Introduction
Today there is a trend in big business to stick to core competence and let
outsiders helping the areas that are not core strength. Small business can take a lesson
here. In small business the tendency is to do everything in-house, believing they can
do it better, or cheaper, themselves. This erroneous belief takes small business away
from their core strength and forces them to play in sandbox where they are weak.
One of the best reasons to build a strategic alliance is to allow your business to
concentrate on what it knows rather than what it doesn’t.
A 1994 alliance study of small business by Securities Data Company yielded
the following results as to types of alliances developed: 26% marketing, 21% Joint
ventures, 21% R&D, 15% manufacturing, 13% licensing, 3% Minority Equity Stake,
1% Funding.
Types of Strategic Alliances
Strategic Alliances for Marketing
1) Cross Promotional Alliance:
- Cross promotion Alliances is one of the more common reasons for an alliance.
- Concept: companies promoting each other with the use of discounts, coupons,
specials, shared advertising space or in-store promotions.
Ex: Business Class flights offering a free AOL disk with peanuts
2) Strategic Alliances for Co-Branding:
- Co-branding strategy involves two companies putting their name on a
common product.
- At the very least, co-branding offers twice the marketing impact as a
traditional single brand style.
Ex: Mattel and McDonalds offering a toy that makes McDonalds hamburgers and
fries.
3) Strategic Alliances to Serve National Customers:
- Serving National customers is often too costly or too difficult for a firm to
handle by themselves.
- To create an alliance to serve national customers, companies share
information, sales accounts and materials with the other members. This also
allows for a more consistent customer satisfaction that otherwise wouldn’t be
available.
- Trust is a very important factor in alliances, especially in national/global
alliances.
Ex: Awnet: Canvas Awnings drawing together with several other fabricators to
meet the needs of clients all over the U.S. by dividing the country into 5 sectors
and helping one another to facilitate local, as well as national sales.
4) Industry-Specific Geographical Alliances:
- Focuses on a specific industry in a certain geographical area.
- These businesses are general within very close proximity to one another and
can satisfy all the needs of their customers in one phone call or visit.
Ex: The Minnesota Connection: Services the Direct Marketing Industry, alliance
involving Telemarketing, Plastic, Printing, Envelope, Lettershop, and Listing
Services.
5) Community-Based Alliances:
- Involves working together with other companies to create some community
benefit that essentially differentiates your organization from your competitors
in the eyes of your customers.
- Community-Based Alliances are typically a form of advertising, although they
allow different companies to come together for the benefit of the community,
and the resulting networking and friendships are a priceless benefit for the
companies involved.
Ex: Investors Advantage Corporation holding an Economic Forum in Westlake
Village, California. By providing high-profile speakers and representatives from
many companies, the forum benefits the citizens and customers and also provides
the companies involved with exceptional advertising and name recognition as well
as the ability to attract new customers in attendance.
6) Alliances with your Competition:
- Competition is NOT bad. Competition breeds success.
- This concept is exactly as it sounds, you work with your competitors in search
of mutual benefits.
- This approach is beneficial in economic/industry downturns or when costs of
machinery or resources are extremely high.
- It is possible to reduce costs by sharing space, advertising or commercial
space with competition.
Ex: American, Delta and United Airlines sharing a store-front ticket office to
reduce rental fees and attract more customers.
7) Alliances with Competitors to Open New Markets:
- Often time’s foreign or new markets have some characteristic that makes them
unserviceable for an organization. Examples are markets that are too large, too
far away, too different, undeveloped, and so on.
- Forming alliances with competitors is a viable solution is many cases when
these issues are at large.
- By working together with the competition, organizations are able to increase
output, lower costs of distribution and provide advertising and marketing that
make the penetration of the market much easier that it would be if they were to
go at it alone.
Ex: La Tapatia Tortilleria and El Aguillea Tortillas formed a strategic alliance to
open the new market of California to fresh tortillas. Neither of the companies had
the production ability to service the market alone, but together they were able to
capture a huge market and become very successful.
8) Strategic Alliances for Buying Parity
-
Such as buying cooperatives or buying groups
Buying as a group can make similarity of prices
A list of Buying Group Benefits from office Dealer Magazine:
 Lower product costs
 Lower operating costs
 Industry information
 Education and training
 Networking
 Pricing guidelines
 Competitive information
 Advertising support
 Catalogs
 Credit information
 Reduced-price services
Ex. In American Dental Cooperative (ADC), the ADC members came together in
an alliance for buying parity to as they called “level the playing field”. As buying
in group, they can get prices similar to that of the two giants in their industries.
9) Alliances with Competitors to Build an Industry
-
The form of cooperative alliance to raise the awareness and increase sales of
particular business in the area
Ex. In Southern Ontario, Canada, a group of craft breweries formed a cooperative
alliance to raise the awareness of craft brewing in the area. All competitors get
together to create the Ale Trail, the idea to bring visitors to the area.
10) Strategic Alliances to Beat Competition
-
The alliance that the two companies combine their strength to make
new products
Ex. Coca-Cola developed an alliance with Nestle to make cannd and bottled
coffees and teas for a worldwide market in order to compete with Pepsi.
11) Alliances to Block New Competitors
- The two main competitors make an agreement alliance to stop another main
competitor from its new strategy or entering into the industry.
