The Strategic Alliance – An Opportunity for Gaining Competitive
Advantages
Associate Professor, Doctor of International Business Tania Gorcheva, Academy of Economics “D. A.
Tsenov”; 5250 Svishtov; Bulgaria, 2 E. Chakarov St.; Department of International Economic Relations
Index words: Strategies of collaboration, ”Business - environment” interaction, life cycle of cooperation,
Alliance network.
Abstract: The “business - environment” interaction was the reason why we carried out a research intended to
describe the benefits resulting from the acquisition of competitive advantages provided by the strategic alliance
as a form of inter-corporate partnership. Thus the objects of the research are those modern companies that are
trying to expand their market share through participation in strategic alliances and its subject matter is the
strategic alliance as one of the most modern forms of inter-corporate partnership.
1. Importance and actuality of the topic – research methodology
The dynamic market environment, the challenges posed by competitors, and the
intensifying internationalization create a situation of uncertainty for the modern entrepreneur.
The growing market risks demand for a constant monitoring and evaluation of the market
environment and the competition level in terms of the products offered by the competitors.
Most entrepreneurs try to maintain the balance of their competitiveness by applying various
strategies of collaboration with other companies and creating new organizational forms,
which are to result in a synergy between the participants. Grouping and regrouping of the
companies into partnership and coordination structures is not a new phenomenon in the world
of market competition – what is new are the forms of their implementation such as the
strategic alliances (SA).
The “business - environment” interaction was the reason why we carried out a research
intended to describe the benefits resulting from the acquisition of competitive advantages
provided by the strategic alliance as a form of inter-corporate partnership. Thus the objects of
the research are those modern companies that are trying to expand their market share through
participation in strategic alliances and its subject matter is the strategic alliance as one of the
most modern forms of inter-corporate partnership.
Following the stages of formation of a SA and each phase’s characteristic activities we will
try to test and verify the relations between the “time” and “space” factors. The space may be
measured using the acquired market shares and the aspiration for market expansion.
The international economic framework, creating optimal conditions for developing
different forms of cooperation including SA are:

Process of deregulation and privatization in such strategic business areas as
telecommunication, air transport, tourism a. a.;

The trade liberation in the field of services – for example the WTO-Agreement
is accepted by 69 countries, whose export share to the world trade is 90%;

The process of globalization, which make the competition global and the
markets without boundaries. For example in 1975 the volume of the
international telecommunication exchange was 4 billion minutes, and in 1995
it was already 60 billion minutes1.
The described conditions influence positively the development of the different forms of
cooperation based on networks, incl. SA. Only in the period 1995-2000 the number of SA
increased by 40% every year2.
The main aim of the research is to test the building of SA in terms of the interaction
“time-space” factor during the different phases of the life cycle of cooperation. The analysis is
based on practical case studies. One of them is in the area of telecommunications – the
alliance “UNISOURCE” on the European market and the other one – in the field of airline
business.
2. Balance approach “stage-price” of the competitiveness when creating SA
There are different theoretical approaches in the scientific literature about the character
and the order of the phases in the life cycle of the SA. With the aim to identify the phases in
the life cycle of the development of the SA we will apply the category “chronology of
alliance”3. The category shows the frequent way to compose the actions of cooperating.
Using the chronology of alliance we can identify the key factors, which have priority
influence in the alliance development at every stage of cooperation emerging. This is the main
advantage of the used chronology, because it gives us an opportunity to disclose the
functioning of the SA and that is the point we need to analyze the interaction “time-space” in
the functioning of the SA.
1
Netzer, F., Strategische Allianzen - Nachfrageorientierte Problemfelder ihrer Gestaltung, Frankfurt am Main,
1999, S. 214.
2
3
OECD: Science, Technology and Industry Outlook, 2000, Paris.
Nieno J.; M. Oesterwelt; in: Technology Management and International Business, vol. 43, No. 1, Are Large
Firms Internationalizing the Generation of Technology?; 1992, pp. 41-47.
Table 1.
Chronology of alliance
Phases of the life cycle

