hello everyone welcome to business school 101 when you walk into a Target store you might find a Starbucks coffee shop right on the corner when you shop in some of lwis Von's retail stores you might see some posters of the newest model of BMW i8 in today's business world we saw an increasing number of firms entering strategic alliances to either enhance their strengths or compensate for their weakness so what is a strategic Alliance why do firms choose to form them what are the major types of strategic alliances are there some famous examples of strategic alliances from the real business World in this video I will discuss these questions with you section one what is strategic Alliance strategic alliances are voluntary Arrangements between firms that involve the sharing of knowledge resources and capabilities with the intent of developing processes products or Services the use of strategic alliances to implement corporate strategy has exploded in the past few decades with thousands forming each year as the speed of technological change and innovation has increased firms have responded by entering more alliances globalization has also contributed to an increase in crossborder strategic alliances section two why do firms enter strategic alliances generally firms enter strategic alliances for five major reasons number one strengthen competitive position firms can use strategic alliances to change the industry structure structure in their favor firms frequently use strategic alliances when competing in so-called battles for industry standards research shows how IBM and apple entered a strategic Alliance to strengthen their respective competitive position in Mobile Computing and business productivity apps this in turn increases the competitive pressure on Rivals of both companies number two enter new markets firms may use strategic alliances to enter new markets in terms of either products or services in addition when entering new Geographic markets some governments such as Saudi Arabia or China mire that foreign firms have a local joint venture partner before doing business in their countries please keep in mind that while the foreign firm can benefit from local expertise and contacts it is exposed to the risk that some of its proprietary know how may be appropriated by the foreign partner number three hedge against uncertainty in Dynamic markets strategic alliances allow firms to limit their exposure to uncertainty in the market for instance in the wake of the biotechnology Revolution incumbent pharmaceutical firms such as fizer nardis and Ro entered into hundreds of strategic alliances with biotech startups these alliances allowed the big pharmaceutical firms to make small-scale investments in many of the new biotechnology Ventures that were poised to disrupt existing market economics number four access critical complimentary assets the successful commercialization of a new product or service often requires complimentary assets such as marketing manufacturing and after Sal service in particular new firms need complimentary assets to complete the value chain from Upstream Innovation to Downstream commercialization strategic alliances allow firms to match complimentary skills and resources to complete the value chain number five learn new capabilities sometimes firms enter strategic alliances to learn new capabilities from their Partners when the collaborating firms are also competitors Co-op petition ensues coopertition is a pment o describing cooperation by competitors they may cooperate to create a larger pip but then might compete about how the pi should be divided this can lead to learning races in strategic alliances a situation in which both partners are motivated to form an alliance for learning The Firm that learns faster and accomplishes its goal more quickly has an incentive to exit the alliance or at a minimum to reduce its knowledge sharing section three types of strategic Alliance there are three major types of strategic alliances type One non-equity alliances a non-equity strategic Alliance is when two companies become strategic Partners on a contractual basis the two companies pool resources and share core competencies on a contractual basis without making a direct Financial investment in each other it is the most popular type of Alliance examples of non-equity alliances include Supply agreements distribution agreements and Licensing agreements as suggested by their names these contractual Agreements are vertical strategic alliances connecting different parts of the industry value chain in a non-equity Alliance firms tend to share explicit knowledge patents user manuals fact sheets and scientific Publications are all ways to capture explicit knowledge which concerns the notion of knowing about a certain process or product because of their contractual nature non-equity alliances are flexible and easy to initiate and terminate however because they can be temporary they also sometimes produce weak ties between the alliance Partners which can result in a lack of trust and commitment type two Equity alliances in an equity Alliance at least one partner takes partial ownership of the other partner Equity alliances are less common than contractual non-equity alliances because they often require larger Investments because they are based on partial ownership rather than contracts Equity alliances are used to Signal stronger commitments moreover equity alliances allow for the sharing of tacet knowledge knowledge that cannot be codified tacet knowledge concerns knowing how to do a certain task it can be acquired only through actively participating in the process therefore in an equity Alliance the partners frequently exchange Personnel to make the acquisition of tacet knowledge possible an example of an equity strategic Alliance is Tesla's relationship with Panasonic their relationship began with a $30 million investment from Panasonic to accelerate Battery Technology for electric vehicles and grew to include building a lithium ion battery plant in Nevada sometimes Equity alliances are Stepping Stones toward full integration of the partner firms either through a merger or an acquisition the downside of equity alliances is the amount of investment that can be involved as well as a possible lack of flexibility and speed in putting together and reaping benefits from the partnership type three joint ventures a joint venture is a standalone organization created and jointly owned by two or more parent companies for example Hulu is jointly owned by NBC