What is a strategic alliance?

A strategic alliance is an agreement between two or more independent organizations that agree to share resources to undertake a specific, mutually beneficial objective. The strategic alliance is akin to partnership project, the relation fall short of legally banded partnership. The agreement may be formal or informal in nature, but each party’s responsibilities must be flawless to work toward common or correlating goals. The activities may be compared to joint venture activities where two organizations typically pool resources to create a separate business entity. However, unlike joint venture, in strategic alliance each entity remains separate entity while pursuing mutually benefice objectives.

The advantage of strategic alliance is it provides additional knowledge shared by each other alliance partners, cost benefit on sharing expenditure on research and product development, with less risk in investment. It brings alliance partners the benefits of ‘decrease in product lead times and life cycle. It helps to organizations to expand into a new market or develop an advantage over the competitors. The main disadvantage strategic alliance is that the alliance requires informing one party of the other party’s proprietary information; hence in long term the partners become dependent on each other. It may turn out to be disadvantage to a party that becomes dependent upon the other party for the product when the dependence becomes one sided.

Example of strategic alliance in banking sector is the three mid-sized public sector banks viz. Indian Bank, Corporation Bank and oriental bank of commerce have entered into ‘strategic alliance in 2006.