Actions/Results
Next stage in the
cooperation
-
Clearing the fields of cooperation

Starting phase
(anticipation)
Phase of engagement
Fixing the relation “action – resources”
-

Phase of valuation
-

Coordination phase
Fixing the possible ways to improve the
cooperation
Fixing the keys of competitiveness

Phase of investment
Investments plan agreement

Stabilization phase

Decision phase
Sustainable development and incomes
guarantees
Planning the future development
Metamorphosis
Metamorphosis on new
stage
Staying at the course
Staying at/ or finishing the
cooperation
Adapted by : Hagsstrom, P /T. Forbs, 1998.
Regarding these methodological construction we must find the answer to the question:
Which competitive advantages the corporation gains, participant at SA, followed as a result
from cooperative actions on every phase from the life cycle of the alliance.
Figure 1. Architecture of the alliance “UNISOURCE”
Telia AB
Sweden
Koninkijke PTT
Swisscom
Telefonica
Holland
Switzerland
Spain
1989 г.
1992 г.
1994 г.
Joint
Venture
Unisource Group
“One Telecom Company”
Common aims:
- Optimizing the costs
- Emerging the scale of functioning
- Price diversity of the services
Share of
Participating
in alliance - 25%
Common actions:
- Practicing the Key-Account Management;
- Building of Unisource Satellite System (USS),
Unisource Voice System (UVS), Unisource
Network, Unisource Mobil Services (UMS),
Unisource Carrier Services (UCS)
- Price differences the main competitor
British Telecom – 20 %
Adapted by : Mueller-Stewens, G.; Ch. Lichner, 2003.
The analysis focuses on two aspects of the SA development:

Building “a critic mass of resources”, needed for the successful functioning of the SA;