Disney ABC and fox since Partners contribute Equity to a joint venture they are making a long-term commitment the exchange of both explicit and tacit knowledge through the interaction of personnel is typical joint ventures are also frequently used to enter foreign markets where the host country requires such a partnership to gain access to the market in exchange for advanced technology and knowhow in terms of frequency joint ventures are the least common of the three types of strategic alliances the advantages of joint ventures are the strong ties trust and commitment that can result from the partners however they can entail long negotiations and significant Investments if the alliance doesn't work out as expected undoing the joint venture can take some time and involve considerable cost a further risk is that knowledge shared with the new partner could be misappropriated by opportunistic Behavior finally any rewards from the collaboration must be shared between the partners ERS section four Alliance Management although alliances appear to be necessary to compete in many Industries 70% of all strategic alliances do not deliver the expected benefits and are considered failures by at least one Alliance partner given the high failure rate effective Alliance Management is critical to gaining and sustaining a competitive Advantage especially in high technology Industries here are several principles about Alliance Management from McKenzie and Company principle number one establish a clear Foundation it seems obvious that partner companies would strive to find Common Ground from the start however in a rush to complete the deal discussions about common goals often get overlooked this is especially true in strategic alliances within an industry where everyone assumes that because they are operating in the same sector they are already on the same page by skipping this step companies increase the stress and tension placed on the partnership and reduce the odds of its success principle number two nurture the relationship even business relationships that start solidly can erode given individual biases and common communication and collaboration issues there are several measures Partners can take to avoid these traps First Connect socially if Executives in partner organizations actively look for opportunities to understand one another good collaboration and communication at the operations level are likely to follow second keep everyone in the loop skipping the step of keeping everyone informed can create unnecessary confusion and rework for partner organizations third recognize each other's capabilities cultures and motivations Partners come together to take advantage of complimentary geographies corresponding sales and marketing strengths or compatibilities in other functional areas but it is important to understand which partner is best at what in addition it is also important to understand each partner's motivation behind the deal fourth invest in tools processes and Personnel bringing different business cultures together can be challenging given Partners varying communication Styles and expectations companies can use a range of tools such as Financial models key performance indicators playbooks and portfolio reviews to help bridge the gaps principle number three emphasize accountability and metrics good governance is the Lynch pin for successful Partnerships as such senior Executives from partner organizations must remain involved in oversight of the partnership Additionally the partners must define success for their operations teams what metrics will they use to determine whether they have hit their goals and how will they track them some companies have built responsibility matrices others have used detailed process Maps or project stage gates to clarify expectations timelines and critical performance measures principle number four build a dynamic partnership partner organizations must acknowledge that the scope of of the relationship is likely to shift over time this will be the case whether the partners are in a single or multi-asset Venture expect that services will be shared anticipate expansion or have any Geographic regulatory or structural complexities accepting the inevitable will encourage Partners to plan more carefully at the outset partners should also consider the potential for restructuring during the negotiation process ideally framing the potential endgame for the relationship such dialogues about the partnership's future while potentially stressful should be conducted regularly at least annually section five real world examples here are three real world examples of strategic alliances number one BMW and LS Von despite being in different Industries lisis vuon and BMW are both exclusive luxury Brands focused on craftsmanship those who can afford a BMW vehicle can probably also afford a Louis Bone bag because of their shared audience values the two Brands partnered up to create a collection of Louis vuon bags custom made to pair with the BMW i8 sports car the lwis Buton bag set may have retailed for a whopping $20,000 but that's a reasonable price for someone who may also be in the market for a car worth over $135,000 number two Red Bull and GoPro in 2012 Red Bull partnered with GoPro to support a record-breaking skydive from a balloon Red Bull sponsored the dive and the skydiver wore a GoPro camera to capture it the Red Bull and GoPro strategic partnership is so successful because the brands have similar adrenaline seeking audiences thanks to this strategic Alliance both Brands now have an even stronger association with high level Thrills number three Starbucks and Target as soon as you walk into Target you can easily find a Starbucks close to the entrance Target and Starbucks know their brands share a similar audience busy Shoppers looking for affordable luxuries and a quick escape from the everyday this strategic Alliance was formed back in 1999 and is still going strong we see thousands of Target stores hosting Starbucks cafes to help fuel people's Target runs and Target customers know if they get hungry or thirsty during a shopping trip Starbucks has them covered right in the store all right that's all for today's topic so what do you think about the Strategic Alliance do you have any related experience or story willing to share please leave your thoughts in a comment below I hope that you guys have enjoyed this video and if you did make sure you give it a thumbs up and subscribe to my channel thanks for watching and I will see you next time