In order for it to succeed, must a strategic alliance be an alliance between equals?

Authors Avatar

In order for it to succeed, must a strategic alliance be an alliance between equals?

In recent years collaborative partnership as a form of business operation has increased rapidly.  This has been mainly due to increased levels of competition, the emergence of new markets and technological developments in todays global market.  Estimates of the annual growth of strategic alliances in the early 1990’s averaged between 27 and 30 per cent for industrialised countries (Anderson, 1990). An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective’ (Takec and Singh, 1992).  Forming strategic alliances offers a company the chance to improve its competitive position by sharing costs, technology, resources and knowledge.  The idea is that if two companies pool their resources, their joint objectives can be achieved more easily and economically (Strategic Management Journal, 1991). A strategic alliance may be vertical, between a buyer and supplier or horizontal, between two different companies at the same point in the supply chain. The main debate raised by the question is the extent to which equality between the parties is a prerequisite for the success of an alliance.  

Central to this debate is determining what is considered to be a successful strategic alliance.   The notion of success is a subjective opinion, which could mean something to one firm and something quite different to another.  In order to tackle this question, several different criteria for successful alliances shall be used and the extent to which the parties involved must be equal considered.

The first, most simplistic criteria for measuring the success of an alliance are longevity and stability.  Here, it is thought that a lack of change is argued to reflect some degree of success in creating the arrangement, either in terms of creating value or reducing conflict (Cropper, 1996).  ‘This is supported by a positive correlation between longevity and managerial satisfaction’ (Reuer & Koza, 2000).  I would suggest that in this case it is not necessary for the two parties involved to be equal.  A situation may arise in which a much smaller company forms a vertical alliance with a larger, more powerful company.  For example, Japanese component suppliers in the auto industry faithfully follow the large assembler wherever they locate around the world and partnerships formed between them are expected to last a long time.  The partners are not equal in terms of power as the buyer has the option of changing supplier. However, this alliance is likely to be a success in terms of longevity and stability as it is in both companies’ interest to work together and sustain a long-term relationship.

The Japanese auto industry example illustrates that an unequal distribution of power does not mean a strategic alliance cannot be mutually beneficial.  A large company with large capital, highly developed technology and large market share may form a vertical alliance with a small, lower tier supplier to source a particular material or to manufacture their product at a lower labour cost.  Some western European car manufacturers form alliances with eastern European manufacturers as they have lower labour costs. I would argue this is a mutually beneficial alliance; the larger company can manufacture its product at a lower cost and the smaller company has a formal agreement, ensuring regular business for a specified time period.

Williamson’s Transactional Cost Theory approach looks at the overall increase in efficiency and/or a reduction in costs as a measure of success. A powerful company that deals with a smaller company in its supply chain may decide to form an alliance in order to create a more lean, efficient supply chain, as in the Japanese case.  By creating a partnership, one or both firms could make efficiency gains in terms of reduced transaction costs.

Join now!

Success could be measured in terms of increased profitability for the companies involved.  As a result of collaborating, one or both firms may experience an increase on their return on assets and return on capital employedn as a result of rationalising their supply chain.

Therefore, it could be argued that an imbalance of power between two companies does not necessarily lead to the failure of an alliance.  Often a smaller, less powerful company benefits greatly from forming an alliance with a more powerful company.  The more powerful company will have a position of dominance over the weaker company ...

This is a preview of the whole essay