Gaining/losing expected competitive advantages.
We can take a look on the architecture of the strategic alliance “UNISOURCE” (Fig.1.)4. The
figure shows the development of the alliance in the period 1989-1995. During this period the
alliance obtains a key role on the telecommunication market in Europe. If we observe the
development
of UNISOURCE – Alliance, we can find out that the alliance network runs
through whole phases of the life cycle, shown in table 1. For example the duration of the
anticipation phase is two years and the result is the building of JV. This venture becomes a
basis for the following strategic cooperation. The period 1992-1994 is the phase of
stabilization. During this phase it becomes clear, that the European market for intercontinental
calls is exhausted. These prepare the entry to the “decision” phase and the participants agree
the alliance merging with AT&T in 1995.
Figure 2. Relation “space-time” in the context of AT&T UNISOURCE – Alliance
Space
AT&T - UNISOURCE
x
Metamorphosis
x
Unisource Group (Telia/KPN/Swisscom/Telefonica)
x
KPN-Telia
Joint Venture
х
Anticipation engagement evolution coordination investment
Phase
Phase
Phase
Phase
Phase
1989
4
1992
1994
Time
1996
Mueller-Stewens, G.; Ch. Lichner, Das internationale Allianssystem um AT&T Unisource, Springer Verl,.
Berlin-Bonn, 2003, S. 128.
The emerging AT&T and UNISOURCE build a base for a global network, where the
UNISOURCE with a limited share of resources gets a worldwide market influence. Figure 2
draws graphically the connection “space-time” in the context of the phases of the life cycle
and market growth. As the figure shows after the metamorphoses stage the main target for the
participant in the alliance getting the market growth. The entry of new partners and the market
emerging provoke completely new problems and controversies in the alliance. The
UNISOURCE – Alliance before emerging with AT&T had as priorities raising the incomes
from communication services and improving the market influence. The large scale of
partnership in the alliance sets a new strategy - improving the distribution.
In conclusion the alliance emerging can lead to a market growth, but not always
successful in working in a network. The success of the alliance partnership depends on partner
selection and on coordination regarding the targets of each participant and the phases of life
cycle, starting the alliance.
Figure 3. Foundation for performance of strategic alliance between airlines companies
Destination
Agreement about
the fly services
Fly number
London-Sydney
British Airways
BA 009
13.05-1945
Quantas
QF2
22.15-05.20
Denver-Chicago-Frankfurt
United
Luft
Airlines
Hansa
6613 UA
LH 431
10.45-13.40
16.30-07.40
Information
Reservation
Transportation to
the airplane
Check–in
Lounge
Fly
Lounge
Terminal services/
Luggage office
Adapted by: Diegruber, J., 1999.
The research of the “time-space” factors of the implementation of the strategic
alliances has raised the issue of the “company-environment” relation. The analysis has proved
that it is important to monitor the implementation of the strategic alliance at every phase and
to take into account the profits and losses incurred by each partner. The monitoring is
implemented from the point of view of the environmental factors, the quantitative
measurements of which allows us to determine whether the alliance is beneficial or should be
discontinued.
3. Competitive advantages, framed in alliance network
We can find the most successful examples of the alliance network in the field of airline
business. ``Nowadays the technology of providing services at a high level of quality provokes
the necessity of partnership between the airline companies. One of the types of partnership is
based on “Code Sharing”, shown in Figure 3. In the international praxis the airline
exploitation in the same destination, based on “Code Sharing”, comes as a result of multipartnership between the different airline companies. The multi-partnership aims to offer to the
customers-passengers a better standard of services (incl. optimal connection ignoring the
airplane change or the long waiting and etc.) and high level of comfort during the flight.
Table 2. Advantages from creating strategic alliances on “Code Sharing”
Expected advantages from
partnership
Respect of flight security – implementation of world wide standards
Comfort guarantee
Flexibility of flight connections
Directly flying without changes
Equal standard of services
Issue: Diegruber, J.,1991.
Domineering of the
advantages
Limited dominance among
the partners
Without dominance among
the partners
Limited dominance
Strong dominance
Strong dominance
Opinion differences about the
advantage’s priority
Some existent differences
Non existent differences
Non existent differences
Some existent differences
Non existent differences
This aim corresponds to the competitiveness as a result of the collaboration of all companies
in the network, and that exactly is the genesis of the strategic alliance. All airline companies
are expecting results from the strategic partnership on “Code Sharing”. Some of these
expectations are shown in Table 2. From the table we can see that from all expected
advantages as a result of the partnership the highest priority without difference in the opinions
of the partners have the quality of customer’s service.
Table 3. Bonuses from the participation at the Code Sharing strategic alliances
Alliance partners
Airlines
Participants
Multiplication
Multiplication
the life
”Business class”
“First class”
cycle
