What is an Alliance and Why Consider One?

A business alliance is a formal association of two or more business parties to further their common interests, presumably over the long term. As such, these alliances take many forms with varying degrees of complexity and difficulty.

In its simplest form, an alliance can be described as a buy/sell arrangement. On a more complex level, a long term relationship and alliance may result from an effort to co-develop or share technology, or a through technology licensing agreement. Even more complex in nature are partnerships and joint ventures. Joint ventures typically achieve the ultimate level of complexity, particularly when the global aspect of business is introduced and especially if the parties to the alliance are from different countries and different cultures.

Unfortunately, there are too many examples of alliances formed between business entities that were predicated upon the premise that “everyone else in the industry is doing it, so it must be the right course of action.” Others have been formed based upon the whim of upper-level management with no real analysis as to whether an alliance was necessary.

In almost all cases where inadequate planning supersedes the formation of the alliance, the likelihood of success is infinitesimal and the likelihood of failure is practically assured. In contrast, when properly developed and formed, joint ventures represent an opportunity to leverage expertise from each party, thereby creating a more powerful and a more competitive entity than one based on an extension of one of the party’s existing resource base. This becomes even more critical in today’s global business environment wherein the right alliance partner can provide local market knowledge, legal expertise, knowledge of local business practices, local customs, etc.