learn from each other and develop competencies that can be more widely utilized elsewhere in standard business operations.
Use a Strategic Alliance to Grow Your Business
If you are interested in more information on strategic alliances, a good resource is the Association of Strategic Alliance Professionals, which provides networking and professional development opportunities for business leaders from all industries. In addition to strategic alliances, plenty of partnership types are available for every business. A great starting point for discovering which type of partnership is best for a business is Investopedia, which offers definitions of partnership types along with constantly updated news stories on business partnerships.
Are you interested in entering a strategic alliance or other form of business partnership? Powerlinx uses the knowledge of specialized business analysts and advanced algorithms to match you with the right partner. Let Powerlinx find you the perfect partner to help you grow: try one of Powerlinx’s subscriptions risk free, and see how far your business can grow.
Featured image by Decoded Conference