Yes
30 000
60 000
Miles
Miles
Yes
20 000
35 000
Miles
Miles
“В”
Issue: Diegruber, J. ,1991.
Bonuses/flown distance
2. Phase in
cycle
“А”
Air Company
1. Phase in
the life
companies
Air Company
Year achievement
2.0
3.0
1.25
1.50
Bonuses
3 000
Miles
2500
Miles
The passengers obtain a better service as a result of the functioning of the Code
Sharing-Alliances and the airlines companies – partner at the alliance obtain some advantages.
So we can find out that a double effect appears. The alliance airline companies can optimize
the exploitation expenses, they can use completely the capacity of the airplanes, and they can
perfect the timetables to the passengers flow. We can describe the double effect of Code
Sharing-Alliances with the help of the bonus system, which is illustrated in Table 3.
Table 4. Market share based on extended agreements
Continents /Destinations
North America
Latin
America
Europe
Asia/ Pacific
Market share, in %
45%
3.99%
25.20%
22.12%
Star Alliance
United Airlines/
Varig
Luft hansa/SAS
Tai Airways
American
Airlines/Canadian Airlines
British Airways
Qantas
Northwest/
KLM/ Al Italia
Air Canada
Alliance-British Airways
Alliance Northwest
/KLM
Continental Airlines
Swissair/
Qualifyer Group Delta
Air Lines
Delta Air Lines
Austrian Airlines/
Sabena, AOM,
Singapore Airlines/
Alliance – Singapore
Airlines
Ans.Australia
/Air New Zealand
Collored fields - Alliances based on “Code Sharing”.
Adapted by : Alexanrova, A.; 2002, (Rus.)
The table shows how the bonus system works. The bonus system gives us information about
the relation “flown distance-advantages for passengers and for alliance partners”. Some
researchers, analyzing this relation have discovered a double effect of the bonus system
framed in alliance net5. They have found empirical arguments that confirm the double effect.
So confirming these researches we can maintain, that the bonus system offers a convincing
proof of the multiple advantages of the network in the international airlines business.
Discovering the double effect of the bonus system we took for analysis only one side
of the competitive advantages of the Code Sharing –Alliances. The other side, as we
maintained in the previous paragraph, focuses the relation “number of members-market
share” in the alliance network. Figure 4 shows, what is the relation in a case of network of
5
Bearden W.; R. Netemeyer, Scales Related to Innovativness, SAGE-Publishing, London/New Deli, 1998, pp.
84-88.
two Code Sharing-Alliances: Star Alliance and the alliance centered on the British Airways
Company6. Those companies have the biggest market share on three continents. One more
aspect of the networking, based on Code Sharing, is the support system between the particular
alliances. So figure 3 shows, that Star Alliance are building a support system with Canada Air
Company and United Airlines to extend the market share on the continent of North America.
British Airways have the support of American Airlines and Canadian Lines and have achieved
market extension, too. The support system functions according to an informal agreement
between the airline companies, and the principal function of the alliance net is based on a
formal agreement. The result of combining the formal and informal agreements in airlines
business is the market extension of the alliance influence.
As a conclusion we can assert that the extended partnership based on the principles of
the strategic alliances, offer to the companies-participants a lot of advantages. The alliance
members cannot simply gain competitiveness as a result of collaboration. The functioning of
the alliances changes the market environment and creates better opportunities for the
customers.
Complete literature references:
Alexandrova, A., International tourism and transport lines, Moscow, 2002, p.453, (Rus.).
Bearden W.; R. Netemeyer, Scales Related to Innovativness, SAGE-Publishing, London/New
Deli, 1998.
Diegruber, J., Erfolgsfaktoren der nationalen europaeischen
Verkehrsgesellschaften; St. Galen (Herausgeber), Muenchen/Koeln.
Linien
und
der
Gerybadze, A., A New Framework for Analyzing Globalization of R&D and Innovation in
Transnational Companies. Proceedings of the 7th IFTM Conference, Nov. 3-7, 1997, Kyoto.
Hagsstrom, P., G.Helmud, The Dynamic Firms, Paper at Prince Beril Symposium, 12-14
June1994.
Mueller-Stewens, G.; Ch. Lichner, Das internationale Allianssystem um AT&T Unisource,
Springer Verl,. Berlin/Bonn, 2003.
Lorange, P., Roos J., Building Successful Strategic Alliances, in: Long Range Planing, Vol.
25, No. 8, 1992.
6
The alliance net Star Alliance includes the following companies: Lufthansa; SAS; Thai Airways and Varig.
Supported companies are Air Canada and United Airlines. The alliance net around British Airways count tree
members except BA – Northwest /KLM, Qualifyer Group Delta Air Lines. (Alexandrova, A., International
tourism and transport lines, Moscow, 2002, p.453, (Rus.).
Netzer, F., Strategische Allianzen - Nachfrageorientierte Problemfelder ihrer Gestaltung,
Frankfurt am Main, 1999.
Nieno J.; M. Oesterwelt; in: Technology Management and International Business, vol. 43, No.
1, Are Large Firms Internationalizing the Generation of Technology? ; 1992.
Porter, M. , Competitive Advantage of Nations and Their Firms, US: Free Press/UK:
Macmillan, 1990.
OECD: Science, Technology and Industry Outlook, 2000, Paris.
Roos, R., The economic theory of agency: the principal’s problem, in: American Economic
Review, No. 63, 1998.
Thomson, J. P. (Eds) : Approaches to Organizational Design, 1998, Boston (MA).