Firms can enter into a number of different types of alliances. One typology of business alliances conceptualizes it as vertical and horizontal. A strategic alliance is an agreement between 2 or more businesses to pursue a set of agreed upon objectives while remaining independent organizations.
Companies contribute resources like products, distribution channels, project funding and knowledge toward their common goals.
Types of Strategic Alliances with Examples
1. Horizontal strategic alliances are created by businesses that are involved in the same business area. This means that the partners in the alliance used to be competitors and come together In order to boost their position in the marketplace and improve market power compared to other business rivals.
A Horizontal alliance take place when a company links with another company with reciprocal collaborations in joint activities.
The degree of interaction among the partner companies can be optimized according to the firms’ goals and the set of common activities. Alliance partners can have joint production to accomplish economies of scale, or joint sales in an effort to gain more market share, or basically to transfer technological knowledge.
These types of partnerships usually are anti-competitive, hence anti-trust law might be of interest in this type of alliance. It is a strategy to sell an item in a number of markets. Research and development cooperation between microelectronic firms is a type of horizontal strategic alliance.
Examples of Horizontal Strategic Partnerships
- Acquiring of Citroen shares by Peugeot building a partnership also called PSA, the merger of “equals” of Daimler and Chrysler which has failed, and now Chrysler belongs to Fiat.
- The partnership between Sina Corp and Yahoo in an effort to offer online auction services in China.
- A communications consulting business submits a proposal to make a communications plan for a firm which deals with politically sensitive issues. The consulting business makes a decision to include a political advisor in its proposal.
- Alliance between Microsoft and Yahoo. The intent of the alliance was to use Microsoft’s Bing search engine as a search engine on Yahoo’s website.
Read Also: Global Strategic Alliance Examples
2. A vertical strategic alliance is a partnership between a firm and its distributors. Some companies make use of vertical alliances to produce their products and services.
Vertical strategic alliances are associations among businesses in different industries. This is a type of alliance is most frequently found in the service sector where collaboration of expertise can be coordinated to offer complete solutions to clients. This type of strategic alliance is characterized by the collaboration between two or more firms along the vertical chain.
Examples of Vertical Strategic Alliance
The close bond between an auto manufacturer and its suppliers is an example. An automaker builds relationship with suppliers which supply services and goods in any business process along the vertical chain. Basically vertical relations are largely dependent upon the decision making process of “make-versus-buy”.
Making decision implies that the automaker produces in-house. One of the key reasons behind it is to protect its core competitive advantages. Purchasing decision indicates that the automaker purchases or outsources the production of a good or service.
The rationale to do so might be to keep costs down and bureaucracy related to the production of peripheral parts, and focus on the manufacturing of their core parts like the engine.
Caterpillar‘s provision of manufacturing services to Land Rover.
Figure 1 – Example
Video on 3 Different JV & Alliance Types
Read Also: Forms of Strategic Alliance
Disadvantages of Strategic Alliances
People from a civil engineering, project management, construction, landscaping and interior design companies all have diverse areas of expertise, yet jointly can deliver an entire building solution. None of the companies could bid on a job of this size individually, but as a group they are able to combine their expertise for as long as necessary.
Nike uses quite a few vertical alliances to produce many of its athletic shoes.
In the above text, I have only talked vertical and horizontal alliance. Some other types of strategic alliances in business include: Intersectional alliances, Joint ventures, Equity alliances, Technology Licensing, Franchising, Licensing, Outsourcing
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