Ex. GTE and Pacific Bell, the two California telephone companies, entered into
an alliance agreement, and they successfully blocked Metropolitan Fiber Systems
(MFS) from developing a fiber optics dual communication system for the
University because it will undercut price to local phone companies.
12) Strategic Alliances for Product Development
- When some products or ideas have to be developed using more advance
technology and hard to do by own.
Ex. Chrysler and Westinghouse collaborated to develop an advanced electric
motor and power controller that would boost acceleration and operating rage
between charges in Chrysler electric vehicles.
13) Strategic Alliances for Research
- Often times, the contemporary understanding of concepts is either outdated
or flawed, and in worse cases, completely mistaken. Often times the research
and development for newer or more appropriate concepts is costly and
difficult. Forming alliances with companies or governments with common
goals can be a very good alternative to an otherwise difficult situation.
Ex. GM and the federal government of the U.S.A are combining forces to complete
extensive research on electric car technology. With GM’s current financial situation
they would be unable to perform such research and the U.S. government having the
money and resources to help GM seems to be taken a step in the right direction.
14) Strategic Alliances for Manufacturing and Construction
- Partnering is having all key people involved on a project attend the
workshop.
- There are four main components of construction project, which are the
owner, the general contractor, architectural and engineering, and the sub
contractor.
- The main benefit is save time and money.
Ex. the Arizona Department of Transportation has made partnering of its
15) Strategic Alliance between Private Business and State Owned Foreign Business
-
This strategy can be risky but can be profitable as well.
Ex. Honeywell and Sinopec create cooperative joint venture to help Sinopec to be a
world-class refining and petrochemical corporation by 2000. Honeywell can double
the sales to Sinopec’s 38 enterprises. Honeywell anticipates a minimum of $75
million in new sales over the five years
16) Strategic Alliances for Distribution
-
Both parties join each other to distribute their products.
-
Both parties get benefits.
Ex. Coca Cola and Nestle distribute Nestle iced coffee drink in Korea. Coke has good
distribution channel and Nestle has products that do not directly compete with their
existing products.
17) Strategic Alliances with Your Customers
- It can be very rewarding
Vendor Managed Inventory (VMI)
Coupled with the idea of VMI, you will find Electronic Data Interchange
(EDI), Just-In-Time (JIT), and Integrated Supply (I/S). As distribution moves closer
to Supply Chain Integration, there are a lot of benefits for people who participate in
such as – Improved inventory control
- Reduced vendor base
-
Increased product or supply turns
-
Reduced inventory investment
-
Reduction of transaction costs
-
Improved service levels
-
Increased sales
-
Reduction in out-of-stocks
-
Improved profit margins
-
Reduction of purchasing staff
19) Strategic Alliances with Your Suppliers
As American companies shrink the number of suppliers, they are putting more
energy into the remaining relationships, and are even willing to pay a premium on the
theory that getting things right initially is cheaper in the long run. This is in contrast
to how we think of American business for the last 60 years or so, functioning within
the paradigm of adversary relationships. Squeezing the life blood from your supplier
had become standard.
Ex. Nowadays big firms are slashing their vendor rolls and working more closely with
a select few. Xerox has reduced their suppliers from 5,000 to 500, Motorola from
10,000 to 3,000, and Digital Equipment from 9,000 to 3,000.
Techniques to build a strong alliance with your suppliers
1. Look for partners who wanted to partner with you
 You must indentify which of your suppliers truly want to develop
alliances with you
 Spend your time building those relationship with your suppliers that
will help you to serve your market and improve your bottom line
 When you commit to a closer relationship with your suppliers, it helps
them and they can offer you a better total value package
2. Ask your suppliers, “What can I do for you?”
 We can help to come up with strategies for the end-users to buy better
from the manufacturers in a way that served the manufacturers
The Fuji Factor
Among the major suppliers to the graphic arts industry, Fuji was by far the
most advanced in building quality relationships with its dealers. The Fuji factor is a
model that more manufacturers should embrace and more purchasers should demand
of their suppliers.
The key elements to Fuji’s success are as follows:
 A limited number of dealers offering their products to their market
 Manufactured products of the highest quality with zero defects as the
norm
 Build tight relationships with a limited dealer network
 Seek constructive feedback from dealers and act upon the ideas
shared
 Consistency of leadership -- ( no changes in leadership)
 Accessibility -- (dealers can pick up the phone and reach the
president of Fuji easily)
 Trust
20) Alliances on the Internet
Ex. of an internet strategic alliance is Lifelines. The site is an alliance
between the company and several health and employee productivity related
companies. The site lets corporate decision makers know what is available for them
in the area of employee effectiveness and productivity. The information on the site
helps people to improve their effectiveness through improved health and optimal
wellness.
21) Mastermind Alliances
It is also known as strategic alliances for individual development. The group
of the mastermind alliances must be geographically close to each other. This will
allow them to get together regularly to have a meeting to discuss the problems or
something that occurs.
Ex. Palm Springs Breakfast Club which has a strategic alliance with other California
cities to draw tourists to the state. This mastermind alliance is consisted of general
managers from seven other deluxe hotels, the convention center director, and the
owner of the aerial tram. They meet every Wednesday and rotate member locations
weekly. They discuss issues uniquely important to the hospitality business in
downtown Palm Springs.